PROSPECTUS Filed Under R.424(b)(3)
697,906 Shares SEC File No. 333-335547
THE WIDECOM GROUP INC.
Common Stock
This Prospectus covers an aggregate of 697,906 shares of common
stock, no par value (the "Shares") of The Widecom Group Inc., an Ontario,
Canada corporation (the "Company"), to be sold by certain securities
holders (the "Selling Security Holders") of which: (i) 110,000 Shares are
issuable pursuant to common stock purchase warrants ("Warrants"); (ii)
350,000 Shares were issued to certain Selling Security Holders pursuant to
certain settlement agreements which settled two lawsuits in which the
Company was a named party; (iii) 3,500 Shares issued to a certain security
holder; and (iv) 58,967 Shares issued and 175,439 shares issuable upon
conversion of an aggregate of $250,000 of 8% convertible debentures (the
"Debentures"); subject to adjustments as provided in the Warrants and
Debentures. The Prospectus is intended to be utilized by the Selling
Security Holders in connection with the resale of Shares owned by them. The
Company will bear all the expenses incident to the registration of the
Shares under the Securities Act of 1933, as amended (the "Securities Act"),
and state securities laws, if any, on behalf of the Selling Security
Holders. The Company will not receive any of the proceeds from the sale of
the Shares by the Selling Security Holders; however, any proceeds received
from the exercise of Warrants will be used for working capital. See "Use of
Proceeds."
The Company's common stock is traded in the over-the-counter market
and is quoted on the Nasdaq Small Cap Market ("Nasdaq") under the symbol
"WIDEF" and on the Boston Stock Exchange under the symbol "WDE". On
February 10, 1998, the closing bid and asked prices for the Common Stock as
reported on Nasdaq were $1.37 and $1.50, respectively.
The Shares may be sold from time to time by the Selling Security
Holders, or by the transferees of the Shares or Warrants. No underwriting
arrangements have been entered into by the Selling Security Holders. The
distribution of the Shares by the Selling Security Holders and/or their
transferees may be effected in one or more transactions that may take place
on the over-the-counter market, including ordinary brokers transactions,
privately negotiated transactions or through sales to one or more dealers
for resale of the Shares as principals, at market prices prevailing at the
time of sale, at prices related to such prevailing market prices or at
negotiated prices. The Shares may be sold by the Selling Security Holder
either: (i) to a broker or dealer as principal for resale as such broker or
dealer for its account pursuant to this Prospectus (e.g. in a transaction
with a "market maker"); (ii) in brokerage transactions, including
transaction in which the broker solicits purchasers; or (iii) in privately
negotiated transactions pursuant to any applicable exemption under the
Securities Act of 1933, as amended (the "Act"). Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the
Selling Security Holders in connection with such sales. The Selling
Security Holders and intermediaries through whom such Shares are sold may
be deemed "underwriters" within the meaning of the Act, with respect to the
Shares offered.
These Securities involve a high degree of risk. See "Risk Factors"
page 6 of this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is June 11, 1999
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy and
information statements and other information filed by the Company with the
Commission pursuant to the informational requirements of the Exchange Act
may be inspected and copied at the public reference facilities maintained
by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the following Regional Offices of the Commission: New York Regional Office,
7 World Trade Center, 13th Floor, New York, New York 10048; and Chicago
Regional Office, Everett McKinley Dirkson Building, 210 South Dearborn
Street, Room 1204, Chicago, Illinois 60604. Copies of such material may be
obtained from the public reference section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, filed by the Company with the Commission
pursuant to the Exchange Act, are hereby incorporated by reference, except
as superseded or modified herein:
1. The Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1997.
2. The Company's Form 10-K/A No.1 for the fiscal year ended March
31, 1997.
3. The Company's Form 10-K/A No.2 for the fiscal year ended March
31, 1997.
4. The Company's Form l0-Q for the fiscal quarter ended June 30,
1997.
5. The Company's Form 10-Q for the fiscal quarter ended September
30, 1997.
6. The Company's Form 10-Q for the fiscal quarter ended December
31,1997
7. The Company's Form 8K, dated February 4,1998.
8. The Company's Form 8/A, dated December 15, 1995, December 9,
1995, and December 8, 1995.
Each document filed subsequent to the date of this Prospectus
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to
the termination of this offering shall be deemed to be incorporated by
reference in this Prospectus and shall be part hereof from the date of
filing of such document.
The Company will provide without charge to each person to whom a copy
of this Prospectus is delivered, upon the written or oral request of any
such person, a copy of any document described above (other than exhibits).
Requests for such copies should be directed to The Widecom Group, Inc., 72
Devon Road Brampton, Ontario Canada L6T 5B4. The Company's telephone number
is (905) 712-0505.
No persons have been authorized to give any information or to make
any representations other than those contained in this Prospectus in
connection with the offering of securities made hereby and, if given or
made, such information or representations must not be relied upon as having
been authorized by the Company, the Selling Security Holders or any other
person. This Prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy, any securities, or the solicitation of a
proxy, by anyone, in any jurisdiction to or from any person to whom it is
not lawful to make such offer or solicitation in such jurisdiction. Neither
the delivery of this Prospectus nor any distribution of securities made
hereunder shall under any circumstances create an implication that there
has been no change in the affairs of the Company since the date hereof or
that the information herein is correct as of any time subsequent to its
date.
PROSPECTUS SUMMARY
The following summary is intended to set forth certain pertinent
facts and highlights from material contained in the body of this Prospectus
and the Company's Report on Form 10-K and 10K/A Amendment No.1 and
Amendment No. 2for the fiscal year ended March 31, 1997 (collectively, the
"Form 10-K"); and the Company's quarterly report on Form 1OQ for the fiscal
quarter ended June 30, 1997, September 30, 1997 and December 31, 1997 (the
"Form 1OQ"), which are incorporated herein by reference. The summary is
qualified in its entirety by reference to the more detailed information and
consolidated financial statements appearing elsewhere in this Prospectus
and Form 10-K and 1OQ. Each prospective investor is urged to read this
Prospectus, the Form 10-K and Form 1OQ in their entirety.
The Company
General
The Widecom Group Inc., incorporated in Ontario, Canada, June 15,1990
(the "Company"), designs, assembles and recently commenced limited
marketing of high-speed, high-performance document systems which transmit,
receive, print, copy and/or archive wide format documents, such as
blueprints, schematics, newspaper layouts and other mechanical and
engineering drawings.
The Company's products consists of a WIDEfax Scan and SLC436-C color
scanner. The WIDEfax Scan and SLC436-C color scanner are wide format
scanners capable of scanning a document. up to 36" wide. The Company's
scanners interface with a personal computer to enable the user t6 scan
images into a personal computer for display, editing and archiving. The
WIDEfax Scan provides the capacity of scanning monochromatic images only.
As the next generation of the WIDEfax Scan, the 5LC43 6-C color scanner was
introduced in May of 1996, as a low-cost wide format color scanner capable
of scanning 36" by 48" documents at a resolution of 400 dots per square
inch ("dpi") in under thirty seconds for monochrome images, and under eight
minutes for full color images.
The Company's scanners incorporate the Company's single line contact
scanner technology to capture the image of a wide format document. The
contact scanner consists of a 36" fiber optic array, 8mm "image sensor
chips" aligned to create a 36" length light sensor, a 36" light emitting
diode ("LED") array and software designed to enhance the scanned image by
removing deteriorations from the document being reproduced and to interface
the scanner with a personal computer. The fiber optic array acts as a lens
and focuses the image on the image sensor chips which read the image.
Because the Company's image sensor chips contain pixels larger than those
of chips used in other scanners, the Company's contact scanners require
less light exposure and, therefore, operate faster than other scanners.
SLC436-C reads an image in increments of 400 dpi, whereas standard format
facsimile machines read images in increments of 200 dpi and other wide
format scanners read images in increments ranging from 138 dpi to 417 dpi.
Higher dpi improves the reliability of the scanned image because the
scanner recognizes greater image detail.
The software incorporated in the 5LC436-C color scanner improves
scanned images by removing background discoloration and enhancing faded
images. This capability improves the image quality of documents which are
stained or which have faded over time. The Company's enabling software
permits the SLC436-C color scanner to interface with a personal computer,
as well as to permit the user to perform a variety of scanning, editing,
viewing and transmission functions.
The Company has developed and markets two applications software
packages, WIDE VIEW, designed to enhance the user's document imaging
capabilities, and SLC-OVLY, which enables the Company's WIDEfax products to
interface with personal computers operating certain CAD software.
The Company sells several accessories for use in connection with its
WIDEfax products, including various types of paper and film. Sales of
accessories have not been material to date and are not expected to be
material in the future.
The Company's primary marketing strategy is to sell its products in
targeted commercial markets in which wide format document Systems are
believed to have potential for significant applications, principally
architectural, engineering and construction firms, for which reproduction,
archiving and transmission of wide format documents are essential. The
Company also markets its products for use by manufacturers in the garment,
and other industries, utilities and government agencies and applications in
newspapers and advertising industries. The Company believes that its
products are used by consumers in these markets for a variety of
applications, including the transmission of construction plans,
architectural drawings, newspaper and advertising layouts and clothing
patterns.
Recent Events
Private Placement Offering Completed
On May 19,1997, the Company completed a private offering (the "May
Private Offering") pursuant to Regulation D promulgated under the
Securities Act, wherein the Company raised $250,000 in gross proceeds in
connection with the sale by the Company to Global Bermuda Limited
Partnership, a Bermuda limited Partnership, of five units ("Units"); each
Unit is comprised of the following: (i) one $50,000 principal amount
convertible debenture (collectively the "Debentures") and (ii) a 10,000
common stock purchase warrant. Under the Debentures, Global Bermuda has
the right, at any time prior to the payment in full of the Debentures, to
convert all or part of the unpaid balance of the Debentures (the amount so
converted hereinafter being referred to as a "Conversion Amount") into
Common Stock of the Company at a conversion price (the "Conversion Price")
equal to 80% of the average closing bid price of the Company's shares, as
quoted on Nasdaq system over the twenty (20) trading days immediately
preceding the date of the Company's receipt of notice requesting
conversion. The number of Shares into which any Conversion Amount may be
converted shall equal the quotient obtained by dividing such Conversion
Amount by the Conversion Price. On February 13, 1998, $50,000 principal
amount of Debentures was converted into 58,967 Shares. Based upon a
conversion price of $1.14, the remaining Debentures are convertible into
175,439 shares. The warrants noted above are exercisable over five years
and have an exercise price of $4.00 per share, subject to adjustment in
certain circumstances. The Registration Statement, of which this Prospectus
forms a part, includes the shares of common stock issuable upon exercise of
the warrants.
Financial Consulting Agreement
On June 27, 1997, the Company entered into an agreement with Alex
Moore & Co. (the "Consultant") whereby in consideration of certain
consultant services the Consultant received certain warrants from the
Company (the "Agreement"). In November of 1997, the Company and the
Consultant agreed to cancel the Agreement, and the Warrants issued to the
consultant were canceled.
Settlement of Certain Litigation
On June 27, 1997, the Company entered into a settlement agreement
with certain individuals who had filed suit against the Company
(collectively, the "Settling Parties"). The complaint in this action was
based upon alleged improper conduct by the Company with respect to the
announcement by the Company of the redemption of certain warrants, which
announcement was made on February 10, 1997. The complaint included causes
of action for alleged fraud, in the nature of alleged misrepresentation and
in the nature of alleged negligent misrepresentation, alleged breach of
contract, alleged breach of fiduciary duty, and alleged violations of the
California Corporations Code. The Settling Parties sought compensatory and
general damages, punitive damages, and injunctive relief. The complaint
also demanded an award of pre-judgment and post-judgment interest,
attorneys' fees, expert witness fees, and costs.
Under the terms and conditions of the Settlement Agreement the
Settling Parties received 75,000 shares of the Company's Common Stock, and
subject to the terms and conditions of the Settlement Agreement they may
receive an additional 75,000 shares, The Settling Parties also received
50,000 Warrants to purchase Common Stock at an exercise price of $2.50 per
share, which Warrants expire on August 19, 2000. The Registration
Statement, of which this Prospectus forms a part, includes the 150,000
shares of the Company's Common Stock and the 50,000 shares underlying the
Warrants.
On May 1, 1997, the Company, Messrs. Raja and Suneet Tuli, the
Company's President and Vice President, respectively, entered into a
Settlement Agreement with certain individuals in connection with an action
alleging improper conduct with respect to the announcement of the
redemption of certain Warrants, which announcement was made on February 10,
1997. The settlement obligated the Company to reduce the Warrant redemption
to half of the publicly held Warrants and reduced the exercise price of the
warrants to $3.00 from $4.00 per share. Moreover, for class members who
held Warrants as of February 10, 1997, and sold such Warrants prior to the
close of business on March 5, 1997, the Company will issue one replacement
Warrant for each Warrant sold. Under certain terms and conditions of this
second settlement agreement, plaintiffs' counsel received 200,000 shares of
the Company's common stock, 46,250 of which were placed in escrow pursuant
to the terms and conditions of the Settlement Agreement. The Registration
Statement, of which this Prospectus forms a part, includes the shares
issued to plaintiffs' counsel.
The Offering
<TABLE>
<S> <C>
Common Stock Outstanding
Prior to Offering(1) 5,895,545
Common Stock Outstanding
After the Offering(2) 6,180,984
Risk Factors This Offering involves a high degree
of risk. See "Risk Factors."
Use of Proceeds (3) The Company will not receive any
proceeds from the sale of the
Selling Security Holders. The
Company anticipates that proceeds
received from the exercise of any
Warrants will be used for working
capital, and general corporate
purposes. See "Use of Proceeds."
Nasdaq Smallcap Market Symbol: "WIDEF"
Boston Stock Exchange Symbol: "WDE"
- --------------------
<F1> Does not include: (i) 500,000 shares of Common Stock reserved for
issuance under the Company's 1995 Employee Stock Option Plan, of
which 478,500 shares have been reserved for currently outstanding
options and 21,500 shares are available for future issuances; and
(ii) 1,846,322 outstanding warrants and debentures.
<F2> Assumes the exercise of all Warrants, and the conversion of
Debentures registered hereby at a conversion price of $1.14. Does not
include (i) 500,000 shares of Common Stock reserved for issuance
under the Company's 1995 Employee Stock Option Plan, of which 478,500
shares have been reserved for currently outstanding options and
21,500 shares are available for future issuances; and (ii) 1,846,322
outstanding warrants and debentures.
<F3> The Company will receive up to approximately $350,000 if all the
Warrants with respect to Shares covered by this Prospectus are
exercised. See "Use of Proceeds."
</TABLE>
RISK FACTORS
The securities offered hereby are speculative in nature and involve a
high degree of risk, including, but not limited to, the risk factors
described below. Each prospective investor should carefully consider the
following risk factors before making an investment decision. This
Prospectus contains, in addition to historical information forward looking
statements (as defined in the Private Securities Litigation reform Act of
1995) that involve risks and uncertainties. The statements appear in a
number of places in this Prospectus and include statements regarding the
intent, belief or current expectations of the Company, its directors or
officers with respect to: (i) future revenues, (ii) product development,
(iii) the future of the wide format document system industry, and (iv)
other matters. The Company's actual results could differ materially from
those anticipated in the forward looking statements as a result of certain
factors, including those discussed below and elsewhere in this Prospectus.
Certain statements in this Prospectus, and the Company's Reports to
the Commission filed under the Securities Exchange Act of 1934 which are
incorporated by reference herein, constitute 'forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995
(the "1995 Reform Act"). The Company desires to avail itself of certain
"safe harbor" provisions of the 1995 Reform Act and is therefore including
this special note to enable the Company to do so. Forward-looking
statements included in this Prospectus or hereafter included in other
publicly available documents filed with the Securities and Exchange
Commission, reports to the Company's stockholders and other publicly
available statements issued or released by the Company involve known and
unknown risks, uncertainties, and other factors which could cause the
Company's actual results, performance (financial or operating) or
achievements to differ from the future results, performance (financial or
operating) achievements expressed or implied by such forward looking
statement. Such future results are based upon management's best estimates
based upon current conditions and the most recent results of operations.
These risks include, but are not limited to, risks associated with recent
and accumulated losses, competition, conflicts of interest, limited
operating history, dependence upon one product line, and other risks
detailed in the Company's Securities and Exchange Commission filings,
including its Annual Report on Form 10-K, Form 10-Q as well as recently
filed Reports on Form 8-K, if any, each of which could adversely affect the
Company's business and the accuracy of the forward looking statements
contained herein.
1. Limited Relevant Operating History; Limited Revenue and Profit;
Future Operating Results. The Company commenced marketing its first 36"
wide format facsimile machine on a limited basis, primarily for
demonstration purposes, in 1992, and other wide format document systems in
1994 and has a limited relevant operating history upon which an evaluation
of the Company's prospects and performance can be made. The Company is
subject to all of the risks, expenses, delays, problems and difficulties
typically encountered in the establishment of a new business in an industry
characterized by intense competition, as well as those encountered in the
shift from development to commercialization of new products based on
innovative technologies. For example, although the Company announced in
December 1996 that it had achieved its initial target production for its
SLC 436 color scanner, the Company has since reduced its production output
in an effort to implement changes intended to reduce the incidence of
manufacturing defects.
Since inception, the Company has generated limited revenues from
operations, achieved limited profitability in the fiscal years 1993 through
1995, sustained a loss of approximately $840,000 for the fiscal year ended
March 31, 1996 and a further loss of approximately $4,488,000 for the
fiscal year ended March 31, 1997, and $1,014,370 for the fiscal quarter
ended June 30, 1997, and 465,871 for the fiscal quarter ended September 30,
1997, as well. The Company would have incurred losses during each of the
fiscal years ended March 31, 1993, 1994,1995, 1996 and 1997 if it had not
received revenues from research and development grants and similar
reimbursement programs. Unfavorable general economic conditions, including
any possible future downturns in domestic or international economies, would
materially and adversely affect the Company's future operating results.
There can be no assurance that the Company will be able to achieve
increased levels of revenue in the future or that the Company's future
operations will be profitable.
2. Uncertainty of Revenue from Government Sponsored Programs. To
date, a substantial portion of the Company's revenues have been derived
from research and development grants and reimbursement from the Canadian
government. Government sponsored programs are designed to encourage and
support the development and exploitation of new technologies by providing
partial reimbursement to Canadian businesses for expenses incurred in
connection with research and development activities. Prior to 1993, the
Company received reimbursement of a percentage of substantially all of its
expenses from the Canadian government, because the Company was classified
as a "sole purpose research and development Company." Since 1993,
reimbursement of the Company's expenses from the Canadian government has
been limited to reimbursement of a specified percentage of its research and
development expenses and qualified related support expenses. Companies
seeking reimbursement must submit applications verifying the amounts and
nature of research and development expenditures incurred for audit by the
Canadian government. Although the Canadian government reimbursed the
Company for substantially all amounts requested in 1991 and 1992, the
Company did not receive $43,800 (approximately 9.6%) of its requested
reimbursement for the calendar year 1993. As of March 31, 1997, the Company
had research and development grants receivable of $696,347 representing
amounts for which reimbursement has been requested for calendar 1994,
calendar 1995 and, three months, ended March 31, 1996. Of this amount,
$420,000 has subsequently been received.
Other government sponsored research grants and subsidies have been
provided to the Company to fund specific research programs. The majority of
such grants and subsidies have been provided under the Industrial Research
Assistance Program which is administered by the Canadian National Research
Council (the "NRC"). Grants are made on the condition that research and
development activities are performed in Canada and with the prior approval
by the NRC of the scope, content and objectives of the research to be
performed. For the years ended March 31, 1995 and 1996, the Company
received payments under such program of approximately, $18,000 and $66,000,
respectively. No grants were received for the year ending March 31, 1997;
however, the Company together with a branch of the government of the
Province of Quebec became equal shareholders in a research and development
Company named 3994340 Canada Inc., doing business as Technologies of
NovImage ("NovImage"). The joint venture allows NovImage to receive grants
in excess of 40% of qualified research expenditures. Products derived from
the research are then licensed back to the Company at a nominal royalty of
0.5% of sales of those products. The formation of NovImage enables the
Company to obtain a substantial increase in the amount of research that can
be performed. See "Certain Relationships and related Transactions Form
10K."
In 1996, a change in Canadian tax legislation substantially reduced
the amount of subsidy available on research and development performed by
publicly traded companies.
3. Working Capital Position. The Company's heavy investment in
property, plant, equipment and inventories, its continuing operating losses
and its $1,850,000 investment in Nov Image have substantially reduced the
Company's cash position. As a result, management believes it will be
necessary to raise additional capital in the near future, and is exploring
the Company's alternatives at this time. The inability to obtain additional
financing, when needed and on acceptable terms, would have a material
adverse effect on the Company's operations. To the extent that any future
financing involves the sale of the Company's equity securities, the
interests of the Company's then existing shareholders, including investors
in this offering, could be diluted. See "Recent Events."
4. Highly specialized and Emerging Markets; Uncertainty of Market
Acceptance. Possibility of Differing Industry Standards. The wide format
document systems industry is a highly specialized segment of the document
systems industry and is characterized by emerging and evolving markets and
an increasing number of entrants who have introduced or are developing an
array of new wide format products based on a variety of technologies. Each
of these entrants is seeking to establish its products and technologies as
the preferred method for reproducing, transmitting and storing wide format
documents. To the extent that a competitor establishes its technologies as
the preferred method within the industry, the Company may be required to
modify or discontinue its products. As is typical in the case of emerging
and evolving markets, demand and market acceptance for newly introduced
products is subject to a high level of uncertainty. Since both the sender
and recipient of wide format facsimile transmissions must have a WIDEfax
machine in order to accommodate a wide format document in its existing
form, purchasers may be reluctant to purchase the Company's products until
wide scale market acceptance has been achieved. Achieving market acceptance
of the Company's products will require substantial marketing efforts and
expenditures of significant funds to create awareness and demand for the
Company's products. In addition, potential customers may elect to utilize
other products which they believe to be more efficient or have other
advantages over the Company's products or may be reluctant to purchase the
Company's products due to significant capital investment in other wide
format document systems. There can be no assurance that emerging markets
for the Company's products will not be limited, that the Company will have
the funds or other resources necessary to achieve its marketing objective
or that the Company's efforts will result in successful product
commercialization or initial or continued market acceptance for its
products.
5. Uncertainty of Introduced Product Lines. In 1992, the Company
commenced making its first 36" wide format facsimile machine on a limited
basis, primarily for demonstration purposes, and other wide format document
systems in 1994. As a result, the Company has a limited relevant operating
history upon which an evaluation of the Company's prospects and performance
can be made. Since inception, the Company has generated limited revenues
from operations and has not yet achieved profitability. The Company's
revenues are derived from product sales and research and development grants
and reimbursements from the Canadian government. The Company recognizes
revenues from product sales when products are, and from research and
development grants and reimbursements when related expenses are incurred.
The Canadian government audits the Company's requests for reimbursement for
research and development expenses incurred during a calendar year and makes
reimbursement payments typically some months after the Company has filed
the request. The Company's request for reimbursement for approximately
$427,000 attributable to calendar year 1994 (which was filed in September
1995) has been audited and has been received from the Canadian government
in May 1997. The Company has filed a request for reimbursement for the year
ended December 31, 1995, and the three months ended March 31, 1996 for
approximately $255,000 and $123,000 respectively. These requests have not
been audited or paid by the Canadian Government. There is no assurance that
the requests will be approved in their entirety or at all. Denial of all or
a portion of such reimbursement by the Canadian government would result in
a change to current period income and denial of a significant portion of
such reimbursement would have a material adverse effect on the Company's
results of operations for such periods.
6. Limited Marketing Capabilities and Experience; Dependence upon
Third-Party Marketing Arrangements. The Company has limited marketing
experience and limited financial, personnel and other resources to
independently undertake extensive marketing activities. In light of the
foregoing, the Company has entered into third-party marketing arrangements
and intends to rely primarily on domestic and foreign distributors and
dealers to market the Company's products. The Company will be dependent
upon the efforts of such distributors and dealers and may be' dependent
upon a limited number of such distributors and dealers for a significant
portion of its revenues. For the years ended March 31, 1995, March 31,1996
and March 31, 1997, the Company's five largest distributors accounted for
approximately 45.3%, 37%, and 49.9%, respectively, of the Company's product
sales. The Company has only recently entered into marketing arrangements
with many of its key distributors and dealers and the Company's prospects
will depend to a large extent upon their efforts and the Company's ability
to develop and maintain strategic marketing relationships with additional
distributors and dealers. Certain of the Company's dealers and distributors
represent various product lines generally, and cannot be expected to
increase their sales efforts for the Company's products in the absence of
increased incentives or product demand. The Company will also be dependent
upon such distributors and dealers to provide installation and support
services. To the extent that such third parties provide inadequate service
and support, over which the Company will not have direct control, the
Company's reputation, and its ability to continue to sell additional
products would be adversely affected.
7. Technological Factors; Uncertainty of Product Development and
Commercialization. Although the Company has completed the development of
its WIDEfax machines, which the Company believes perform the principal
functions for which they have been designed, the Company's products have
only been recently commercialized and are currently being utilized by only
a limited number of customers. As a result, there can be no assurance that,
upon widespread commercial use, the Company's products will satisfactorily
perform all of the functions for which they have been designed or that they
will be reliable or durable in extensive applications. The Company may be
required to devote considerable efforts and resources to enhance and refine
its wide format products and to develop additional products. Such efforts
remain subject to all the risks inherent in development and
commercialization of new products, including unanticipated delays,
expenses, technical problems or difficulties, as well as the possible
insufficiency of funds to implement efforts, which could result in
abandonment or substantial change in product development or
commercialization. The Company's success will be largely dependent upon its
proposed products meeting targeted cost and performance objectives and the
Company's ability to adapt its products to keep pace with evolving
technological advances in the industry, and may also be dependent upon
their timely introduction into the marketplace. The inability to
successfully complete development of a product or a determination by the
Company, for financial, technical or other reasons, not to complete
development or commercialization of any product, particularly in instances
in which the Company has already made significant capital expenditures,
could have a material adverse effect on the Company.
8. Competition; Technological Obsolescence. The markets for
document systems are characterized by intense competition. Although the
Company is not aware of any manufacturer of 36" facsimile machines, the
Company is aware of one manufacturer of 24" facsimile machines and various
manufacturers of wide format copiers, scanners, plotters and printers. The
Company competes with numerous well-established foreign and domestic
companies that market or are developing wide format document systems, as
well as those which manufacture standard facsimile machines, copiers,
scanners, plotters, and printers. The Company also expects that companies
that manufacture and sell standard facsimile machines, copiers, plotters,
scanners and printers could develop, without substantial delay of time,
wide format document systems directly competitive with the Company's
products. Many of these companies possess substantially greater financial,
technical, marketing, personnel and other resources than the Company and
have established reputations for success in the development and marketing
of facsimile machines, copiers, plotters, scanners and printers and have
sufficient budgets to permit them to implement extensive advertising and
promotional campaigns in response to competitors to enter new markets. The
markets for the Company's products are also characterized by rapidly
changing technology and evolving industry standards, sometimes resulting in
product obsolescence or short product life cycles. As a result, the
Company's ability to compete may be dependent upon its ability to
continually enhance and improve its products, to complete development of
and introduce into the marketplace in a timely manner its proposed products
and to successfully develop and market new products. There can be no
assurance that the Company will be able to compete successfully, that
competitors will not develop technologies or products that render the
Company's products obsolete or less marketable, or that the Company will be
able to enhance successfully its existing products or develop new products.
9. Dependence Upon Principal Product; Limited Customer Base. A
substantial portion of the Company's sales has been derived from the sale
of the 36" WIDEfax facsimile machines prior to May 1994 and from the
WIDEfax Modular Unit since its introduction in May 1994. Upon the
introduction of the WIDEfax Modular Unit, which is an enhanced modular
version of the 36" WIDEfax facsimile machine, the Company discontinued
manufacturing and selling the 36" WIDEfax facsimile machine. A decline in
the sale of the WIDEfax Modular Units would have a material adverse effect
on the Company. For the year ended March 31, 1996 and March 31, 1997, sales
of the WIDEfax Modular Unit accounted for approximately 35.2% and 13.9%
respectively, of the Company's product sales. There can be no assurance
that the Company will not be dependent upon non-recurring sales of WIDEfax
Modular Units to a limited number of customers, which sales could
constitute a substantial portion of the Company's revenues.
10. Dependence Upon Third-Party Suppliers. The Company is
dependent upon third-party suppliers and subcontractors for all of its
supply of custom and component parts incorporated into its products. While
the Company believes that alternative sources of supply for most of its
components and custom parts are readily available on commercially
reasonable terms, the Company is currently dependent upon Alberta
Microelectronics, Inc., its principal supplier of print heads. The Company
does not maintain supply agreements with any of its suppliers or
subcontractors and purchases components and custom parts pursuant to
purchase orders in the ordinary course of business. The Company is
dependent on the ability of its suppliers and subcontractors to, among
other things, satisfy performance and quality specifications and dedicate
sufficient production capacity within scheduled delivery times. There can
be no assurance that the Company's suppliers and subcontractors will be
able to satisfy the Company's scheduled delivery requirements demand.
Failure or delay by the Company's suppliers and subcontractors in
Supplying components or custom parts to the Company would adversely affect
the Company's operating margins and the Company's ability to manufacture
and deliver products on a timely and competitive basis.
11. Foreign Trade Risks. The Company relies on sales to foreign
markets for a substantial portion of its revenues. For the fiscal year
ended March 31,1995, 1996 and 1997, sales of the Company's products to
customers in the Middle East and Asia accounted for approximately 43.5%,
25% and 36.5%, respectively, of the Company's sales. The Company is seeking
to expand product sales in foreign markets, but there can be no assurance
that the Company will be successful or that such markets will prove to be
viable. To the extent that the Company is able to successfully expand its
operations in foreign markets, the Company will become increasingly subject
to risks inherent in foreign trade, including shipping delays, increased
collection risks, trade restrictions, export duties and tariffs and
international political, regulatory and economic developments, all of which
could have an adverse effect on the Company's operating margins and results
of operations and exacerbate the risks inherent in the Company's business.
In addition, the Company conducts a substantial portion of its business in
foreign currency, primarily the Canadian dollar and Indian rupee.
Fluctuations in the exchange rates between the United States dollar and the
Canadian dollar or Indian rupee could have an adverse effect on the
Company's operating results. The Indian rupee has experienced significant
devaluation against the United States dollar and other currencies in recent
years. The Company may seek to limit its exposure to the risk of currency
fluctuations by foreign currency hedging transactions which could expose
the Company to substantial risk of loss.
12. Impact of Currency; Exchange Rates. To date, fluctuation in
foreign currency exchange rates have not had a significant impact on the
Company's results of operations. Fluctuations in the exchange rates
between the United States dollar and the Canadian dollar or Indian rupee;
however, could have an adverse effect on the Company's operating results in
the future. The Company may seek to limit its exposure to the risk of
currency fluctuations by engaging in foreign currency transactions that
could expose the Company to substantial risk of loss. The Company has
limited experience in managing international transactions and has not yet
formulated a strategy to protect the Company against currency fluctuations.
There can be no assurance that fluctuations in foreign currency exchange
rates will not have a significant impact on the Company's future operating
results.
13. Risks Associated with Foreign Manufacturing. Substantially all
of the Company's manufacturing activities are conducted in a free trade
zone in India and, as a result, supplies shipped to the Company's
manufacturing facility and completed products shipped from the facility are
not subject to Indian duties or tariffs. In connection therewith, the
Company has been and will continue to be subject to various risks
associated with conducting business abroad. India may, from time to time
impose duties, tariffs or quotas or other restrictions on the Company's
imports or exports, or otherwise change regulations relating to the conduct
of business in the free trade zone, or the United States or Canada may
impose increased duties, tariffs and other restrictions on the import or
export of the Company's products or supplies, any of which would adversely
affect the Company's operations.
14. Possible Fluctuations in Operating Results. The Company's
operating results could vary from period to period as a result of the
length of the Company's sales cycle, as well as from purchasing patterns of
potential customers, the timing and introduction of new products and
product enhancements by the Company and its competitors, variations in
sales by distribution channel and non-recurring system sales to a limited
number of customers. There can be no assurance that such factors will not
cause significant fluctuations in the Company's operating results in the
future.
15. Lack of Patent Protection; Reliance Upon Trade Secrets. The
Company does not hold any patents, although, it has filed patent
applications relating to certain aspects of its technology. There can be no
assurance, however, that any patents will be issued to the Company or the
breadth or degree of protection future patents, if any, would afford the
Company or that any such patents will not be circumvented or invalidated.
The Company relies upon proprietary know-how and employs various methods to
protect the ideas, concepts and documentation of its proprietary
technology, which methods include nondisclosure agreements with its
employees and distributors. However, such methods may not afford complete
protection and there can be no assurance that competitors or customers will
not independently develop such know-how or obtain access to the Company's
know-how, ideas, concepts and documentation. In addition, certain aspects
of the technologies embodied in the Company's products are generally
available to other manufacturers. The Company is not aware of any
infringement on the proprietary rights of others and has not received any
notice of claimed infringement. However, the Company has not conducted any
investigation as to possible infringement and there can be no assurance
that third parties will not assert infringement claims against the Company
in connection with its products, that any such assertion of infringement
will not result in litigation, or that the Company would prevail in such
litigation or be able to license any infringed patents of third parties on
commercially reasonable terms. If the Company's technologies were found to
infringe another party's rights, the Company could be required to modify
its products or obtain a license. There can be no assurance that the
Company would be able to do so in a timely manner, upon acceptable terms
and conditions, or at all, or that the Company would have the financial or
other resources necessary to defend successfully a claim of violation of
proprietary rights. Failure to do any of the foregoing could have a
material adverse effect on the Company. Furthermore, if the Company's
products or technologies are deemed to infringe patents or proprietary
rights of others, the Company could, under certain circumstances, become
liable for damages, which would have a material adverse effect on the
Company.
The Company has developed and markets two applications software
packages, WIDEView, designed to enhance the user's document imaging
capabilities, and SLC-OVLY, which enables the Company's WIDEfax products to
interface with personal computers operating certain CAD software. The
Company has neither filed for copyright protection of its proprietary
software nor registered the name SLC-OYLY and WideView as a Trademark with
the United States Patent and Trademark Office. The Company holds a
registered trademark with the United State Patent and Trademark Office for
the WIDEfax name only. The Company is not aware of any infringement on the
proprietary rights of others and has not received any notice of claimed
trademark infringement; however, the Company has not conducted any
investigation as to possible trademark infringement and there can be no
assurance that third parties will not assert trademark infringement claims
against the Company in connection with its use of any of its marks, that
any such assertion of infringement will not result in litigation, or that
the Company would prevail in such litigation.
16. Dependence on Key Personnel. The success of the Company will
be largely dependent on the personal efforts of Raja S. Tuli, its Chief
Executive Officer and President and Suneet S. Tuli, its Executive Vice
President of Sales and Marketing, and other key personnel. Although the
Company has entered into five-year employment agreements with Messrs. Tuli
and Tuli, the loss of the services of such persons or other key employees
could have a material adverse effect on the Company's business and
prospects. The Company has obtained "key-man" life insurance on the life of
Raja Tuli in the amount of CDN $1,500,000 and on the life of Suneet Tuli in
the amount of CDN $1,000,000. The success of the Company may also be
dependent upon its ability to hire and retain additional qualified
technical, financial, marketing and other personnel. Competition for
qualified personnel in the wide format document system industry is intense
and there can be no assurance that the Company will be able to hire or
retain additional qualified personnel.
17. Potential Conflicts of Interest. The Company was organized by
Raja, Suneet and Lakhbir Tuli and has engaged in transactions with entities
that are affiliated with such persons which may involve potential conflicts
of interest. For example, the Company has entered into an Agreement with
Widecom R&D, Inc. ("WideCom R&D"), a Company wholly owned by Lakhbir S.
Tuli, a principal stockholder of the Company and father of Raja and Suneet
Tuli, pursuant to which WideCom R&D seeks to recruit licensing and
marketing joint ventures and subcontract manufacturers for the Company in
India. Certain terms of this Agreement, including a provision which
requires WideCom R&D to structure its compensation with licensees, could
result in potential conflicts of interest with the Company. In addition,
Indo WideCom International Ltd., the Company's wholly owned subsidiary,
leases the Company's Indian facility from WideCom Fax and Plotters, Ltd.
("WideCom Fax"), a Company controlled by Lakhbir S. Tuli, and has engaged
WideCom Fax as a non-exclusive distributor in India on the same terms and
conditions as unaffiliated distributors. Moreover, the Company engages
Lakhbir S. Tuli as an independent consultant and, for the years ended March
31, 1996 and 1997, the Company paid Mr. Tuli $54,000 and $115,000
respectively, in consideration for such services. In connection with the
establishment of NovImage, two companies in which Raja S. Tuli has a
beneficial interest in, each acquired 5% of NovImage solely in exchange for
the licensing of their technologies to NovImage. Although management
believes these transactions have been advantageous to the Company, there
can be no assurance that future transactions or arrangements between the
Company and its affiliates will be advantageous, that conflicts of interest
will not arise with respect thereto or that if conflicts do arise, that
they will be resolved entirely in favor of the Company.
18. Control by the Tuli Family. At present, Raja, Suneet and
Lakhbir Tuli, in the aggregate, beneficially own approximately 40.3% of the
Company's outstanding Common Stock. Accordingly, such persons, acting
together, will most likely be in a position to control the Company, elect
all of the Company's directors, increase the authorized capital, dissolve,
merge, or sell the assets of the Company and generally direct the affairs
of the Company. In addition, the Ontario Business Corporation Act (the
"OBCA") under which the Company is incorporated, requires that a majority
of the members of the Company's Board of Directors and of any committee of
the Board of Directors be resident Canadians. The OBCA also provides that
directors shall not transact business at a meeting of directors unless a
majority of directors present are resident Canadians. The Company currently
has a majority of directors who are residents Canadians.
19. No Dividends. The Company has not paid any cash dividends to
date and does not expect to pay cash dividends in the foreseeable future.
20. Possible Delisting,' Penny Stock Regulation. Under Nasdaq
rules, in order to maintain listing on the Nasdaq SmallCap Market, a
Company must have, among other things, $2,000,000 of net tangible assets or
market capitalization of $35,000,000 or $500,000 of net revenue in the
latest fiscal year or 2 of 3 previous fiscal years and a minimum bid price
of $1.00 per share. In addition, Nasdaq reserves the right to withdraw or
terminate the Company's listing on the Nasdaq SmallCap Market at any time
and for any reason in its discretion. In the event that the Company is
unable to maintain continued quotation on the Nasdaq SmallCap Market,
quotation, if any, of the Common Stock would be in the over-the-counter
market in what are commonly referred to as the "pink sheets" of the
National Quotation Bureau, Inc. or on the National Association of
Securities Dealers OTC Electronic Bulletin Board. As a result, an investor
may find it more difficult to dispose of or obtain accurate quotations as
to the price of such securities.
The Securities Enforcement and Penny Stock Reform Act of 1990
requires additional disclosure relating to the market for penny stocks in
connection with trades in any stock defined as a penny stock. Commission
regulations generally define a penny stock to be an equity security that
has a market price of less than $5.00 per share, subject to certain
exceptions. Unless an exception is available, the regulations require the
delivery, prior to any transaction involving a penny stock, of a disclosure
schedule explaining the penny stock market and the risks associated
therewith. In addition, if the Company's securities do not meet an
exception to the penny stock regulations cited above, trading in the
Company's securities would be covered by Rule 1 5g-9 promulgated under the
Exchange Act for non-Nasdaq and non-national securities exchange listed
securities. Under such rule, broker/dealers who recommend such securities
to persons other than established customers and accredited investors
(generally, individuals with net worth in excess of $1,000,000 or annual
incomes exceeding $200,000 or $300,000 together with their spouses) must
make a special written suitability determination for the purchaser and
receive the purchaser's written agreement to a transaction prior to sale.
Securities are exempt from this rule if the market price is at least $5.00
per share.
If the Company's securities become subject to the regulations
applicable to penny stocks, the market liquidity for the Shares could be
adversely affected because the regulations on penny stocks could limit the
ability of broker/dealers to sell the Company's securities and thus the
ability of purchasers of the Company's securities to sell their securities
in the secondary market.
21. Significant Outstanding Options and Warrants,' Potential
Adverse Effect on Market Price of Common Stock. There are currently
outstanding Warrants and Debentures to purchase in the aggregate 2,256,761
shares of Common Stock. Of those warrants, 60,000 are exercisable at a
price of $2.50 per share, 1,756,322 are exercisable at a price of $4.00 per
share, 165,000 are exercisable at $8.25 per share, and 100,000 are
exercisable at $2.125 per share. The Debentures are convertible into shares
of the Company's Common Stock at a conversion price equal to 80% of the
average closing bid price for the 20 trading days preceding the notice of
conversion. For the purposes of this prospectus it has been assumed that
the $200,000 principal amount of the Debentures Outstanding are convertible
into 175,439 shares based upon a conversion price of 12 $1.14 per share.
However, if the Company's Common Stock price materially decreases, the
holders of the Debentures will be entitled to additional shares of the
Company's Common Stock upon conversion of the Debentures. There can be no
assurances that the additional shares would not result in substantial
dilution to the shares of Common Stock held by the other shareholders of
the Company. Additionally, the Company has reserved 21,500 shares of Common
Stock for issuance upon the exercise of options which may be granted under
the Company's Stock Option Plan, under which plan, options to purchase
478,500 shares of Common Stock at a price of $2.125 per share, have been
granted. Although the Company has the right to redeem, for $10 per warrant,
936,322 warrants exercisable at $4.00 per share, and may choose to do so in
light of its current working capital position, heavy downward pressure on
the Company's stock price would likely result as warrant holders exercised
such warrants, and sold the underlying stock, to avoid redemption of their
warrants. To the extent that outstanding options and warrants are
exercised, dilution to the percentage ownership of the Company's
stockholders will occur and any sales in the public market of the Shares
underlying such options and warrants may adversely affect prevailing market
prices for the Shares. Moreover, the terms upon which the Company will be
able to obtain additional equity capital may be adversely effected since
the holders of outstanding options and warrants can be expected to exercise
them at a time when the Company would, in all likelihood, be able to obtain
any needed capital on terms more favorable to the Company than those
provided in the outstanding options and warrants.
22. Shares Eligible for Future Sale. The Company has 6,165,876
shares of Common Stock outstanding and 2,256,761 shares issuable upon
exercise of outstanding warrants and conversion of debentures, all of which
may be sold without further registration under the Securities Act. An
additional 2,281,825 shares (and 929,762 shares of Common Stock issuable
upon exercise of certain warrants, are deemed to be "restricted securities"
as that term is defined under Rule 144 promulgated under the Securities
Act, and may only be sold pursuant to an effective registration under the
Securities Act, in compliance with the exemption provisions of Rule 144 or
pursuant to another exemption under the Securities Act. All such
"restricted" shares may be sold pursuant to Rule 144 at various times in
the future. No prediction can be made as to the effect, if any, that sales
of such shares or even the availability of such shares for sale will have
on the market prices prevailing from time to time. The possibility that
substantial amounts of Common Stock may be sold in the public market may
adversely affect the prevailing market price for the Common Stock and could
impair the Company's ability to raise capital through the sale of
additional equity securities described above.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares
by the Selling Security Holders. The Company is not paying any
underwriting, brokerage or other commissions in any form whatsoever in
connection with the offer and sale of the Shares.
However, because certain Shares being sold pursuant to this
Prospectus will be acquired from the Company upon exercise of currently
outstanding Warrants, the Company would receive $350,000 in proceeds if all
such Warrants are exercised, which the Company plans to use for working
capital and general corporate purposes.
SELLING SECURITY HOLDERS
The Company has agreed to register the resale of the Selling Security
Holders' Shares under the Securities Act and to pay all expenses in
connection therewith. An aggregate of 697,906 Selling Security Holders'
Shares consisting of 412,467 shares of Common Stock, plus an additional
110,000 shares of Common Stock (subject to anti-dilution provisions)
issuable upon exercise of warrants, plus an indeterminate number of
additional shares of Common Stock (estimated at 175,439 for purposes of
this Prospectus) issuable upon conversion of outstanding debentures, may be
offered and sold pursuant to this Prospectus by the Selling Security
Holders. Except as set forth below, none of the Selling Security Holders
has ever held any position or office with the Company or had any other
material relationship with the Company. See "Recent Events Private
Placement Offering Completed."
SELLING SECURITY HOLDERS AND
TRANSACTIONS WITH SELLING SECURITY HOLDERS
<TABLE>
<CAPTION>
Shares/
Warrant Shares/
Beneficially Shares/ Warrant Shares/ Shares
Owned Prior to Warrant Shares/ Owned After Owned After
Name of Security Holder Offering Offering Offered Offering Offering (1)
- -------------------------------- --------------- --------------- --------------- ------------
<S> <C> <C> <C> <C>
Stanley R. Goldstein(2) 0/5,000 0/5,000 0 *
Victor J. DiGioia(2) 0/5,000 0/5,000 0 *
Robert L. Blessey) 3,500/0 3,500/0 0 *
Don Johnson, Walter J. Lack,
Thomas V. Girardi, Glenn
McCusker, and Gino Aiello(3) 200,500/150,500 150,000/50,000 100,500 50,500
Chimicles, Jacobsen & Tikellis(4) 200,000/0 200,000/0 0 *
Global Bermuda Limited
Partnership(5) 0/50,000 0/50,000 0 *
<CAPTION>
Shares Percentage of
Beneficially Shares Shares
Owned Prior Shares Owned After Owned After
Debenture Holder to Offering Offered Offering Offering
- ---------------- ------------ ------- ----------- -------------
<S> <C> <C> <C> <C>
Global Bermuda Limited Partnership (6) 234,406 234,406 0 *
- --------------------
<F*> Percentage is less than 1%.
<F1> Computed for purposes herein to give effect to the exercise of all
Warrants held by such Selling Security Holder and not any other
Selling Security Holder. Figures are computed based upon 5,895,545
shares of Common Stock outstanding on February 23, 1998.
<F2> Shares issuable upon exercise of Warrants at an exercise price of
$2.50 per share exercisable for a period of five years expiring June
2, 2002. These Warrants were issued for services rendered
<F3> Includes (i) Shares issuable upon exercise of Warrants at an exercise
price of $2.50 per share exercisable for a period of three years
expiring August 19, 2000; and (ii) 100,500 Warrant Shares and 50,500
Shares of Common Stock beneficially owned by Walter Lack and not
subject to this registration. Warrants were issued pursuant to the
terms and conditions of a Settlement Agreement.
<F4> Shares received by plaintiffs' counsel for legal fees pursuant to the
terms and conditions of a Settlement Agreement.
<F5> Shares issuable upon exercise of Warrants at an exercise price of
$4.00 per share exercisable for a period of three years expiring May
19, 2000. Excludes shares issuable upon conversion of the Debentures
referred to in footnote 6 below.
<F6> Shares of Common Stock issuable upon conversion of $200,000 of 8%
Debentures at an assumed conversion price of $114 per share and
58,967 shares issued upon conversion of $50,000 principal amount of
Debentures. Excludes shares issuable upon exercise of Warrants
referred to in footnote 5 above.
</TABLE>
PLAN OF DISTRIBUTION
The Shares of Common Stock held by certain Selling Security Holders
and the Shares underlying the Warrants and Debentures issuable to Selling
Security Holders upon exercise thereof, may be offered and sold from time
to time by the Selling Security Holders as market conditions permit in the
over-the-counter market, or otherwise, at prices and terms then prevailing
or at prices related to the then-current market price, or in negotiated
transactions. The Shares offered hereby may be sold by one or more of the
following methods, without limitation: (a) a block trade in which a broker
or dealer so engaged will attempt to sell the shares as agent but may
position and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by a broker or dealer as principal and resale by
such broker or dealer for its account pursuant to this Prospectus; (c)
ordinary brokerage transactions and transactions in which the broker
solicits purchasers; and (d) face-to-face transactions between sellers and
purchasers without a broker-dealer. In effecting sales, brokers or dealers
engaged by the Selling Stockholder may arrange for other brokers or dealers
to participate. Such brokers or dealers may receive commissions or
discounts from the Selling Security Holders in amounts to be negotiated
immediately prior to the sale. Such brokers and dealers and any other
participating brokers or dealers may be deemed to be "underwriters" within
the meaning of the Securities Act of 1933, in connection with such sales.
DESCRIPTION OF SECURITIES
The Company is authorized to issue 20,000,000 shares of Common Stock,
no par value per share. The holders of Common Stock are entitled to one
vote for each share held of record on each matter submitted to a vote of
shareholders and do not have cumulative voting rights. The Common Stock
has no conversion rights and includes no preemptive rights or other rights
to subscribe for additional securities. The holders of the Common Stock
will be entitled to receive dividends, if any, as may be declared by the
Board of Directors out of legally available funds and to share pro rata in
any distribution to the shareholders, including any distribution upon
liquidation of the Company. All outstanding Shares of Common Stock are
fully paid and nonassessable.
LEGAL MATTERS
Certain legal matters relating to the Common Stock will be passed
upon for the Company by the law firm of Goldstein &~DiGioia, LLP ("G&D"),
New York, New York; G&D has relied on the opinion of Marks, Ciraco, Ontario
counsel to the Company relating to all aspects of Ontario and Canadian law.
Certain principals at G&D holds warrants to purchase 10,000 shares at $2.50
per share, which Warrants are exercisable for a five year period and expire
on June 2, 2002, and have been included in the Registration Statement of
which this Prospectus forms a part.
EXPERTS
The financial statements and schedules of the Company included and
incorporated by reference in the Company's Annual Report on Form 10-K for
the year ended March 31, 1997, have been audited by BDO Dunwoody,
independent chartered accountants, to the extent and for the periods
indicated in their reports with respect thereto, and are incorporated
herein by reference in reliance upon their reports given on the authority
of said firms as experts in accounting and auditing.
DISCLOSURE OF COMMISSION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Indemnification may be permitted to directors, officers, employees
and agents of a corporation under certain circumstances and subject to
certain limitations pursuant to Part IX of the Ontario Business Corporation
Act and the Company's By-laws.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons
controlling the Company, pursuant to the foregoing provisions, the Company
has been informed that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Company will, unless in the opinion of its counsel,
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by final adjudication of such issue.
