SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended March 31, 1999.
COMMISSION FILE NUMBER 1-13588
THE WIDECOM GROUP INC.
(Exact Name of Small Business Issuer as specified in its Charter)
ONTARIO, CANADA 98-0139939
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
72 DEVON ROAD, UNIT #18, BRAMPTON, ONTARIO, CANADA L6T 5B4
(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
Title of each class on which Registered
------------------- ---------------------
COMMON STOCK, PAR VALUE $.01 PER SHARE BOSTON STOCK EXCHANGE
WARRANTS TO PURCHASE COMMON STOCK BOSTON STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
Name of each Exchange
Title of each class on which Registered
------------------- ---------------------
COMMON STOCK, PAR VALUE $.01 PER SHARE NASDAQ SMALLCAP MARKET
WARRANTS TO PURCHASE COMMON STOCK NASDAQ OTCBB
Indicate by check mark whether Widecom (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 Widecom
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 there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B is not contained in this form, and
no disclosure will be contained, to the best of Widecom's knowledge, in
definitive proxy or information statements incorporated by reference in
Part III of this Form 10-KSB or any amendment to this
Form 10-KSB.
Widecom's revenues for its most recent fiscal year were $3,075,609.
The aggregate market value of the voting and non-voting common equity held
by non-affiliates of Widecom based upon the closing sale price of Widecom's
common stock on the Nasdaq SmallCap Market as of March 31, 1999 and June
29, 1999, respectively, was approximately $4,912,450 and $ 19,431,923.
The number of shares outstanding of Widecom's common stock as of March 31,
1999 and June 29, 1999 was 2,068,400 and 2,205,041 shares respectively.
All references to "dollar" or "$" in this Annual Report are to United
States dollars.
PART I
Item 1. Description of Business
THE WIDECOM GROUP INC. ("Widecom")
- ----------------------------------
Widecom was incorporated in Ontario, Canada in June 1990. We design,
assemble 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. Our products include
a 36" wide format scanner, a 36" wide format copier and a 36" wide format
plotter/printer. We also market a Modular Digital Multi-Function Unit which
incorporates a scanner module, a 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. We
have only recently commenced commercialization activities which, to date,
have resulted in limited product sales.
We design our document management 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. We also market our products for
use by manufacturers in the garment, woodworking and graphic arts
industries, utilities and government agencies and for applications in
newspaper and advertising industries. Although our product markets are
highly specialized and although we have not conducted any formal market
studies as to the potential demand for wide format document systems, we
firmly believe that the world-wide market for wide format document systems
is emerging as a result of increasing demand for systems which can more
efficiently scan, copy, print, transmit, receive and archive wide format
documents. Our products will provide attractive alternatives to traditional
methods used to permit multiple consumers in different locations to view
wide format documents. We believe our products are more time and cost-
efficient than outmoded methods such as overnight couriers delivering
copies of a document or microfiche reproduction.
On October 2nd, 1996, Widecom formed a research and development consortium
known as 3294340 Canada Inc., operating as Technologies NovImage
("NovImage"), with an economic development agency of the Province of
Quebec. Our primary research and development activities are now conducted
through NovImage, which activities are expected to qualify for partial
funding from governmental agencies.
PRODUCTS
Widecom SLC936-C Color Scanner
The SLC936-C is a wide format scanner capable of scanning documents up to
36" wide. Our new 24 bit scanners are available in color and monochrome
models and offer SCSI interfacing with personal computers to enable the
user to scan images into the personal computer for display, editing and
archiving. First generation scanners were able to process monochromatic
images only. The second-generation SLC436-C, introduced in May 1996,
represented our first low-cost wide format color scanner capable of
scanning 36" by 48" documents at a resolution of 400 dpi in under thirty
seconds for monochrome images, and under eight minutes for full color
images.
The new SLC936-C and SLC936+ monochrome scanner were introduced in late
1998 and possess interpolated resolution capabilities of up to 900 dpi.
These products offer high speed, high quality scanning capacity to GIS,
EDMS, Reprographic and graphic arts applications with high fidelity to
complex originals. The SLC936 Series offer a four times faster throughput
speed than the previous SLC436 and SLC836 models.
Our scanners incorporate our "single line contact" technology to capture
the image of a wide format document. The contact scanner consists of a 36"
fiber optic array, 8mm "image sensor chips" aligned to create a 36" length
light sensor, a 36" light emitting diode ("LED") array and software
designed to enhance the scanned image by removing deteriorations from the
document being reproduced and interface the scanner with a personal
computer. The fiber optic array acts as a lens and focuses the image on the
image sensor chips which read the image. Because our image sensor chips
contain pixels larger than those of chips used in other scanners
manufactured by other companies, our contact scanners require less light
exposure and, therefore, operate faster than other scanners.
The software incorporated in the SLC936-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. Various enabling software packages permits our
SLC936-C scanner 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 that are only
capable of scanning documents up to 12" wide. 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 at the center as a result of the use of
multiple lenses, thereby limiting the reliability and usefulness of the
reproduced document. We believe that our single line contact scanner
technology and software enable our products to scan and reproduce such
documents with vastly improved clarity and accuracy.
SLC1036
We have adopted a vertical orientation in our products to facilitate a
greater spectrum of end user preferences and increase our market share.
During the last fiscal year, we introduced the 1036; a more advanced model
of our single line contact color scanner that is marketed along side our
936 machine. Capable of direct Scan-to-File and Scan-to-Print functions,
the 1036 has throughput of over 4 inches per second at 400 dpi resolution.
At the monochrome setting, our 1036 is capable of scanning a 36" x 48"
monochrome image in less than 12 seconds. The 1036 is twice as fast on
scans and output and is available for a 30% premium in price over our 936
models and at less than half of the price of the next fastest competitor's
scanner. The 1036 model offers an interpolated resolution up to 1000 dpi.
SLC972
We also announced ongoing development of our super wide format scanner, the
SLC972, a color and monochrome scanner capable of handling documents up to
six feet wide (72 inches)with thicknesses ranging up to 1/2". We
anticipate a significant performance and overall document capacity
advantage over similarly priced competitor models. We are now able to
address all of the tiers in the large format market including automotive,
aircraft and marine design applications. The 972 has scanning resolutions
of up to 900 dpi and is capable of direct interfacing with assorted
application specific software and functions well with most thermal ink-jet
printers/plotters. We expect to begin formal delivery of the 972 model as
early as this fall, and no later than the end of this fiscal year.
Widecom Plotter/Printer (WC 936P)
We introduced the WC436P, a plain paper plotter late in fiscal 1998 that was
designed to print an image at a speed of 2 inches per second. This was
replaced in January 1999 with the WC936P, which offered a SCSI computer
interface. The WC 936P incorporates our new print heads that enable the
plotter to print in increments of 400 dpi. This plotter is 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
traditional thermal plotter.
The WC 936P is a wide format plotter capable of printing a document up to
36" wide x 325' in length. Widecom's Plotter/Printer interfaces with a
personal computer to enable the user to print images directly from the
personal computer. The Plotter/Printer prints wide format documents on
various media including mylar, matte film and bond paper.
WIDECOM Modular Digital Multi-Functional Unit (WC 936 C/P)
The Widecom WC 936 C/P consists of a scanner module and a plotter/printer
module which are integrated into one unit. Together, these modules perform
scanning, printing and copying functions. The user of a Widecom scanner or
a Widecom Plotter/Printer can upgrade either machine to the unit by
purchasing and connecting the other module.
The unit features high speed, high quality printing, copying and scanning
at over two inches per second and with resolution at 400 dots per inch.
Indirect thermal printing using thermal transfer ribbons saves time and
money with increased uptime and productivity.
This new unit facilitates practical entry into the digital copier
environment for users with lower volume requirements and is extremely
compact in comparison to similar functioning products from other
manufacturers. This Widecom Copier/Printer incorporates original and copy
catch trays into its stand-alone set up and uses a single media roll. This
product has Windows and AutoCad compatible applications enabling digital
scanning and storage of color and monochrome images and production of
multiple copies, collated sets and image size control including reduction
and enlargement capabilities.
WIDECOM OEM Components
We manufacture our own scan and print heads that possess our proprietary
Contact-Sensor-Array technology and we are now making them available to
Original Equipment Manufacturers for use in their products. A 12" OEM scan
head was custom-developed by us for a specific departmental scanner
manufacturer to facilitate automated form processing. We expect to secure
additional OEM agreements for other product subassemblies created from all
or most of our core-level technologies.
Software and Accessories
We sell several software drivers for our products that may include third
party software libraries. We also sell accessories for use in connection
with our complete product line, including various types of paper and film
for the plotter/printers and the copiers. Sales of accessories have not
been material to date and are not expected to be material in the near
future.
At our annual shareholders meeting on January 27, 1999, our independent and
unrelated shareholders approved the acquisition of Diprin, Inc., an Ontario
corporation wholly owned by Widecom's President and Chief Executive
Officer, Mr. Raja S. Tuli. Diprin was acquired in exchange for 125,000
shares of Widecom's common stock. Diprin had been actively researching and
developing portable photo-printer technology for which a patent application
is currently pending. We believe that the cost of this technology is
extremely low in comparison to the potential revenues to be derived from
potential sales of the portable photo-printer and additional potential
revenue from consumables that will be marketed along with the product.
MARKETING AND SALES
Our primary marketing strategy is to sell our 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. We also market our
products for use by manufacturers in the garment industry, utilities and
government agencies and applications in the newspapers and advertising
industries. We believe that our 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.
We have established strategic marketing relationships by engaging
independent distributors and dealers to market our products in various
regions throughout the United States and in foreign markets. As of March
31, 1999, we had arrangements with approximately 90 distributors, dealers
and sales agents (collectively, "distributors"), of which roughly 3/4 are
pursuant to written agreements. Our distributor agreements are typically
for a term of two to three years and grant the distributor the right to
market our products within a specified territory during the term of the
agreement.
We sell products to distributors at discounts when compared to end user
price of the products. These discounts rarely exceed 40 percent (%) of list
price and rarely approach 25 percent(%). For the years ended March 31,
1997, 1998 and 1999, our five largest distributors accounted for
approximately 49.9%, 43.1% and 20.3%, respectively, of our overall product
sales.
No single distributor represented more than 10% of our sales for our fiscal
year ended March 31, 1999. During the years ended March 31, 1997, 1998 and
1999, sales by distributors accounted for approximately 96.4%, 93.9% and
94.7%, respectively, of our product sales. We support our U.S. and
international distribution channels through four regional sales managers
that are all presently located in the U.S and Canada.
A substantial portion of our sales has been made to foreign markets,
primarily to Europe, the Middle East and Asia. The following table sets
forth, for the periods indicated, the amount of our sales by geographic
region, expressed as a dollar amount and as a percentage of product sales
for such periods:
REGIONAL SALES BREAKDOWN
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------------------------------------------
1997 1998 1999
----------------- ----------------- -----------------
REGION AMOUNT % AMOUNT % AMOUNT %
- ------ ------ --- ------ --- ------ ---
<S> <C> <C> <C> <C> <C> <C>
United States $ 467,766 28 $1,246,270 43 $1,338,704 52
Middle East 346,595 21 312,042 11 200,711 8
Asia 266,345 16 322,685 11 583,077 23
Europe 475,551 28 686,478 24 241,708 9
Canada 122,676 7 322,968 11 211,735 8
---------- --- ---------- --- ---------- ---
Total $1,678,933 100% $2,890,443 100% $2,575,935 100%
========== === ========== === ========== ===
</TABLE>
WARRANTY, SERVICE AND MAINTENANCE
We offer a 90-day limited warranty, which can be extended for a term of up
to one-year, covering the workmanship and parts. During the term of the
warranty of products sold directly by Widecom, we will repair our products
and if necessary, replace parts that become defective due to normal use.
During the term of the warranty of products sold by distributors, we will
replace parts that become defective due to normal use and the distributor
is responsible for servicing the product.
We provide a warranty to distributors for a period expiring on the earlier
of twelve months following the distributor's purchase of the product and
three months following the distributor's sale of the product. We train our
in-house service engineers and certain distributors to enable them to
service and maintain our products.
We also operate a toll-free telephone line during normal business hours to
respond to distributors and user inquiries about the operation, service and
maintenance of our products. We operate and monitor an "E-mail box" which
distributors and users can access to receive such assistance.
MANUFACTURING
We subcontract certain manufacturing operations, such as the production of
our proprietary 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. We
believe that alternative sources of supply for all of our components and
custom parts are readily available on commercially reasonable terms. We do
not maintain supply agreements with any of our suppliers or subcontractors
and purchase components and custom parts pursuant to purchase orders in the
ordinary course of business. Most of the components are acquired in the
United States and shipped to our manufacturing facility in a free trade
zone in India. Quality control and adjustments are also conducted at our
Indian facility.
While we assemble our products in-house, we will need to increase our
manufacturing capabilities in the event of any increased product demand.
There can be no assurance that we will succeed on commercially reasonable
terms, in a timely manner, or at all.
COMPETITION
The markets for document systems are characterized by intense competition.
We believe our products compete on the basis of resolution, quality, speed,
price and the quality of our distribution channels.
We compete with numerous well-established foreign and domestic companies
that market or are developing wide format document systems. Our competitors
include Contex Corporation, Vidar Systems Inc., Oce and Anatech Corporation
in the market for wide format scanners; Calcomp Corporation, Hewlett
Packard Company, Oce and Mutoh Corporation in the market for wide format
plotters and Xerox, Katsuragawa Company and Oce in the wide format printer
and copier market.
We also suspect that other companies that manufacture and sell standard
copiers, scanners and plotters could develop, without significant delay,
wide format document systems directly competitive with our products. Many
of these companies possess substantially greater financial, technical,
marketing and personnel resources than Widecom. In addition, these
companies also 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 to respond to competitors and enter new markets.
In addition, the markets for our products are characterized by rapidly
changing technology and evolving industry standards, often resulting in
product obsolescence or shortened product lifecycles. As a result, our
ability to compete may be dependent upon our ability to continually enhance
and improve our products, to complete development of and introduce into the
marketplace in a timely manner our proposed products and to successfully
develop and market new products. There can be no assurance that we will be
able to compete successfully, that competitors will not develop
technologies or products that could render our products obsolete or less
marketable or that we will be able to successfully enhance our existing
products or develop new products to continue to compete.
RESEARCH AND DEVELOPMENT
In October 1996, Widecom formed a research and development consortium named
Technologies NovImage with Innovatech, an economic development agency of
the Province of Quebec. We are now conducting all of our research and
development activities at that facility (see "Certain Transactions), which
activities are expected to continue to qualify for partial funding from
governmental agencies. The research and development activities conducted by
NovImage on our behalf are primarily focused on plotter, scanner and copier
technologies.
The plotter research at NovImage is concentrated in two areas: i)developing
a high speed, high quality wide format color plotter/printer and
ii)improving printer resolution and developing thermal transfer mechanisms
for incorporation into the plain paper plotter, including color printing
capabilities. Scanner research is presently focused on the development of
color scanning capabilities and the enhancement of scanner image quality.
NovImage has completed development of a color-scan chip intended to be
incorporated into a future model scanner to provide color scanning
capabilities at speeds of under 30 seconds compared to approximately eight
minutes with earlier generation scanners. This new chip is designed to
combine four image sensor chips to read the primary colors (magenta, cyan
and yellow) and black. As a result, the 1036 scanner is expected to be able
to function both as a color scanner and as a monochrome scanner.
INTELLECTUAL PROPERTY
Widecom relies upon proprietary know-how and employs various methods to
protect the ideas, concepts and documentation of our proprietary
technology, which methods includes, but is not limited to, nondisclosure
agreements with its employees and distributors. However, such methods may
not afford complete protection and there can be no assurance that our
competitors or customers will not be able to independently develop such
know-how or otherwise obtain access to our know-how, ideas, concepts and
documentation. We presently hold one patent and have filed several other
patent applications relating to certain aspects of our technology.
There can be no assurance, however, that any further patents will be issued
to us or, if issued, that such patents would afford us any competitive
advantage. In any event, there can be no assurance that future patents, if
any, could not be circumvented or otherwise invalidated.
In addition, certain aspects of the technologies embodied in our products
are generally available to other manufacturers. We are not presently aware
of any infringement on the proprietary rights of others in any of our
products, however, we have not conducted any formal investigation as to any
possible infringement(s). There can be no assurance that third parties
will not assert infringement claims against us in connection with our
products, nor that any assertion of infringement will not result in
litigation.
We are also unable to speculate as to our chances for success in the event
of any infringement-related litigation or our potential ability to license
any infringed patents of third parties on commercially reasonable terms, or
at all. If our technologies were found to infringe another party's rights,
we could be required to modify our products or obtain a license. There can
be no assurance that we would be able to do so in a timely manner, upon
acceptable terms and conditions, or at all, or that we would have the
financial or other resources necessary to successfully defend a claim for
the violation of proprietary rights.
We have licensed our patents (both pending and approved), trademarks,
copyright material and all of our technology relating to its scanner and
plotter manufacturing technology and software (collectively, the
"Intellectual Property") to NovImage for research and development purposes.
NovImage is attempting to develop improvements, modifications, additions or
alterations to that Intellectual Property and to develop new products. In
exchange for this license and the payment of a 0.5% royalty fee on net
revenue, licensing revenue and net sales to sub-licensees, NovImage granted
us an exclusive perpetual worldwide license (with the exception of the
Province of Quebec, Canada). This license allows us to use such improved
scanner and plotter technology and software to manufacture, distribute,
market and sell the improved scanner, plotter and software, and any new
products developed by NovImage. NovImage retained such rights with respect
to the Province of Quebec, Canada. We have no other restrictions on our
sales and marketing activities in Quebec. Please refer to "Certain
Transactions".
We have not yet formally filed for copyright protection of our software and
may not pursue such activities in the future. We hold a registered
trademark with the United State Patent and Trademark Office.
EMPLOYEES
As of March 31, 1999, our North American operations had 15 full-time
employees, including sales staff and administrative personnel. We also
employ 162 people at a manufacturing facility in India and work with our
wholly owned Indian subsidiary. Neither Widecom nor our subsidiary is a
party to any labor agreements and none of our employees are represented by
a labor union. At present, we believe our employee relations to be
satisfactory.
Item 2. Description of Properties
In February 1996, we purchased property in the Noida Export Processing Zone
near New Delhi, India (the "Free Trade Zone") for approximately $67,500 and
are building a manufacturing facility of approximately 24,000 square feet
with estimated construction costs of approximately $500,000. Clean-room
facilities and other special infrastructure within the building are
estimated to cost an additional $200,000 by completion. We expect to
complete the project in the next fiscal year.
We lease 3,000 square feet at 72 Devon Road, Unit #18, Brampton, Ontario,
Canada, under to a two (2)-year lease entered into in 1998, 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 $23,358 and $15,200,
respectively. Upon completion of construction of Widecom's new
manufacturing facility we intend to transfer the majority of our
manufacturing operations to the new facility.
In addition, we currently lease a sales office at a monthly rent of $1,000
in Santa Rosa, California and a sales and service facility in Pittsburgh,
Pennsylvania, at a monthly rent of $2,300. The current annual rental rates
of these facilities are approximately $12,000 and $27,600 respectively and
$39,600 in the aggregate.
Although we believe that our present facilities are adequate for our
current level of operations, we will likely need to increase our
manufacturing capabilities in the event of any increased demand for our
products.
Item 3. Legal Proceedings
In December, 1996, two individuals filed a lawsuit seeking 60,000 shares
and 40,000 warrants. This action has been formally dismissed. An
additional three (3) shareholders have also commenced related litigation,
alleging purchases of our securities from the previously noted two
individuals, who are named as co-defendants. We have filed and received
default judgments on our cross-claims against the two individual co-
defendants. The total number of shares of common stock claimed under these
suits is less than 15,000.
On or about February 27, 1997, plaintiff Brett Whiton commenced an action
on behalf of himself and a class against Widecom, Raja S. Tuli and
Suneet S. Tuli. The action was settled, along with two substantially
similar class actions. In consideration of the settlement, Widecom agreed
to issue one replacement warrant for each warrant held by the class members
on February 10th, 1997 and sold by the members prior to the close of
business on March 5th, 1997. The number of warrants for this arrangement
was 94,677 and have been replaced by the issuance of 109,466 shares of
common stock pursuant to the amended settlement agreement approved in the
spring quarter of fiscal 1999.
Another shareholder's action commenced on or about March 10, 1997, in the
Superior Court of the State of California was resolved by an initial
transfer of 37,500 shares to the plaintiffs, which was ratified by our
board of directors in November, 1997. A final issuance of 18,748
additional shares occurred in May, 1999.
In April, 1998, we resolved an assessment proceeding with a former law firm
with respect to disputed bills relating to services rendered prior to our
initial public offering in December 1995. In July, 1998, we also resolved a
lawsuit with a former accounting firm with respect to disputed invoices
relating to services rendered prior to our initial public offering in
December 1995.
In March, 1999, we resolved an outstanding account with an additional
former law firm with respect to disputed bills relating to services
rendered in furtherance of litigation proceedings arising out of our
initial public offering.
Widecom has been served with legal papers claiming breach of contract under
two specific joint venture and development agreements to use and distribute
various iterations of software components, which the claimant alleges is
its sole property. The action claims damages for breach of contract and
copyright and trademark infringement. The claim seeks a total of $15.85M
in damages and is currently pending in the Superior Court of Justice of the
Province of Ontario. We believe we have meritorious defenses to these
allegations and that settlement options also remain viable. The action is
presently scheduled for mediation in the fall of 1999.
We are also involved in a number of small litigation matters relating to
disagreements with certain of our suppliers, which are currently pending and
being handled by our in-house counsel. These matters are neither
significant nor material.
Item 4. Submission of Matters to a Vote of Security Holders
On January 27, 1999, an annual shareholders meeting was held wherein, via
proxy vote or otherwise, a majority of our shareholders approved four
specific resolutions detailed as follows:
1) Approval of a one for four 1:4 reverse split of our common stock;
2) Approval of the acquisition of Diprin Inc., an Ontario Corporation
wholly owned by one of our principals (with abstention of all related
Board members and all related parties);
3) Approval of the re-election of Raja S. Tuli, Suneet S. Tuli, Lt. Col.
K.C. Sharma, Dr. Ajit Singh, and Bruce D. Vallillee to our Board of
Directors;
4) Approval of a proposal to conduct a private placement to raise
capital funds.
<TABLE>
<CAPTION>
Matter Votes Votes Votes Votes
Voted Upon For (1) Against (1) Withheld (1) Abstained (1)
- ---------- ------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Reverse Stock Split 6,582,826 228,392 -- 14,574
Acquisition Of Diprin 1,599,075 192,492 1,806,093 1,911,890
Election of Directors:
Raja S. Tuli 6,582,826 -- 140,601 --
Suneet S. Tuli 6,584,826 -- 138,601 --
K.C. Sharma 6,584,826 -- 138,601 --
Ajit Singh 6,582,826 -- 140,601 --
B. Vallillee 6,584,826 -- 140,601 --
Private Placement 3,547,327 146,556 1,806,093 9,574
<FN>
<F1> All above tabulations do not include the reverse stock split.
</FN>
</TABLE>
No other matters were submitted to a vote of our security holders during
our fiscal year ended March 31, 1999.
PART II
Item 5. Market For Common Equity and Related Stockholder Matters
Widecom's common stock is quoted on the Nasdaq SmallCap Market and Boston
Stock Exchange under the symbols "WIDE" and "WDE", respectively. Widecom's
warrants are traded on OTCBB and Boston Stock Exchange as "WIDWF" and "WDEW",
respectively. The table below represents the quarterly high and low closing
prices for our common stock and warrants as reported through March 31, 1999
and June 29, 1999. The prices listed in this table reflect quotations
without adjustment for retail mark-ups, mark-downs, or commissions. We have
not paid any cash dividends since inception, and intend to retain earnings,
if any, in the foreseeable future for use in our continued expansion. The
approximate number of registered holders of record of our common stock and
warrants at March 31, 1999 was 65 and 14. Our advisers firmly believe that
the actual number of beneficial holders of our common stock and warrants is
in excess of 500.
<TABLE>
<CAPTION>
COMMON STOCK WARRANTS
---------------- ---------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
1995
Fourth Quarter (as of 12-18-95) $26 $20 $14 $ 6
1996
First Quarter (Jan.1-Mar.31/96) 49 1/2 19 1/2 36 10
Second Quarter (Apr.1-Jun.30/96) 53 30 1/2 36 18
Third Quarter (July 1-Sept.30/96) 45 1/2 32 1/2 28 15 1/2
Fourth Quarter (Oct.1-Dec.31/96) 40 26 25 13 1/2
1997
First Quarter (Jan.1-Mar.31/97) 45 1/2 13 28 1
Second Quarter (Apr.1-Jun.30/97) 18 1/2 7 7 2 1/2
Third Quarter (Jul.1-Sept.30/97) 15 1/2 7 4 1 3/4
Fourth Quarter(Oct.1-Dec.31/97) 10 3 1/2 3 3/4 1 1/2
1998
First Quarter (Jan.1-Mar.31/98) 7 2 1/2 1 1/2 1/2
Second Quarter (Apr.1-June 30/98) 4 1/2 2 1/2 1/2 1/2
Third Quarter (July 1-Sept.30/98) 2 1/2 * *
Fourth Quarter (Oct.1-Dec.31/98) 1 7/8 15/16 * *
1999 (1:4 Reverse Split-January 29/99)
First Quarter (Jan.1-Mar.31/99) 2 3/4 1 1/4 * *
Second Quarter (Apr.1-June 30/99) 10 1/2 1 1/4 2 1/8
<FN>
(* = Not Traded during the given quarter)
</FN>
</TABLE>
During fiscal 1999, Widecom's shareholders approved the engagement of Robb
Peck McCooey Clearing Corporation, Cantella & Associates and Quantum
Resources, Inc., three related financial services companies, to conduct a
private offering of our securities to raise funds for investment in
Widecom. The securities offered consisted of units, through which each
investor subscribed for 10,000 shares of our common stock. Ten units were
sold during fiscal 1999 and the closing for an additional 0.5 units
occurred after the fiscal year end. In total, 95,000 shares of common
stock were issued through the offering during fiscal 1999 and an additional
5,000 shares of common stock were issued in the first quarter of fiscal
2000. All placement agents are entitled to warrants for the purchase of
50,000 shares of our common stock at an exercise price of $1.20.
SELECTED FINANCIAL DATA
STATEMENT OF EARNINGS DATA:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Total Revenue $1,820,713 3,053,804 3,075,609
Product Sales 1,678,933 2,890,443 2,575,935
R & D grants -- 24,567 479,821
Total Expenses 5,673,672 5,487,826 4,708,600
Net Earnings/(Loss) (4,550,930) (3,335,865) (2,244,351)
Net Earnings (loss) per share (3.96) (2.36) (1.28)
Weighted average shares
outstanding 1,133,396 1,416,047 1,749,386
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
MARCH 31,
--------------------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Working Capital $ 1,818,883 $ 1,429,046 229,470
Total Assets 6,925,187 5,651,190 4,278,216
Total Liabilities 1,681,884 1,414,246 1,970,893
Retained earnings(deficit) (5,312,118) (8,647,983) (10,892,334)
Shareholders' equity 5,243,303 4,236,944 2,307,323
</TABLE>
Item 6. Management's Discussion and Analysis or Plan of Operation
OVERVIEW
Since our inception, we have generated limited revenues from operations and
have not yet achieved significant profitability. Our revenues are primarily
derived from product sales that are recognized for accounting purposes when
products are shipped.
Commercialization of our WC series copier systems late in fiscal 1998 had
only a small material impact on our revenues for the fiscal year 1999.
During the year, sales of printers and scanners were $618,224(24%) and
$1,957,711(76%) respectively.
Widecom's Selling, General and Administration infrastructure was set up to
service our full product line of monochrome and color scanners, monochrome
and color printers and monochrome and color copiers. Neither our color
printer nor color copier has yet been commercialized and the latest
monochrome printers and copiers had only a small material impact on
revenues. Although we anticipate a return to profitability upon the
introduction of our full extended product line, there is no assurance that
we will be able to successfully develop and commercialize these products.
We are aware of the potential year 2000 or "Y2K" problem. We have reviewed
our computer software and hardware, which are critical to our operations
and preparation of our financial statements, and have made plans for
action, as required, prior to the year 2000, to avoid significant errors in
our accounting records and any adverse effects on business operations.
GOVERNMENT SPONSORED PROGRAMS
During 1997, a change in Canadian Tax legislation substantially reduced the
amount of subsidy available on Research and Development performed by
publicly traded companies. Subsidies of this nature have represented a
substantial portion of our revenue in the past. As noted in Part I, our
research and development is conducted by Technologies NovImage whose nature
entitles us to receive grants in excess of 40% of qualified research
expenditures. Products derived from the research are then licensed back to
us at a nominal royalty of 0.5% of sales of those products. The formation
of NovImage allows us to obtain a substantial increase in the amount of
research that can be performed.
IMPACT OF CURRENCY EXCHANGE RATES
We conduct a substantial portion of our 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 our 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 our operating
results in the future. We may seek to limit our exposure to the risk of
currency fluctuations by engaging in foreign currency transactions that
could, however, expose us to substantial risk of loss. We have limited
experience in managing international transactions and have not yet
formulated a strategy to protect us against currency fluctuations. There
can be no assurance that fluctuations in foreign currency exchange rates
will not have a significant impact on our future operating results.
RESULTS OF OPERATIONS
Certain statements contained herein constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995
(the "1995 Reform Act"). Widecom desires to avail itself of certain "safe
harbor" provisions of the 1995 Reform Act and is therefore including this
special note to enable us to do so. Forward-looking statements included in
this Report on Form 10-KSB involve known and unknown risks, uncertainties,
and other factors which could cause our 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 statements. 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 our recent losses, our ability to develop and market
our product line, the establishment of commercial acceptance of our
products, need for additional capital, effects of competition and
technological changes and dependence upon key personnel.
RESULTS OF OPERATIONS
- ---------------------
YEAR ENDED MARCH 31, 1999 COMPARED TO YEAR ENDED MARCH 31, 1998
Revenues for the year ended March 31, 1999 were $3,075,609, an increase of
$21,805 or 0.7%, as compared to $3,053,804 for the year ended March 31,
1998. This increase was attributable to additional research and development
grants of $455,254, which were partially offset by a decrease in interest
income of $118,941.
Operating expenses for the year ended March 31, 1999 were $4,708,600, a
decrease of $779,226, or 14.2%, as compared to $5,487,862 for the year
ended March 31, 1998. Operating expenses also decreased as a percentage of
revenues from 179.7% for the year ended March 31, 1998 to 153.1% for the
year ended March 31, 1999. The decrease in operating expenses, both in
absolute dollars and as a percentage of revenues, is primarily attributable
to decreases in selling, general and administrative ("SG&A") costs.
The decrease in SG&A cost was primarily due to a leveling off of
expenditures and economies undertaken to effect savings as we continued
expansion of our distribution channel in the United States.
YEAR ENDED MARCH 31, 1998 COMPARED TO YEAR ENDED MARCH 31, 1997
Revenues for the year ended March 31, 1998 were $3,053,804, an increase of
$1,233,091, or 67.7%, as compared to $1,820,713.for the year ended March
31, 1997. This increase was attributable to an increase in product sales of
$1,211,510 and additional research and development grants of $24,567, which
were partially offset by a decrease in interest income of $2,986.
The introduction of the SCSI based SLC836 scanner in late March 1998
overcame compatibility problems that had been experienced from January to
March, 1998 with its previously proprietary computer interface and with
Intel Pentium II processors. This compatibility problem with the SLC 436
series scanners delayed sales in the last quarter of the company's fiscal
year.
Operating expenses for the year ended March 31, 1998 were $5,487,826, a
decrease of $185,846, or 3.2%, as compared to $5,673,672 for the year ended
March 31, 1997. Operating expenses also decreased as a percentage of
revenues from 311.6% for the year ended March 31, 1997 to 179.7% for the
year ended March 31, 1998. The decrease in operating expenses, both in
absolute dollars and as a percentage of revenues, is primarily attributable
to decreases in research and development expenditures and selling, general
and administrative ("SG&A") costs.
The decrease in research and development expenses was due to the formation
of the research and development consortium with the province of Quebec. The
decrease in SG&A cost was primarily due to a leveling off of expenditures
and economies undertaken to effect savings as we completed the
establishment of our distribution channel in the USA.
The costs of $309,375, incurred in connection with the settlement of a
Shareholders' lawsuit were costs that continued from the previous year
related to the settlement of suits arising from our warrant redemption in
February 1997. The increase in the equity loss in the joint venture is
offset by the decrease in research and development costs of $515,397.
LIQUIDITY AND CAPITAL RESOURCES
Our primary cash requirements have been to fund the acquisition of
inventories and to meet operating expenses incurred in connection with the
commercialization of our products. Until our initial public offering, we
had satisfied our working capital requirements principally through the
issuance of debt and equity securities, government sponsored research and
development grants and reimbursement and cash flow from operations. At
March 31, 1999, we had working capital of $229,470, as compared to
$1,429,046 at March 31, 1998.
Our cash requirements in connection with manufacturing and marketing will
continue to be significant. We do not have any material commitments for
capital expenditures. We believe, based on our currently proposed plans and
assumptions relating to its operations, projected cash flow from operations
will be sufficient to satisfy our contemplated cash requirements for the
foreseeable future. In the event that our plans or assumptions change, or
prove to be incorrect, or if the projected cash flows otherwise prove to be
insufficient to fund operations (due to unanticipated expenses, delays,
problems or otherwise), we could be required to seek additional financing
sooner than currently anticipated. There can be no assurance that this
additional financing will be available to us when needed on commercially
reasonable terms, or at all.
Item 7. Financial Statements
The following financial statements of The WideCom Group Inc. are included:
Report of Independent Chartered Accountants;
Consolidated Balance Sheets as of March 31, 1999, and 1998;
Consolidated Statements of Operations for the years ended March 31,
1999, 1998 and 1997;
Consolidated Statements of Shareholders' Equity for the years ended
March 31, 1999, 1998 and 1997;
Consolidated Statements of Cash Flows for the years ended March 31,
1999, 1998 and 1997;
Summary of Significant Accounting Policies; and
Notes to Consolidated Financial Statements.
Item 8. Change in Accountants
On June 15, 1999, our Board of Directors determined that it would be in
our best interests to cease our relationship with our independent
accountant and auditors, BDO Dunwoody, LLP, which acted as our independent
accountant and auditors with respect to the our financial statements for
the previous two fiscal years ended March 31, 1998.
The replacement of BDO Dunwoody, LLP was recommended and approved by our
Board of Directors and is not the result of any disagreement with BDO
Dunwoody, LLP on any matter of accounting principles or practice, financial
statement disclosure or auditing scope or procedure.
During the last two fiscal years no report issued by BDO Dunwoody, LLP
contained any adverse opinion or a disclaimer of opinion, or was qualified
or modified as to uncertainty, audit scope, or accounting principles. In
addition, during the last two fiscal years and subsequent periods, there
were no disagreements with BDO Dunwoody, LLP regarding accounting
principles, or practices, financial statement disclosure, or auditing scope
or procedure nor any dispute between us and BDO Dunwoody, LLP with respect
to Widecom's status as a "going concern."
Effective June 15, 1999, our Board of Directors determined that it would be
in our best interests to retain the services of Schwartz, Lewitsky,
Feldman, LLP to replace BDO Dunwoody, LLP as our independent accountant and
auditors. The firm will be auditing our financial statements to be
included our Form 10-KSB for our fiscal year ended March 31, 1999 due to be
filed with the Securities and Exchange Commission on or about July 14,
1999.
We intend to have Schwartz, Lewitsky, Feldman, LLP continue to serve as our
accountant and auditors for the fiscal year ending March 31, 2000.
During the last two fiscal years and subsequent periods, Widecom did not
consult with Schwartz, Lewitsky, Feldman, LLP regarding accounting
principles, or practices, financial statement disclosure, or auditing scope
or procedure or accounting principles applicable to any specific
transaction.
Part III
Item 9. Directors and Executive Officers of Widecom;
Compliance with Section 16(a) of the Exchange Act
Our directors and executive officers are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Raja S. Tuli 33 President, Chief Executive Officer and
Director
Willem J. Botha 63 Chief Financial Officer and Treasurer
Suneet S. Tuli 31 Executive Vice President, Secretary and
Director
Lt. Colonel K.C. Sharma 58 Director
Dr. Ajit Singh 58 Director
Bruce D. Vallillee 78 Director
</TABLE>
Our founder, Raja S. Tuli, has been President, Chief Executive Officer and
a director since Widecom's inception. From June 1990 to August 1993, Mr.
Tuli was also our Treasurer. 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 our Chief Financial Officer and Treasurer since
September 1993. From 1989 to September 1993, Mr. Botha was an independent
accounting consultant. From 1985 to 1989, Mr. Botha was employed by
Motorola Information Systems, a manufacturer of data communications
equipment, as its Director of Accounting Services. From 1982 to 1985, Mr.
Botha was an independent financial consultant. Mr. Botha was the Secretary
and Treasurer and a Director of Alcon Canada Inc., a pharmaceutical
company, from 1980 to 1982. From 1976 to 1980, Mr. Botha was the Controller
and Chief Financial Officer for Bell & Howell Limited, a manufacturer of
electronic photographic products, and from 1969 to 1976 Mr. Botha was the
Controller for Wyeth Ltd., a pharmaceutical company. Mr. Botha received a
Certificate in Theory of Accounting from the University of South Africa, is
a Chartered Accountant and a resident Canadian national.
Suneet S. Tuli has been Executive Vice President of Sales and
Marketing, Secretary since September 1993, one of our director's since
October 1992 and was our Marketing manager 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.
Lieutenant Colonel Kailash Chander Sharma is one of our independent
directors. Lieutenant Colonel Sharma is a well-respected citizen of India
and possesses a Masters Degree in Political Science from Delhi University.
Lt.Col. Sharma has a lengthy military background occupying several senior
posts with significant levels of responsibility including strategic
planning and public relations. Lt. Col. Sharma is proficient in government
organizational and regulatory matters and runs his own consulting company.
Dr. Ajit Singh has been a director of Widecom 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 to 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.
Bruce D. Vallillee has been a director of Widecom 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 our directors must be resident Canadians.
A resident Canadian is defined, generally, to be an individual who is (i) a
Canadian citizen ordinarily resident in Canada, (ii) a Canadian citizen not
ordinarily resident in Canada who is a member of a prescribed class of
persons, or (iii) a permanent resident within 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 is only one currently standing
committee of the Board of Directors, that being the Audit Committee chaired
by our chief financial officer. Officers are elected annually by the Board
of Directors and serve at the discretion of the Board.
None of our directors received any compensation for services
as a director during our fiscal year ended March 31, 1999. Directors who
are Widecom employees 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.
Item 10. Executive Compensation
The following table sets forth the compensation we have paid or accrued for
the benefit of those persons earning over $80,000.00 USD and serving as one
of our corporate officers for the year ended March 31, 1999:
1999 SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
--------------------------------
Salary Other Annual
Name And Commissions Compensation Total
- ---- --------------- ------------ -----
<S> <C> <C> <C>
Raja S. Tuli $ 5,849 9,310(1) $99,289(2)
(President & C.E.O.)
Suneet S. Tuli $34,551 7,980(1) $94,971(3)
Secretary, V.P.-
Sales & Marketing)
<FN>
<F1> Such amounts were paid as consulting fees by Widecom to a consulting
company owned by the respective officers of the company for the year
ended March 31, 1999.
<F2> Mr. Raja S. Tuli received shares of Widecom common stock in lieu of
cash compensation valued at $84,130.
<F3> Mr. Suneet S. Tuli received shares of Widecom common stock in lieu of
cash compensation valued at $52,440.
</FN>
</TABLE>
During the fiscal year ended March 31, 1997, we amended our Employee Stock
Option Plan that allows issuance of options to purchase up to 125,000
shares of Widecom's stock.
The Plan is designed to attract, retain and motivate persons to provide us
with services and to increase the alignment of their interests with those
of our Stockholders.
The Plan allows the Board, at its discretion, to grant options to purchase
shares of our Common Stock at the fair market value of such shares on the
date the option was granted. Options may be granted to any "Eligible
Person," including any of our directors, officers, employees or those of
an affiliate, or any of our consultants or insiders (as defined in the
Plan)of any of our affiliates. The Board also has the authority under the
Plan to determine the number of shares subject to each option, the
expiration date of each option and the extent to which each option is
exercisable from time to time during its term.
The options will expire ten years after the date they are granted, or at
such other date as may be provided for in the Plan. Individual option
agreements may allow an optionee who retires or terminates service with the
consent of the Board of Directors to exercise his or her option within six
months of such retirement or termination. If the optionee is terminated for
cause, the optionee may not exercise the option following such termination.
The present exercise price of those options is $8.50 USD.
An aggregate of 125,000 shares of Common stock (subject to adjustment
as provided in the Plan) were available under the Plan and such shares
subject to options which terminate unexercised will be available for future
option grants. At present, all of the employee stock options available
under the plan are fully allocated.
Item 11. Security Ownership of Management and Certain Beneficial Owners
The following table sets forth, as of March 31, 1999, information as to (i)
the Common Stock beneficially owned by all directors, nominees and named
executive officers and (ii) the Common Stock beneficially owned by any person
who is known by us to be the beneficial owner of more than five percent of
our Common Stock.
<TABLE>
<CAPTION>
Amount and
Nature of Percentage of
Name and Address Beneficial Outstanding
of Beneficial Owner (1) Ownership (2) Shares Owned
- ----------------------- ------------- -------------
<S> <C> <C>
Raja S. Tuli 499,627(3) 24.16%
Lakhbir S. Tuli 256,565 12.40
Suneet S. Tuli 201,399(4) 9.74
Dr. Ajit Singh -- --
Bruce Vallillee -- --
Willem J. Botha -- --
All executive officers and
directors as a group (six persons) 957,591(2)(3)(4) 46.30%
<FN>
<F1> Unless otherwise indicated, the business address of each beneficial
owner is 72 Devon Road, Unit #18, Brampton, Ontario, Canada, L6T 5B4.
<F2> 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.
<F3> Includes (i) 50,000 Common Shares issuable upon exercise of currently
exercisable options at a price of $8.50 per share and 12,500 shares
issuable upon exercise of currently exercisable warrant at a price of
$8.50 per share, and (ii) 8,125 shares owned by Diversified Investors
Capital Services of North America, Inc., a New York corporation,
16,875 shares owned by Pyrotech Limited, a Cayman Islands
corporation, and 1,223 shares owned by Donald J. Schattle,
respectively, as to which Mr. Tuli has voting rights pursuant to a
stock exchange agreement.
<F4> Includes 12,500 Common Shares issuable upon exercise of currently
exercisable options at a price of $8.50 per share and 12,500 Common
Shares issuable upon exercise of currently exercisable warrant at a
price of $8.50 per share.
</FN>
</TABLE>
Item 12. Certain Relationships and Related Transactions
In November 1995, we entered into an indemnification agreement
with Raja Tuli, Suneet Tuli, Lakhbir Tuli and the Whale Securities Co.,
L.P., the underwriter of our initial public offering ("Whale") pursuant to
litigation commenced by Mr. Sam Debs. In February 1996, we settled the Debs
litigation for $185,000. In connection therewith Raja Tuli, Suneet Tuli and
Lakhbir Tuli each contributed 1,842, 940 and 1,240 shares, respectively, to
Widecom to be held as treasury stock.
As of January 30, 1997, we announced that we had finalized a joint venture
agreement with Societe Innovatech du Grand Montreal, an instrumentality of
the Province of Quebec, Canada ("Innovatech"). Each of Widecom and
Innovatech purchased 450 shares of the Class A Common Stock of NovImage
Inc., a Quebec corporation ("NovImage") for a purchase price of
approximately US $1,875,000 each. The consideration we paid for the stock
of NovImage was in cash and was derived from our 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, our President and Chief Executive Officer,
each acquired 50 shares of the Class A Common Stock of NovImage in exchange
for the transfer to NovImage of certain patents, patent applications and
other technology and intellectual property rights of those companies.
In connection with the transaction, we licensed all of our patents,
software and technology relating to our scanner and plotter manufacturing
to NovImage for research and development purposes in order to develop
improvements, modifications, additions or alterations to the Intellectual
Property and to develop new products.
In exchange for this license and the payment of a 0.5% royalty fee on net
revenue, licensing revenue and net sales to sub-licensees, NovImage granted
us an exclusive perpetual worldwide (with the exception of the Province of
Quebec, Canada) license to use such improved scanner and plotter technology
and software to manufacture, distribute, market and sell the improved
scanner,plotter and software, and any new products developed by NovImage.
NovImage retained such rights with respect to the Province of Quebec,
Canada.
In connection with the transaction, we also entered into a Stock Exchange
Agreement with Innovatech pursuant to which Innovatech would be permitted,
under certain circumstances, to exchange its shares of NovImage for up to
63,250 shares of Widecom's common stock for which Innovatech would have
demand registration rights. This amount represents less than 5% of our
outstanding shares and is accordingly omitted from the table of beneficial
ownership.
Although we believe 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 Widecom 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 us and our 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 our favor.
During fiscal 1999, Raja S. Tuli Consulting loaned us a total of $25,333 in
order to relieve cash flow pressure for three specific payroll periods. We
have repaid that indebtedness by way of board of directors approval of a
transfer of 11,893 of our common shares.
During fiscal 1999, we decided, in consultation with counsel and investment
market entities, to add additional technology assets to our portfolio.
Specifically, we felt that we would benefit from exposure to a wider
spectrum of available computer peripherals outside the wide format niche.
Our management decided that it would be in our best interest to acquire a
small format photo printer technology developed by a corporation owned by
Raja S. Tuli. Management agreed in principle to the acquisition on
September 11, 1998 which was subsequently approved by a vote of the
independent shareholders.
Item 13. Financial Statement Schedules, Reports on Form 8-K, Exhibits
(a) Exhibits
See Exhibit Index
(b) Reports on Form 8-K During Fiscal 1999
Form 8-K, dated June 21, 1999, was filed with the Securities and
Exchange Commission in connection with the replacement of our
independent auditors.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Widecom has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: July 13, 1999 THE WIDECOM GROUP INC.
By: /s/ RAJA S. TULI
---------------------
Raja S. Tuli
Chief Executive Officer and
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report to be signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated
<TABLE>
<CAPTION>
NAME TITLE DATE
- ---- ----- ----
<S> <C> <C>
/s/RAJA S. TULI President, Chief Executive Officer, July 13,1999
Raja S. Tuli Director (Principal Executive Officer)
/s/ WILLEM J. BOTHA Treasurer and Chief Financial Officer July 13,1999
Willem J. Botha Principal Financial and
Accounting Officer
/s/ SUNEET S. TULI Executive Vice-President, July 13,1999
Suneet S.Tuli Marketing, Secretary and Director
/s/ BRUCE D. VALLILLEE Director July 13, 1999
Bruce D. Vallillee
/s/ AJIT SINGH Director July 13, 1999
Ajit Singh
/s/ LT. COLONEL K.C. SHARMA Director July 13, 1999
Lt. Col. K.C. Sharma
</TABLE>
EXHIBIT INDEX
The exhibit designated with an asterisk (*) is filed herewith. All
other exhibits have been previously filed with the Commission and, pursuant
to 17 C.F.R. Secs. 201.24 and 240.12b-32, are incorporated by reference to
the document referenced in brackets following the descriptions of such
exhibits.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
3.1 Articles of Incorporation of Registrant, as amended
(Exhibit 3.1 to Form F-1 Registration Number 33-78004,
filed May 6, 1994)
3.2 By-Laws of Registrant, as amended (Exhibit 3.2 to Form
F-1 Registration Number 33-78004, filed May 6, 1994)
4.1 Form of Common Stock Certificate (Exhibit 4.1 to Form F-1
Registration Number 33-78004, filed November 21, 1994)
4.2 Form of Underwriter's Warrants and Warrant Agreement
(Exhibit 4.2 to Form F-1 Registration Number 33-78004,
filed December 12, 1995)
4.3 Form of Bridge Note (Exhibit 4.3 to Form F-1 Registration
Number 33-78004, filed December 12, 1995)
4.4 Form of Bridge Warrant (Exhibit 4.4 to Form F-1
Registration Number 33-78004, filed December 12, 1995)
4.5 Form of Warrant Agreement (Exhibit 4.5 to Form F-1
Registration Number 33-78004, filed December 12, 1995)
4.6 Form of Warrant Certificate (Exhibit 4.6 to Form F-1
Registration Number 33-78004, filed December 12, 1995)
4.7 Form of 8% Convertible Debentures purchased by Global
Bermuda Limited Partnership, a Bermuda Limited Partership
(Exhibit 4.1 to Form F-1 Registration Number 33-78004,
filed August 5, 1994)
4.8 Representative's Warrant to Purchase Shares of Common
Stock (Exhibit 4.2 to Form F-1 Registration Number
33-78004, filed August 5, 1994)
10.1 Financial Consulting Agreement, dated June 2, 1997, by
and between The Widecom Group Inc. and Alex Moore & Co.,
(Exhibit 10.1 to Form S-3/A, File Number 333-35547)
10.2 Settlement Agreement, dated May 1, 1997, among Brett
Whiton, Richard Benjamin, Anthony Hand, and the Company,
Messrs. Raja and Suneet Tuli (Exhibit 10.2 to Form S-3/A,
File Number 333-35547)
10.5 License Agreement between WideCom R & D Inc. and the
Company date August 24, 1993 (Exhibit 10.5 to Form F-1
Registration Number 33-78004, filed April 21, 1994)
10.6 Employment Agreement with Exhibits between Raja Tuli and
the Company dated October 4, 1993 (Exhibit 10.6 to Form
F-1 Registration Number 33-78004, filed April 21, 1994)
10.7 Employment Agreement with Exhibits between Suneet S. Tuli
and the Company dated October 4, 1993 (Exhibit 10.7 to
Form F-1 Registration Number 33-78004, filed April 21,
1994)
10.8 Indemnity Agreement between Raja S. Tuli and the Company
(Exhibit 10.8 to Form F-1 Registration Number 33-78004,
filed November 21, 1994)
16.1 Letter from BDO Dunwoody, LLP on change in Certifying
Accountant(Exhibit 16.1 to Form 8-K, filed June 21, 1999)
21.1 Subsidiaries of Registrant (Exhibit 22.1 to Form F-1
Registration Number 33-78004, filed April 21, 1994)
27* Financial Data Schedule
THE WIDECOM GROUP INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 1998 and 1999
(in United States dollars)
THE WIDECOM GROUP INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 1998 and 1999
(in United States dollars)
TABLE OF CONTENTS
Auditors' Report
Consolidated Balance Sheets 1
Consolidated Statements of Operations 2
Consolidated Statements of Shareholders' Equity 3
Consolidated Statements of Cash Flows 4
Summary of Significant Accounting Policies 5 - 19
Schartz Levitsky Feldman llp
CHARTERED ACCOUNTANTS
TORONTO, MONTREAL, OTTAWA
AUDITORS' REPORT
To the Shareholders of
The WideCom Group Inc.
We have audited the consolidated balance sheet of The WideCom Group Inc. as
at March 31, 1999 and the consolidated statements of operations,
shareholders' equity and cash flows for the year ended March 31, 1999.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
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.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the company as at March 31,
1999 and the results of its operations and the changes in its cash flows for
the year ended March 31, 1999 in accordance with generally accepted
accounting principles in the United States.
The consolidated balance sheet of The WideCom Group Inc. as at March 31,
1998 and the consolidated statements of operations, shareholders' equity and
cash flows for the years ended March 31, 1998 and 1997 were audited by
another firm of Chartered Accountants with an unqualified audit report
issued thereon.
Toronto, Ontario
July 5, 1999 Chartered Accountants
1167 Caledonia Road
Toronto, Ontario M6A 2X1
Tel: 416 785 5353
Fax: 416 785 5663
The WideCom Group Inc.
Consolidated Balance sheets
(in United States dollars)
</TABLE>
<TABLE>
<CAPTION>
March 31 1998 1999
- --------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 692,833 $ 156,193
Accounts receivable (Note 1) 579,060 552,901
Inventory (Note 2) 1,301,522 1,175,112
Prepaid expenses 88,947 40,926
Advances to related parties (Note 3) 180,930 225,418
Deferred financing costs - 49,813
----------------------------
Total current assets 2,843,292 2,200,363
Capital assets (Note 4) 1,749,312 1,453,963
Purchased research and development
technology (Note5) - 78,777
Investment in affiliate (Note 6) 1,058,586 545,113
----------------------------
Total assets $ 5,651,190 $ 4,278,216
----------------------------
Liabilities and Shareholders' Equity
Current Liabilities
Bank indebtedness (Note 7) $ 201,114 $ 264,022
Accounts payable and accrued
liabilities (Note 8) 1,013,132 1,299,454
Loans from related parties (Note 3) - 64,939
Convertible debentures (Note 9) 200,000 342,478
----------------------------
Total current liabilities 1,414,246 1,970,893
----------------------------
Shareholders' equity (Note 10)
Common shares
5,000,000* shares authorized of no par
value
1,477,320* shares issued and outstanding
on March 31,1998
2,068,400* shares issued and outstanding
on March 31, 1999 12,982,715 13,577,841
Contributed surplus 159,825 159,825
Deficit (8,647,983) (10,892,334)
Accumulated other comprehensive loss
(Note 11) (257,613) (538,009)
----------------------------
4,236,944 2,307,323
----------------------------
Total liabilities and shareholders' equity $ 5,651,190 $ 4,278,216
==========================================================================
<FN>
* Adjusted for reverse split of Company's stock (1:4) on January 29,1999.
</FN>
</TABLE>
See accompanying summary of significant accounting policies and notes
to these Consolidated Financial Statements
The WideCom Group Inc.
Consolidated Statements of Operations
(in United States dollars)
<TABLE>
<CAPTION>
For the years ended March 31 1997 1998 1999
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue
Product sales $ 1,678,933 $ 2,890,443 $ 2,575,935
Research and development grants - 24,567 479,821
Interest income 141,780 138,794 19,853
-----------------------------------------
Total revenue 1,820,713 3,053,804 3,075,609
-----------------------------------------
Expenses
Cost of product sales 459,026 809,935 726,909
Research and development 614,663 99,266 134,248
Selling, general and administrative 3,733,016 3,604,538 3,112,056
Interest and bank charges 42,399 49,431 51,504
Management fees and salaries 321,209 398,804 333,743
Amortization 503,359 489,733 362,108
Foreign exchange loss (gain) - 36,119 (11,968)
-----------------------------------------
Total expenses 5,673,672 5,487,826 4,708,600
-----------------------------------------
Operating loss (3,852,959) (2,434,022) (1,632,991)
Legal settlement costs (Note 15(b)) - (309,375) (158,741)
Equity in loss of affiliate (121,971) (592,468) (452,619)
Writedown of goodwill (576,000) - -
-----------------------------------------
Loss before income taxes (4,550,930) (3,335,865) (2,244,351)
Provision for (recovery of) income taxes
(Note 12)
Deferred (63,106) - -
-----------------------------------------
Net loss for the year $(4,487,824) $(3,335,865) $(2,244,351)
=========================================
Loss per common share, basic and
diluted (Note 10(f)) (3.96) (2.36) (1.28)
=========================================
Weighted average number of shares
outstanding * 1,133,396 1,416,047 1,749,386
==========================================================================================
<FN>
* Adjusted for reverse split of company's stock (1:4) on January 29,1999.
</FN>
</TABLE>
See accompanying summary of significant accounting policies and notes
to these Consolidated Financial Statements
The WideCom Group Inc.
Consolidated Statements of Shareholders' Equity
(in United States dollars)
For the years ended March 31, 1997, 1998, 1999
<TABLE>
<CAPTION>
Retained Other Total
Common Contributed Earning Comprehensive Shareholders'
Shares Surplus (Deficit) Loss Equity
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, March 31,1997 10,598,884 159,825 (5,312,118) (203,288) 5,243,303
Exercise of warrants (180,981)* 2,170,179 - - - 2,170,179
Warrant exercise costs (120,470) - - - (120,470)
Class action settlement (69,625)* 355,158 - - - 355,158
Conversion of convertible
debentures (14,742)* 50,000 - - - 50,000
Share issuance costs (71,036) - - - (71,036)
Net loss for year - - (3,335,865) - (3,335,865)
Foreign currency
translation adjustment - - - (54,325) (54,325)
--------------------------------------------------------------------------
Balance, March 31,1998 $12,982,715 $159,825 $(8,647,983) $(257,613) $ 4,236,944
Warrant exercise costs reversal 97,907 - - - 97,907
Shares issued for corporate
indebtedness (294,117) 200,000 - - - 200,000
Shares issued for investment
in wholly owned subsidiary (125,000)* 93,750 - - - 93,750
Class action settlement (59,751)* 83,457 - - - 83,457
Conversion of convertible
debentures (17,213)* 50,000 - - - 50,000
Conversion of convertible
debentures (95,000) 95,000 - - - 95,000
Share issuance costs (24,988) - - - (24,988)
Net loss for year - - (2,244,351) - (2,244,351)
Foreign currency translation
adjustment - - - (280,396) (280,396)
--------------------------------------------------------------------------
Balance, March 31,1999 $13,577,841 $159,825 $(10,892,334) $(538,009) $ 2,307,323
===================================================================================================================
<FN>
* Adjusted for reverse slit of Company's Stock (1:4) on January 29,1999.
</FN>
</TABLE>
See accompanying summary of significant accounting policies and notes
to these Consolidated Financial Statements
The WideCom Group Inc.
Consolidated Statements of Cash Flows
(in United States dollars)
<TABLE>
<CAPTION>
For the years ended March 31 1997 1998 1999
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash provided by (used in)
Operating activities
Loss for the year $(4,487,824) $(3,335,865) $(2,244,351)
Add (deduct) item not requiring a cash outlay
Amortization 503,359 489,733 362,108
Foreign exchange loss (gain) - 36,119 (11,968)
Deferred income taxes recovery (63,106) - -
Shares issued to settle lawsuits - 355,158 158,741
Writedown of goodwill 576,000 - -
Equity in loss of affiliate 121,971 592,468 452,619
Net changes in non-cash
working capital balances related to operations
Decrease (increase) in accounts receivable (333,048) 160,122 7,988
Decrease in research
and development grants receivable - 687,307 -
Decrease (increase) in inventory (764,646) (133,663) 49,882
Increase (decrease) in accounts payable
and accrued liabilities 982,544 (308,983) 551,213
(Decrease) increase in prepaid expenses (31,453) 8,969 (42,920)
-------------------------------------------
(3,496,203) (1,448,635) (716,688)
-------------------------------------------
Investing activities
Purchase of capital assets (1,108,068) (540,022) (153,395)
Advances to related parties (32,033) (67,523) (55,330)
Purchases of shares in wholly-owned subsidiary - - (93,750)
Purchase of equity in joint venture (1,805,836) - -
-------------------------------------------
(2,945,937) (607,545) (302,475)
-------------------------------------------
Financing activities
Increase (decrease) in bank indebtedness 203,456 (121,954) 75,005
Shares and warrants issued 1,298,090 1,978,673 200,000
Loans from related parties - - 64,939
Issuance of convertible debentures - 250,000 285,000
-------------------------------------------
1,501,546 2,106,719 624,944
-------------------------------------------
Effect of exchange rate change on cash (71,411) 10,808 (142,421)
-------------------------------------------
Net increase (decrease) in cash during the year (5,012,005) 61,347 (536,640)
Cash and equivalents, beginning of year 5,643,491 631,486 692,833
-------------------------------------------
Cash and equivalents, end of year $ 631,486 $ 692,833 $ 156,193
===================================================================================================
</TABLE>
Note: See note 16 for supplementary information
See accompanying summary of significant accounting policies and notes
to these Consolidated Financial Statements
The WideCom Group Inc.
Summary of Significant Accounting Policies
(in United States dollars)
March 31, 1998, and 1999
- --------------------------------------------------------------------------
Nature of Business The WideCom Group Inc. ("the Company") was
incorporated under the laws of Ontario on June
15, 1990. 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 The accompanying consolidated financial statements
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 an losses.
Translation adjustments to reporting currency are
included in equity as "accumulated other
comprehensive loss". (See Note 11).
The consolidated financial statements reflect
retroactively a backsplit occurring during 1999
(See Note 10).
These consolidated financial statements have been
prepared by management in accordance with generally
accepted accounting principles in the United States.
Principles of These consolidated financial statements include the
Consolidation accounts of the Company and its wholly-owned
subsidiaries Indo WideCom International Ltd and
Diprin Inc. All significant inter-company
transactions and accounts have been eliminated.
Investment in The investment in affiliate is accounted for on the
Affiliate equity basis.
Accounting Estimates The preparation of consolidated 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 disclosures 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 Management reviews long-lived assets and certain
identifiable intangibles 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 is based on the fair value of
the asset.
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:
Machinery, plant and
computer equipment - 30% declining balance
Furniture and fixtures - 20% declining balance
Prototype and jigs - 20% declining balance
Earning or Loss The Company has adopted SFAS No. 128,
Per Share "Earnings Per Share" which requires that the
consolidated financial statements reflect "basic"
and "diluted" earning (loss) per share. Basic
earning (loss) per share is computed by dividing net
income (loss) by the weighted average number of
common shares outstanding for the period. Diluted
earnings (loss) per share is computed by dividing
net income (loss) by the weighted average number of
common shares outstanding plus common stock
equivalents (if dilutive) related to stock options
and warrants for each period.
Stock Based SFAS No. 123, "Accounting for Stock-Based
Compensation 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 10 (d) for a summary of the pro forma net
loss 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 Product sales are recognized as revenue upon
shipment of the product. Advance sales revenue is
deferred until shipment of the product
Foreign Currency Balances of the Company denominated in foreign
Translation currencies and the accounts of its foreign
subsidiary are translated into the functional
currency as follow:
(i) monetary assets and liabilities at year end
rates;
(ii) all other assets and liabilities at historical
rates;
(iii) revenue and expense transactions at the
average rate of exchange prevailing during the
year; and
(iv) changes in cash flow at the average rate of
exchange prevailing during the year.
Exchange gains or losses arising on these
translations are reflected in income in the year.
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 year 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 The Company's receivables are unsecured and are
Credit Risk and generally due in 30 days. Currently the Company's
Business customers are primarily local, national and
Concentration international users of wide format document
management systems. The company's receivables do
not represent significant concentrations of credit
risk as at March 31 1999 due to the wide variety of
customers, markets and geographic areas to which the
Company's products are sold.
Fair Value of The carrying amounts of financial instruments of the
Financial Instruments Company, including cash and cash equivalents,
accounts receivable, bank indebtedness, accounts
payable, and convertible debentures approximate fair
value because of their short maturity. The fair
value of advances to and loans from related parties
cannot be readily determined because of the nature
of their terms.
The WideCom Group Inc.
Notes to Consolidated Financial Statements
(in United States dollars)
March 31, 1998, and 1999
- --------------------------------------------------------------------------
1. Accounts Receivable
Accounts receivable consist of:
<TABLE>
<CAPTION>
1998 1999
----------------------
<S> <C> <C>
Trade Receivable $612,946 $637,097
Less: Allowance for doubtful accounts 33,886 84,196
----------------------
$579,060 $552,901
======================
</TABLE>
- --------------------------------------------------------------------------
2. Inventory
Inventory consists of:
<TABLE>
<CAPTION>
1998 1999
--------------------------
<S> <C> <C>
Raw Materials $ 967,723 $ 689,155
Work-in-progress 56,644 13,587
Finished goods 277,155 472,370
--------------------------
$1,301,522 $1,175,112
==========================
</TABLE>
- --------------------------------------------------------------------------
3. Advances to/loans from related parties
(a) Advances to related parties are non-interest bearing and are
expected to be repaid in the next fiscal year as follows:
<TABLE>
<CAPTION>
1998 1999
----------------------
<S> <C> <C>
3294340 Canada Inc. (i) $149,696 $196,034
Shareholders 31,234 29,384
----------------------
$180,930 $225,418
======================
</TABLE>
i) 3294340 Canada Inc.
Advances were made to a company as referred to in Note 6 to
facilitate research and development activities. There is no fixed
term of repayment and the balance is due on demand.
(b) During the year, the following non-interest bearing advances
were made to the company as short-term loans in order to assist
in certain working capital requirements:
<TABLE>
<S> <C>
Director and officer $29,655
Shareholder owning more than 5% of
the outstanding shares 35,284
-------
$64,939
=======
</TABLE>
(c) Transactions with companies controlled by, and fees paid to,
executive officers, the principal shareholders and directors
during the year were as follows:
<TABLE>
<CAPTION>
1998 1999
------------------------
<S> <C> <C>
Sales $ 127,043 $ 8,790
Management fees and salaries (398,804) (333,743)
</TABLE>
The management fees are paid on a month to month basis to executives
who comprise senior management of the Company (See also Note 13((c)).
- --------------------------------------------------------------------------
4. Capital Assets
Capital assets consist of:
<TABLE>
<CAPTION>
1998 1999
----------------------- ------------------------
Accumulated Accumulated
Cost Amortization Cost Amortization
---------------------------------------------------
<S> <C> <C> <C> <C>
Machinery, plant and
computer equipment $1,941,521 $ 842,076 $1,913,903 $1,088,694
Furniture and fixtures 114,832 44,061 108,065 54,411
Prototype and jigs 307,500 101,569 289,380 131,563
Land 59,785 - 56,262 -
Building under construction 313,380 - 361,021 -
----------------------------------------------------
$2,737,018 $ 987,706 $2,728,631 $1,274,668
----------------------------------------------------
Net book value $1,749,312 $1,453,963
----------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------
5. Purchased research and development technology
During the year, the company acquired the rights to a photo-printer
technology, which is in the process of being developed by its
President and Chief Executive Officer. A patent application is
currently pending.
The development of this technology will continue through a wholly-
owned subsidiary; Diprin Inc. ("Diprin") that was previously owned by
the President and Chief Executive Officer.
In consideration for the ownership of this technology, the company
issued 125,000* common shares to its President and Chief Executive
Officer [See note 10(b)(vii)].
The design of the portable photo-printer is in the latest stages of
completion and management estimates that prototyping will commence in
the fiscal year ending March 31, 2000. The cost of the technology is
being amortized on a straight-line basis over 3 years from September
30,1998. As at March 31, 1999, the unamortized balance amounted to
$78,777.
- --------------------------------------------------------------------------
6. Investment in Affiliate
<TABLE>
<CAPTION>
1998 1999
------------------------
<S> <C> <C>
3294340 Canada Inc $1,058,586 $545,113
------------------------
</TABLE>
In October 1996, the Company entered into a joint venture agreement
which resulted in the purchase of a 45% stake in 3294340 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 alteration 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 government of the Province of Quebec,
pursuant to which Societe Innovatech du Grand Montreal would be
permitted, under certain circumstances, to exchange its 45% interest
for up to 63,250* common shares of the Company. The Company has a
commitment to pay a royalty fee based on net revenue ((See also note
13(b)). The assets, liabilities, revenue and expenses of 3294340
Canada Inc. for the years ended 1998, 1999, are as follows:
<TABLE>
<CAPTION>
1998 1999
----------------------------
<S> <C> <C>
Current assets $ 2,012,857 $ 1,014,554
Capital and other assets 650,534 549,339
----------------------------
2,663,391 1,563,893
Current Liabilities 310,977 370,954
----------------------------
Net assets $ 2,352,414 $ 1,192,939
----------------------------
Revenue
Miscellaneous income $ 139,171 $ 66,287
Research and development 545,613 669,857
----------------------------
684,784 736,144
Expenses 2,001,420 1,741,963
----------------------------
Net loss for the year $(1,316,636) $(1,005,819)
----------------------------
<FN>
* Adjusted for reverse split of Company stock (1:4) on January
29,1999.
</FN>
</TABLE>
- --------------------------------------------------------------------------
7. Bank Indebtedness
During 1998 the Company renewed an operating line of credit available
for approximately $250,000 which bears interest at prime plus 0.75%,
is due on demand, and is secured by a general security agreement over
all company assets except real property. At March 31, 1999,
approximately $249,000 (1998-$112,000) was utilized.
The Company's 1999 and 1998 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>
1998 1999
-------------------------
<S> <C> <C>
Trade accounts payable $ 300,268 $ 546,586
Wages and employee deduction payable 73,338 191,382
Accrued liabilities 423,418 371,921
Accrued litigation costs (Note 10(b)) 121,871 189,565
Accrued warrant exercise costs 94,237 -
-------------------------
$1,013,132 $1,299,454
-------------------------
</TABLE>
- --------------------------------------------------------------------------
9. Convertible Debentures
On May 19,1997, the Company completed a private offering of $250,000
of convertible debentures maturing on May 19, 1998. The convertible
debentures bear interest of 8% per annum. In addition, 12,500*
warrants were also issued in conjunction with these convertible
debentures. The holder of the debentures has the right to convert at
a conversion price equal to the lower of $5 or 80% of the average
closing bid price of the Company's shares over the past 20 trading
days. On February 11, 1998, $50,000 principal plus accrued interest
was converted into 14,742* common shares. The warrants are
exercisable over 3 years at an exercise price of $16 per share. The
value attributable to the warrants is not material. Included in
accounts payable is accrued interest on the debentures of $25,658.
On April 24, 1998, the debenture holder converted another $50,000
principal plus interest into 17,213* of common shares.
The company is currently in default for the repayment of its remaining
$150,000 convertible debentures that came due on May 18, 1998.
The company also conducted a private placement of ten specific
investment units, each comprising 10,000 common shares (see Note
10(b)(x)) and a three-year 12% convertible subordinated note in the
amount of $20,000. Interest payments are payable quarterly and
conversion is available at an exercise price of $1.00 per share. One-
half of the principal amount of the note is exercisable during the 30
day period commencing 180 days from the initial closing on February
19, 1999. The remaining principal amount is convertible at anytime
following 360 days after the initial closing.
- --------------------------------------------------------------------------
10. Share Capital
(a) Authorized
5,000,000 common shares pursuant to shareholder approval of a
1:4 reverse split of the common shares of the Company
effective January 29, 1999.
Of the 2,068,400* shares outstanding as of March 31, 1999,
128,463* shares have not been registered by the Company's stock
transfer agent.
(b) Changes to Issued Share Capital
(i) During 1998, 180,981* warrants were exercised in exchange
for 180,981* common shares. The proceeds of this issue,
net of related expenses of $120,470, was $2,049,709. This
amount includes warrants exercised under the Company's
warrant call.
* Adjusted for reverse split of Company's common stock (1:4) on January 29,
1999.
(ii) During 1998, 69,625* shares were issued for the full
settlement and legal costs of a class action lawsuit
filed in the State of New York and a partial settlement
of another class action lawsuit filed in the State of
California. Both lawsuits were in connection with
potential losses that would be suffered on the warrant
call. The Company is required to issue an additional
18,750* shares in connection with the State of California
suit and accordingly the Company has accrued
approximately $122,000 for the cost of these shares
representing the fair value of the shares on February 2,
1998. The Company has also agreed to issue 96,927*
replacement warrants for each warrant held by warrant
holders on February 10, 1997 and sold by such holders
prior to March 5, 1997.
(iii) During 1998, $50,000 of convertible debentures (see Note
9) were converted into 14,742* common shares. The
debentures were converted based on a conversion price of
$0.8479 that represents the average of the closing bid
share price of 20 days prior to the conversion. The
Company also incurred $10,000 of issuance cost relating
to the conversion of the debentures.
(iv) In April, 1998, an additional $50,000 of convertible
debentures (see Note 9) were converted into 17,213*
common shares. The debentures were converted based on a
conversion price of $0.7262 that represents the average
of the closing bid share price for the twenty days
preceding the conversion. The Company incurred $15,000
in further issuance costs related to this conversion of
the debenture.
(v) In fall 1998, the Company issued an aggregate of 294,117*
common shares (73,529, 110,294* and 110,294*) to three
principals of the Company in full satisfaction of
corporate indebtedness to those parties as approved by
the Board of Directors.
(vi) Effective January 29, 1999, the Company's shareholders
approved a 1: 4 reverse stock split resulting in
1,788,649* common shares outstanding as of that date.
(vii) During the fourth quarter of fiscal, 1999, the Company's
shareholders also approved the acquisition of Diprin
Inc., a corporate entity wholly owned by a principal of
the Company in exchange for the issuance of 125,000*
common shares. (see Note 5)
(viii) During the fourth quarter of fiscal 1999, the Company and
its legal counsel approved an amendment to a legal
resolution (see note (ii) above). The amendment converted
the warrant entitlements under the settlement into common
shares that were subject to the 1:4 reverse stock split.
An aggregate of 109,466* common shares were issued
pursuant to two separate issuances effected pursuant to
Company instructions dated February 17, 1999 and May 21,
1999 (54,751* and 54,715* respectively).
(ix) During the fourth quarter of fiscal 1999, the Company and
its legal counsel approved a legal resolution of a
lawsuit in the state of Rhode Island between the Company
and three individual litigants. The resolution approved
by the Board of Directors of the Corporation comprised a
transfer of 5,000* of the Company's common shares.
(x) During fiscal 1999, the Company engaged the services of
Robb Peck McGooey Clearing Corporation, Cantella &
Associates and Quantum Resources Inc., three related
financial services companies to conduct a private
offering to raise funds for investment in the Company.
The units in the offering granted 10,000 shares to each
purchaser. In total, ten units were sold with 1/20.5 unit
closing after the Company's year end. 95,000* shares
were issued pursuant to the placement between February,
1999 and year-end on March 31, 1999. The remaining
5,000* shares were issued in the first quarter of fiscal
2000. The three companies are also entitled to a grant
of 50,000* warrants to purchase 50,000 common shares at
an exercise price of $1.20.
(xi) On March 15, 1999, the Company approved a transfer of
8,000* shares by a principal of the corporation to
satisfy an outstanding account with a professional
service provider. The Company has yet to finalize the
terms of repayment, if any, with respect to this equity
transfer.
(xii) In April, 1999, the Company issued an aggregate of
61,618* common shares (40,810* and 20,808*) to two
consulting companies independently run by an individual
principal of the Company in full satisfaction of
corporate indebtedness to those parties as approved by
the Board of Directors.
(xiii) In May, 1999, the Company approved a surrender of 4,010*
shares from a principal of the Company in full
satisfaction of an indebtedness to the company pursuant
to an indemnification agreement as approved by the Board
of Directors.
(xiv) On May 26, 1999, the Company and its legal counsel, with
the approval of the Board of Directors, issued an
additional aggregate of 19,748* common shares as the
final stage of a settlement agreement with the Company
((see note 10(b)(ii) above)).
(c) Warrants
As at March 31, 1999, the Company had 556,911* issued and
outstanding warrants. The warrants are exercisable at prices
ranging from $1.20 to $34.00 with expiry dates between 1999 and
2009.
(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, compensation expense is
not recognized if the exercise price equals or exceeds the
market price on the date of grant. The exercise price of the
Company's employees stock option equals the market price of the
underlying stock on the date of grant, therefore no compensation
expense is recognized.
In July 1996, the board of directors approved an employee stock
option plan covering options to purchase 75,000* common shares
that was increased in January 1997 to 125,000*.
As of March 31, 1998, 115,625* employee stock options granted to
management and employees were outstanding with an exercise price
of $8.50. Only 16,683 of these options remain unvested but will
vest before the fourth quarter of fiscal 2000. These options
expire 10 years after the grant date.
In fiscal 1999, 8,625* employee stock options were granted with
exercise prices ranging from $3.28 to $4.00.
Pro forma information regarding net income and earning per share
is required by SFAS No. 123, and has been determined as if the
company had accounted for its employee stock options under the
fair value method of that statement. The fair value of these
options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average
assumptions: risk-free interest rate of approximately 5.5%;
dividend yield of 0.0%; volatility factors of the expected
market price of the Company's common stock of approximately 122%
(1998 - 200%) and weighted-average expected life of the option
of 8.5 years.
The Company's pro forma information follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
March 31, March 31, March 31,
1997 1998 1999
------------------------------------------
<S> <C> <C> <C>
Net loss
As reported $(4,487,824) $(3,335,865) $(2,244,351)
Pro forma (5,177,824) (3,840,790) (2,350,607)
Net loss per share
As reported (3.96) (2.36) (1.28)
Pro forma (4.56) (2.72) (1.34)
</TABLE>
(e) The activity of the Company's stock option plan is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------- ----------------------------
Weighted Weighted
Average Price Options Average Price Options
Per Share Outstanding Per Share Exercisable
------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, March 31,1997 $24.64 75,000 24.64 75,000
Granted 8.50 115,625
Cancelled 34.00 (25,000)
Cancelled 20.00 (50,000)
-------
Balance, March 31, 1998 8.50 115,625 8.50 98,942
Granted 4.00 7,500
Granted 3.28 1,125
Cancelled 8.50 (9,667)
-------
Balance, March 31, 1999 8.15 114,583 8.15 104,958
</TABLE>
(f) At March 31, 1999, there were 10,417 options available for
future grants. As at March 31, 1999, the options
have a weighted average contractual life of 8.5 years.
The weighted average number of common shares used in calculating
earnings per common share (after retroactive application of the
back split in 1999) is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
-----------------------------------
<S> <C> <C> <C>
Shares outstanding at year-end 1,212,105 1,477,320 2,068,400
-----------------------------------
Weighted average shares outstanding 1,133,396 1,416,047 1,749,386
-----------------------------------
<FN>
* Adjusted for reverse split of Company's common stock (1:4) on January 29,
1999.
</FN>
</TABLE>
- --------------------------------------------------------------------------
11. Accumulated other comprehensive loss
The Company has adopted SFAS No.130 "Reporting comprehensive income"
which requires new standards for reporting and display of
comprehensive income and its components in the consolidated financial
statements. However it does not affect net income or total
shareholders' equity. The components of comprehensive loss are as
follows:
<TABLE>
<CAPTION>
1997 1998 1999
-----------------------------------------------
<S> <C> <C> <C>
Net loss $(4,487,824) $(3,335,865) $(2,244,351)
Other comprehensive income loss
Foreign currency translation adjustments (195,569) (54,325) (280,396)
-----------------------------------------------
Comprehensive loss $(4,683,393) $(3,390,190) $(2,524,747)
-----------------------------------------------
</TABLE>
The components of accumulated other comprehensive loss are as follows:
<TABLE>
<S> <C>
Accumulated other comprehensive loss, March 31, 1996 $ (7,719)
Foreign currency translation adjustment for the year
ended March 31, 1997 (195,569)
---------
Accumulated other comprehensive loss, March 31, 1997 (203,288)
Foreign currency translation adjustment for the year
ended March 31, 1998 (54,325)
---------
Accumulated other comprehensive loss, March 31, 1998 (257,613)
Foreign currency translation adjustment for the year
ended March 31, 1999 (280,396)
---------
Accumulated other comprehensive loss, March 31, 1999 $(538,009)
=========
</TABLE>
- --------------------------------------------------------------------------
12. Income Taxes
a) The components of the provision for income taxes on earning
before income taxes are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
-------------------------------
<S> <C> <C> <C>
Deferred recovery $(63,106) $ - $ -
===============================
</TABLE>
b) The reconciliation of income taxes calculated at the statutory
rate of 44.6% to the total tax provision is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
-----------------------------------------------
<S> <C> <C> <C>
Income taxes recovery $(2,030,000) $(1,488,000) $(1,001,000)
Items not subject to income tax 210,000 309,000 406,000
Permanent difference resulting from the
Ontario research and development incentive
deduction (21,000) - -
Adjustment to valuation adjustment 1,777,800 1,179,000 595,000
-----------------------------------------------
$ (63,200) $ - $ -
===============================================
</TABLE>
Income tax provision and recovery is related solely to domestic
operations. Foreign operations are not subject to taxes (see
Note 14).
(c) Deferred Taxes
Deferred tax assets have been recorded at current rates as
follows:
<TABLE>
<CAPTION>
1997 1998 1999
---------------------------------------------
<S> <C> <C> <C>
Assets:
Financing costs $ 44,000 $ 28,000 $ 44,000
Balance of pool of Scientific Research &
Development available to reduce taxable
income for future years 615,000 582,000 582,000
Tax losses available to reduce taxable
income of future years 1,364,000 2,440,000 2,989,000
Share issue costs 686,000 743,000 743,000
Excess of amortization on capital assets for
accounting purposes over amortization
recorded for tax purposes 197,000 259,000 289,000
---------------------------------------------
2,906,000 4,052,000 4,647,000
---------------------------------------------
Less Deferred tax asset valuation allowance (2,906,000) (4,052,000) (4,647,000)
---------------------------------------------
$ - $ - $ -
=============================================
</TABLE>
The Company has net operating loss carryforwards to reduce
federal taxable income of approximately $7,565,000 which expire
from 2004 to 2006. The Company has net operating loss
carryforwards available to reduce Ontario taxable income of
approximately $8,912,000 which expire during the years 2000
through 2006.
The Company has share issue costs amounting to $2,800,000, which
gives rise to a tax benefit of $743,000 ($743,000 - 1998). A
portion of these costs are included in the net operating losses
carryforwards disclosed above. When realized, the benefit will
be recorded as a capital transaction.
13. Commitments
(a) The Company leases premises, office equipment and motor vehicles
under operating leases expiring in 2003. The approximate annual
rental commitments during the lease terms are as follows:
Year ended March 31 2000 106,000
Year ended March 31, 2001 51,000
Year ended March 31, 2002 16,000
Year ended March 31 2003 1,000
Approximate rental expense incurred under operating leases is as
follows:
Year ended March 31 1997 176,000
Year ended March 31, 1998 169,000
Year ended March 31, 1999 177,243
(b) The Company is committed to its affiliate, 3294340 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 the affiliate on behalf of the Company (See also Note
6).
(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 50% bonus of base salary provided
certain performance objectives are met. Amounts paid in 1999
were approximately $194,000 ($239,000 in 1998).
- --------------------------------------------------------------------------
14. Segmented Information
The Company has adopted SFAS No. 131 " Disclosures about segments of a
enterprise" which establishes standards for reporting operating
segments in annual consolidated financial statements.
Description of type of product
The Company operates through one segment, which is, wide format
document management systems, comprising two major products - wide
format scanners and plotters.
Measurement of Segment profit and loss
As the products (noted above) are regarded as one segment the
statements of operations and balance sheets are deemed by management
to be wholly attributable to that segment.
(a) The Company operated 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 31,1997
Revenue $ 1,329,446 $ 1,357,171 $ (865,904) $ 1,820,713
Net loss (4,364,854) (628,877) 505,907 (4,487,824)
Identifiable assets 6,719,782 2,872,586 (2,667,181) 6,925,187
For the year ended March 31, 1998
Revenue $ 2,913,259 $ 1,556,141 $(1,415,596) $ 3,053,804
Net loss (3,321,531) (244,027) 229,693 (3,335,865)
Identifiable assets 6,677,495 2,442,435 (3,468,740) 5,651,190
For the year ended March 31, 1999
Revenue $ 2,726,807 $ 1,694,131 $(1,345,329) $ 3,075,609
Net loss (2,357,707) (111,715) 225,071 (2,244,351)
Identifiable assets 4,547,514 2,066,306 (2,335,604) 4,278,216
</TABLE>
(b) The breakdown of product sales by geographic area is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
------------------------------------------
<S> <C> <C> <C>
Canada $ 122,676 $ 322,968 $ 211,735
United States 467,766 1,246,270 1,338,704
Middle East 346,595 312,042 200,711
Asia 266,345 322,685 583,077
Europe 475,551 686,478 241,708
------------------------------------------
$1,678,933 $2,890,443 $2,575,935
==========================================
</TABLE>
(c) In the years ended March 31, 1999, 1998 and 1997 no end user
accounted for more than 5% of the Company's product sales. In
1999, approximately 20.3% of the company's product sales were
made through five distributors, with the largest representing
approximately 8 %. For the year ended March 31, 1998,
approximately 43% of the Company's product sales were made
through five distributors, with the largest representing
approximately 23.7%. For the year ended March 31, 1997, sales
to one major distributor amounted to approximately 27.5% of
total product sales.
- --------------------------------------------------------------------------
15. Contingent Liabilities
(a) The Company has been served with an action claiming breach of
contract regarding the Company's rights under two specific joint
venture and development agreements to use and distribute various
iterations of software components allegedly the sole property of
the claimant. The action claims damages for breach of contract
along with copyright and trademark infringement as a result.
The claim, as filed, seeks a total of $15.85 Million in damages
and is in progress in the Province of Ontario. Resolution
options remain open and the action is presently scheduled for
mediation in the fall of 1999.
Loss, if any, on the above claim will be recorded when
settlement is probable and the amount of the settlement is
estimable.
(b) During the year, the company settled claims which resulted in
additional expenses of $158,741 ($309,375 in 1998).
(c) In December, 1996, two individuals filed a lawsuit seeking
60,000 shares and 40,000 warrants. This action has been
formally dismissed. An additional three (3) shareholders have
also commenced related litigation, alleging purchase of our
securities from the previously noted two individuals, who are
named as co-defendants. We have filed and received default
judgments on our cross-claims against the two individual co-
defendants. The total number of shares of common stock claimed
under these suits is less than 15,000.
- --------------------------------------------------------------------------
16. Supplemental Disclosure of Cash Flow Information
Cash Paid during the year:
<TABLE>
<CAPTION>
1998 1999
----------------------
<S> <C> <C>
Interest $ 41,488 $ 42,711
----------------------
Non monetary transactions during the year:
Shares issued for investment in subsidiary $ - $ 93,750
Shares issued to settle lawsuits 355,158 83,457
Shares issued for conversion of debentures 50,000 50,000
----------------------
$405,158 $227,207
======================
</TABLE>
- --------------------------------------------------------------------------
17. Subsequent Event
The company is in the process of closing a private placement approved
by the Company's board of directors wherein 325,000 common shares of
the Company were offered at $2.00 per share. The offering was fully
subscribed with duly executed subscription documentation provided by
accredited investors.
- --------------------------------------------------------------------------
18. Uncertainty Due to the Year 2000 Issue
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems
may recognize the year 2000 as 1900 or some other date, resulting in
errors when information using year 2000 dates is processed. In
addition, similar problems may arise in some systems which use certain
dates in 1999 to represent something other than a date. The effects
of the Year 2000 Issue may be experienced before, on, or after January
1, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure
which could affect a company's ability to conduct normal business
operations. It is not possible to be certain that all aspects of the
Year 2000 Issue affecting the company, including those related to the
efforts of customers, suppliers, or other third parties, will be fully
resolved.
See accompanying summary of significant accounting policies and notes
to these Consolidated Financial Statements
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 156,193
<SECURITIES> 0
<RECEIVABLES> 552,901
<ALLOWANCES> 84,196
<INVENTORY> 1,175,112
<CURRENT-ASSETS> 2,200,363
<PP&E> 2,728,631
<DEPRECIATION> 1,274,668
<TOTAL-ASSETS> 4,278,216
<CURRENT-LIABILITIES> 1,970,893
<BONDS> 0
0
0
<COMMON> 13,577,841
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,278,216
<SALES> 2,575,935
<TOTAL-REVENUES> 3,075,609
<CGS> 726,909
<TOTAL-COSTS> 3,981,691
<OTHER-EXPENSES> 611,360
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,711
<INCOME-PRETAX> (2,244,351)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,244,351)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,244,351)
<EPS-BASIC> (1.28)
<EPS-DILUTED> (1.28)
</TABLE>
