As filed with the Securities and Exchange Commission on October 15, 1999
File No.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
THE WIDECOM GROUP INC.
(Exact name of Registrant as specified in its charter)
Ontario, Canada 3669 98-0139939
(State of Incorporation) (Primary Standard (I.R.S. Employer
Industrial Identification
Classification No.) Number)
------------------------
72 Devon Road, Unit # 18
Brampton, Ontario
Canada, L6T 5B4
(905) 712-0505
(Address, including zip code, and telephone number,
including area code, of Company's principal executive offices)
Suneet S. Tuli, Executive Vice President
c/o The Corporation Trust Company
1633 Broadway, New York, New York 10019
(905) 712-0505
(Name and address, including zip code, and telephone number,
including area code, of agent for service)
------------------------
With copies to:
VICTOR J. DiGIOIA, ESQ.
MICHAEL A. GOLDSTEIN, ESQ.
GOLDSTEIN & DiGIOIA, LLP
369 Lexington Avenue
New York, New York 10017
Telephone (212) 599-3322
Facsimile (212) 557-0295
Approximate date of commencement of proposed sale to the public: As
soon as practicable after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE (1)
<TABLE>
<CAPTION>
Proposed Proposed
Maximum Maximum Amount of
Title of Shares Amount to be Offering Price Aggregate Registration
to be Registered Registered per Share (2) Offering Price(2) Fee
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01(3) 538,441 $6.0625 $3,264,298.56 $ 907.47
Common Stock, par value $.01 451,000 $6.0625 $2,734,187.50 $ 760.11
Common Stock, par value $.01(4) 50,000 $6.0625 $ 303,125 $ 84.27
Total 1,039,441 $6,301,611.06 $1,751.85
- ------------------
<FN>
<F1> This Registration Statement on Form SB-2 is being filed pursuant to
Rule 429 under the Securities Act of 1933, as amended. 41,250 shares of
common stock underlying Underwriters' Warrants, and 167,500 shares of
common stock underlying privately issued warrants were previously
registered, and a fee of $2,648.71 was previously paid, under our
Registration Statement on Form F-1, No. 333-78004, which is hereby
combined with this Registration Statement under Rule 429.
<F2> Total estimated solely for the purpose of determining the registration
fee. Based upon the closing bid price of Widecom's stock on the
Nasdaq Small Cap Market on October 11, 1999 ($6.0625).
<F3> Represents Shares of Common Stock issuable upon exercise of
outstanding Common Stock purchase warrants held by certain security
holders. Pursuant to Rule 416 of the Securities Act of 1933, as
amended (the "Act"), there are being registered such additional number
of shares of Common Stock as may become issuable pursuant to the anti-
dilution provisions of the Warrants.
<F4> Represent Shares of Common Stock issuable upon conversion of outstanding
promissory notes held by certain security holders. Pursuant to Rule 416
of the Securities Act of 1933, as amended (the "Act"), there are being
registered such additional number of shares of Common Stock as may
become issuable pursuant to the anti-dilution provisions of the
notes.
</FN>
</TABLE>
EXPLANATORY NOTE
The purpose of this Registration Statement on Form SB-2 of the Widecom
Group, Inc. is to register an additional 1,039,441 shares of our common
stock, par value $.01 per share. An additional 41,250 shares of common stock
underlying common stock purchase warrants issued to our underwriters in our
initial public offering and 167,500 shares of common stock underlying
privately issued common stock purchase warrants were previously registered
under our Registration Statement on Form F-1, No. 333-78004, which is
hereby combined with this Registration Statement pursuant to Rule 429 under
the Securities Act.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission acting
pursuant to Section 8(a) may determine.
P R O S P E C T U S
1,039,441 Shares
THE WIDECOM GROUP INC.
Common Stock
This Prospectus covers an aggregate of 1,039,441 shares of common stock,
par value $.01, (the "Shares") of The Widecom Group Inc., an Ontario
corporation ("Widecom") including: (i) 232,441 Shares issuable upon
exercise of 232,441 outstanding common stock purchase warrants which were
originally sold as part of Widecom's initial public offering (the "Public
Warrants"); (ii) 306,000 Shares underlying privately issued common stock
purchase warrants (the"Private Warrants"); (iii) 50,000 shares of Common
Stock issuable upon conversion of $200,000 principal amount of convertible
notes (the "Notes") and (iv) 451,000 Shares held by certain selling
shareholders. The Prospectus is intended to be utilized by the Selling
Shareholders, their assigns and transferees.
Widecom will bear all the expenses incident to the registration of the
Shares under the Securities Act of 1933, as amended, and state securities
laws, if any, on behalf of the Selling Shareholders. Widecom will not
receive any of the proceeds from the sale of the Shares by the Selling
Shareholders. The Public Warrants are quoted on the Bulletin Board under
the symbol "WIDEF" and on the Boston Stock Exchange as "WDEW."
Widecom's common stock is traded in the over-the counter market and is
quoted on the Nasdaq Small Cap Market under the symbol "WIDE" and on the
Boston Stock Exchange under the symbol "WDE". On _________, 1999, the
closing bid and asked prices for the common stock as reported on Nasdaq were
$____ and $____, respectively.
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" PAGE 5 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.
THESE SECURITIES ARE OFFERED FOR SALE IN THE STATE OF MARYLAND
PURSUANT TO REGISTRATION WITH THE DIVISION OF SECURITIES OF THE DEPARTMENT
OF LAW OF MARYLAND, BUT REGISTRATION IS PERMISSIVE ONLY AND DOES NOT
CONSTITUTE A FINDING THAT THIS PROSPECTUS IS TRUE, COMPLETE AND NOT
MISLEADING, NOR HAS THE DIVISION OF SECURITIES PASSED IN ANY WAY UPON THE
MERITS OF, RECOMMENDED, OR GIVEN APPROVAL ON THESE SECURITIES. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is ___________, 1999
TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY 1
THE OFFERING 3
RISK FACTORS 5
ADDITIONAL INFORMATION 15
USE OF PROCEEDS 15
SELLING SECURITY HOLDERS 15
SELLING SECURITY HOLDERS AND
TRANSACTIONS WITH SELLING SECURITY HOLDERS 16
SELECTED FINANCIAL DATA 18
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 19
DESCRIPTION OF BUSINESS 24
LEGAL PROCEEDINGS 34
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS 35
EXECUTIVE COMPENSATION 37
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT 38
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 39
DESCRIPTION OF SECURITIES 40
EXPERTS 41
CHANGES IN ACCOUNTANTS 41
DISCLOSURE OF COMMISSION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES 42
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 42
PLAN OF DISTRIBUTION 43
FORWARD LOOKING STATEMENTS 43
PROSPECTUS SUMMARY
The following summary is intended to set forth certain pertinent facts and
highlights from material contained in the body of this Prospectus. The
summary is qualified in its entirety by reference to the more detailed
information and consolidated financial statements appearing elsewhere in
this Prospectus. Each prospective investor is urged to read this Prospectus
in its entirety. Unless otherwise indicated, all numbers have been adjusted
to reflect a one-for-four (1:4) reverse stock split effective on January 29,
1999.
THE COMPANY
The Widecom Group Inc. was incorporated in Ontario, Canada in June 1990. We
design, assemble and recently commenced 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
In developing and marketing wide-format document systems, we currently
market the following different products:
* Widecom SLC936-C Color scanner, which offers high speed, high quality
scanning capabilities;
* Widecom SLC1036 advanced scanner, which offers faster scanning and
output functions than the SLC936-C;
* Widecom SLC972 wide format scanner, which can handle documents up to
six feet wide and 1/2-inch thick;
* Widecom WC936P Plotter/Printer, which can print wide format documents
onto a variety of media;
* Widecom Modular Digital Multi-Function Unit, which incorporates a
scanner module, a plotter module, optional internal modems and
software; and
* print and scan heads, software drivers and other accessories.
Our Approach to the Market
Our primary marketing strategy is to sell our products to targeted
commercial markets in which we believe that wide format document systems
have potential for significant applications, principally architectural,
engineering and construction firms. We believe that the reproduction,
archiving and transmission of wide format documents are essential to those
businesses. We also market our products for use by manufacturers in the
garment, woodworking and graphic arts industries, utilities, government
agencies and the newspaper 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. In general, we believe that users of wide format documents have
an increasing need for systems which can more efficiently scan, copy, print,
transmit, receive and archive wide format documents.
About Widecom
We were incorporated in the Province of Ontario, Canada in June of 1990.
Our executive offices are located at 72 Devon Road, Unit 18, Brampton,
Ontario, Canada L6T 5B4. Our telephone number is (905) 712-0505.
About This Prospectus
The Shares registered hereby may be sold from time to time by the Selling
Shareholders, or by the transferees of the Selling Shareholders. No
underwriting arrangements have been entered into by the Selling
Shareholders. The distribution of the Shares by the Selling Shareholders
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
Shareholders 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 transactions 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. Usual and customary or specifically
negotiated brokerage fees or commissions may be paid by the Selling
Shareholders in connection with such sales. The Selling Shareholders and
intermediaries through whom such Shares are sold may be deemed
"underwriters" within the meaning of the Securities Act, with respect to the
Shares offered.
THE OFFERING
Securities Offered by the Company 1,039,441
Common Stock Outstanding
Prior to Offering (1) 2,556,041
Common Stock Outstanding
After the Offering (2) 3,144,482
Risk Factors This Offering involves a high degree
of risk. See "Risk Factors."
Use of Proceeds (3) Widecom will not receive any proceeds
from the sales of the Selling
Shareholders. We anticipate that
proceeds received from the exercise
of any of the Public or Private
Warrants will be used for working
general corporate purposes. See "Use
of Proceeds."
Nasdaq Smallcap Market Symbol
(Common Stock): "WIDE"
Boston Stock Exchange Symbol
(Common Stock): "WDE"
Bulletin Board Symbol
(Public Warrants): "WIDEF"
Boston Stock Exchange Symbol
(Public Warrants): "WDEW"
- -------------------
[FN]
<F1> As of September 23, 1999. Does not include (i) 125,000 shares of
Common Stock reserved for issuance under the Company's 1995 Employee
Stock Option Plan, of which 114,583 shares have been reserved for
currently outstanding options and 10,417 shares are available for
future issuances.
<F2> Assumes the exercise of all of the Warrants for which underlying
Shares are being registered hereby. Does not include (i)125,000 shares
of Common Stock reserved for issuance under the Company's 1995
Employee Stock Option Plan, of which 114,583 shares have been reserved
for currently outstanding options and 10,417 shares are available for
future issuances.
<F3> The Company will receive up to approximately $2,384,205 in proceeds if
all Warrants are exercised within 120 days from the effective date
of this Registration Statement and $4,546,410 in proceeds if all such
Warrants are exercised thereafter. Widecom plans to use all such
proceeds for working capital and general corporate purposes. See "Use
of Proceeds."
</FN>
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.
We have a limited operating history and we are losing money. We began
marketing our first 36" wide format facsimile machine on a limited basis,
primarily for demonstration purposes, in 1992, and other wide format
document systems in 1994. We have only recently commenced commercialization
of the full line of our products. Therefore, we have only a limited
relevant operating history upon which an evaluation of our prospects and
performance can reasonably be based. We are 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.
Since inception, we have generated limited revenues from operations
and have lost money every year since 1996. For the fiscal year ended March
31, 1998, we sustained a loss of $3,335,865. For the fiscal year ended
March 31, 1999, we sustained a loss of $2,244,351. For the quarter ended
June 30, 1999, we sustained a further loss of $89,634. The losses for these
fiscal years would have been greater if we did not receive revenues from
research and development grants and similar reimbursement programs from
various Canadian government programs. Unfavorable general economic
conditions, including any possible future downturns in domestic or
international economies, including the construction industry where many of
our products are used, could materially and adversely affect our future
operating results. There can be no assurance that we will be able to achieve
increased levels of revenue in the future or that our future operations will
be profitable.
Our Common Stock may be delisted from Nasdaq. Our common stock is
listed for trading on the Nasdaq SmallCap Market under the symbol WIDE.
Under Nasdaq rules, in order to maintain listing of its common stock and
warrants 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 income 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 a company's
listing on the Nasdaq SmallCap Market at any time and for any reason.
Widecom completed a one-for-four (1:4) reverse stock split in January,
1999, to raise the bid price of our common stock over the minimum bid price
requirement of $1.00.
If we are unable to maintain continued quotation on the Nasdaq Small
Cap Market, we may be subject to additional disclosure requirements
applicable to Penny Stocks under the Exchange Act Rules. A Penny Stock, as
defined in Rule 3a51-1 of the Exchange Act, is generally an equity security
that has a market price of less than U.S.$5.00 per share, other than a
reported security listed or registered with a national securities exchange,
like Nasdaq. Absent an exception, the Exchange Act Rules require that
broker/dealers deliver to any potential purchaser prior to the execution of
any transaction involving the purchase or sale of a Penny Stock, a
disclosure schedule explaining the Penny Stock market and the risks
associated therewith. In addition, the Exchange Act Rules also make it
unlawful for a broker/dealer to sell or purchase Penny Stocks on behalf of
any customer, other than an established customer of such a
broker/dealer or an accredited investor, unless the broker/dealer:
* obtains information concerning the financial situation, investment
experience and investment objectives of its customer;
* makes a special written determination based on the information
received, which must be delivered to its customer, that transactions
in Penny Stocks are suitable for its customer and that its customer
has sufficient knowledge and experience to be capable of evaluating
the risks of transactions in Penny Stocks; and
* receives, prior to the execution of the transaction, its customers'
written consent to the transaction, setting forth, among other things,
the identity and quantity of the Penny Stock to be purchased.
An accredited investor, as defined under Rule 501 (a) of the Act, is
generally an individual with a net worth in excess of U.S.$1,000,000 or an
annual income exceeding U.S.$200,000 individually or U.S.$300,000 together
with his/her spouse. If our securities become subject to the Exchange Act
Rules applicable to Penny Stocks, the market liquidity for our securities
could be adversely affected.
We have limited working capital. Our heavy investment in property,
plant, equipment and inventories, our continuing operating losses and our
$1,850,000 investment in Technologies NovImage have substantially reduced
our cash position. Additionally, the lack of product sales and costs
incurred while developing and introducing the new Series SLC936 Scanners
have further weakened our capital position. We may need to obtain additional
financing to continue the introduction of our new products and to finance
research and development of further additional products. To the extent that
any future financing involves the sale of our equity securities, the
interests of our then existing shareholders could be diluted.
A substantial portion of our sales have been derived from the sale of
our 4-series scanner units since their introduction in May 1995. Since we
have only recently introduced our new products and have not, to date,
achieved significant sales revenue from these products, a decline in the
sale of our scanner units would have a material adverse effect on our
business. For the fiscal years ended March 31, 1998 and March 31, 1999,
sales of our 4-series scanner units accounted for approximately 78.6% and
0%, respectively, of our product sales. There can be no assurance that we
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 our revenues.
Our products may not be accepted by our customers. The wide format
document systems industry is a highly specialized segment of the document
systems industry and is characterized by evolving specialized 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, we may be required to modify or
discontinue our products. As is typical in the case of niche-markets, demand
and market acceptance for newly introduced products is subject to a high
level of uncertainty. Achieving market acceptance of our products,
especially new products, will require substantial marketing efforts and
expenditures of significant funds to create awareness and demand. In
addition, potential customers may elect to utilize other products which they
believe to be more efficient or have other advantages over our products or
may be reluctant to purchase our products due to significant capital
investment in other wide format document systems. There can be no assurance
that niche-markets for our products will not be limited, that we will have
the funds or other resources necessary to achieve marketing objective or
that our efforts will result in successful product commercialization or
initial or continued market acceptance for its products.
We may not be able to sell our new products. We commenced making our
first 36" wide format facsimile machine on a limited basis, primarily for
demonstration purposes in 1992, and other wide format document systems in
1994. We have only recently commenced the marketing and sales of our new
Series SLC936 Scanners and WC936P plotter/printer. There can be no
assurance that the market will accept these new products. Since inception,
we have generated limited revenues from operations and have not yet achieved
profitability. To date, our revenues have been derived from product sales
and research and development grants and reimbursements from the Canadian
government.
We have limited marketing experience and we depend on others to market
our products. We have limited marketing experience and limited financial,
personnel and other resources to independently undertake extensive marketing
activities. In light of the foregoing, we have entered into third-party
marketing arrangements and intend to rely primarily on domestic and foreign
distributors and dealers to market our products. We will be dependent upon
the efforts of our distributors and dealers and may be dependent upon a
limited number of distributors and dealers for a significant portion of our
revenues. For the years ended March 31, 1998, and March 31, 1999 our five
largest distributors accounted for approximately 43% and 8%, respectively,
of our product sales. We have only recently entered into marketing
arrangements with many of our key distributors and dealers. Our prospects
will depend to a large extent upon their efforts and our ability to develop
and maintain strategic marketing relationships with these and additional
distributors and dealers. Some of our dealers and distributors represent
various product lines generally, and cannot be expected to increase their
sales efforts for our products in the absence of increased incentives or
product. We will also be dependent upon our distributors and dealers to
provide installation and support services. To the extent that these third
parties provide inadequate service and support, over which we will not have
direct control, our reputation, and our ability to continue to sell
additional products could be adversely affected.
Our products may not work with all technology. Although we have
completed the development of our current generation of wide format document
scanners and plotters, which we believe perform the principal functions for
which they have been designed, our products have been only 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, our 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. We may be required to devote
considerable efforts and resources to enhance and refine our 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. Our success will be largely dependent upon
proposed products meeting targeted cost and performance objectives and our
ability to adapt our 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 Widecom, for financial,
technical or other reasons, not to complete development or commercialization
of any product, particularly in instances in which we have already made
significant capital expenditures, could have a material adverse effect on
our business.
Our products may not be competitive. The markets for document systems
are characterized by intense competition between various manufacturers of
wide format copiers, scanners, plotters and printers. Widecom 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. We
also expect 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 our products. Many of these companies possess substantially greater
financial, technical, marketing, personnel and other resources than we do
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 to enter new markets.
The markets for our products are also characterized by rapidly
changing technology and evolving industry standards, sometimes resulting in
rapid product obsolescence or short product life cycles. 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 of our new products and to successfully
develop and market these new products. There can be no assurance that we
will be able to compete successfully, that competitors will not develop
technologies or products that render our products obsolete or less
marketable, or that we will be able to enhance successfully our existing
products or develop new products.
We may not receive any money from government-sponsored programs.
Uncertainty of Revenue from Government Sponsored Programs. In the past, a
substantial portion of Widecom'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. During the fiscal years ended
March 31, 1998 and March 31, 1999, however, we did not seek reimbursement
from the Canadian government for any expenses.
Other government sponsored research grants and subsidies have also
been provided to us in the past to fund specific research programs. The
majority of these grants and subsidies have been provided under the
Industrial Research Assistance Program which is administered by the
Canadian National Research Council. Grants are made on the condition that
research and development activities are performed in Canada and with the
prior approval by the Research Council of the scope, content and objectives
of the research to be performed. For the fiscal year ended March 31, 1998,
we did not receive any grants. Widecom, 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
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 Widecom at a nominal royalty of 0.5% of sales of
those products. The formation of NovImage enables Widecom to obtain a
substantial increase in the amount of research that can be performed at a
significantly reduced cost. However, there can be no assurances that these
grants and programs will be continued beyond the immediate future. In the
event of the discontinuance of any such programs, we may incur higher
research and development and employee costs.
We rely on others for the components of our products. We are
dependent upon third-party suppliers and subcontractors for our supply of
custom and component parts incorporated into our products. We believe that
alternative sources of supply for most of our components and custom parts
are readily available on commercially reasonable terms. We are currently
dependent upon Alberta Microelectronics, Inc., our principal supplier of
print heads. Moreover, we do not maintain supply agreements with any of our
suppliers or subcontractors and we purchase components and custom parts
pursuant to purchase orders in the ordinary course of business. We are
dependent on the ability of our 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 our suppliers and subcontractors will be able to
satisfy our scheduled delivery requirements. Failure or delay by our
suppliers and subcontractors in supplying components or custom parts to us
would adversely affect our operating margins and our ability to manufacture
and deliver products on a timely and competitive basis.
We sell to foreign countries. We rely on sales to foreign markets for
a substantial portion of our revenues. For the fiscal years ended March 31,
1998 and March 31, 1999, sales of our products to customers in the Middle
East and Asia accounted for approximately 22% and 30.4%, respectively, of
our sales. We are seeking to expand product sales in foreign markets, but
there can be no assurance that we will be successful or that such markets
will prove to be viable. To the extent that we are able to successfully
expand our operations in foreign markets, we 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 our operating margins and results of
operations and exacerbate the risks inherent in our business.
We may lose money on foreign currency exchange. We conduct a
substantial portion of our business in foreign currency, primarily the
Canadian dollar and 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 could have an adverse effect
on our operating results in the future. The Indian rupee has experienced
significant devaluation against the United States dollar and other
currencies in recent years. We seek, however, to limit our exposure to the
risk of currency fluctuations by engaging in foreign currency transactions
that could expose us to substantial risk of loss. There can be no assurance
that fluctuations in foreign currency exchange rates will not have a
significant impact on our future operating results.
Almost all of our manufacturing is performed in India. Substantially
all of our manufacturing activities are conducted in a free trade zone in
India. As a result, supplies shipped to our manufacturing facility and
completed products shipped from the facility are not subject to Indian
duties or tariffs or United States trade embargoes. However, in connection
therewith, we have 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 our imports or
exports, or otherwise change regulations relating to the conduct of business
in the free trade zone. Similarly, the United States or Canada may impose
increased duties, tariffs and other restrictions on the import or export of
our products or supplies. Any of these possibilities could adversely affect
our operations.
Our operating results could vary. Our operating results could vary
from period to period as a result of several factors, such as:
* the length of our sales cycle;
* purchasing patterns of potential customers;
* the timing and introduction of new products;
* product enhancements by us and our competitors;
* variations in sales by distribution channels; 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 our operating results in the future.
We do not have patents on all of the technology we use. We hold one
patent and have filed a number patent applications relating to different
aspects of our technology. There can be no assurance, however, that any
additional patents will be issued to us. Even if additional patents are
issued to us, there can be no assurance as to the breadth or degree of
protection that future patents would afford us or that any future patents
would not be circumvented or invalidated. We rely upon proprietary know-how
and employ various methods to protect the ideas, concepts and documentation
of its proprietary technology. These methods include, but are not limited
to, nondisclosure agreements with our employees and distributors. Such
methods may not, however, afford complete protection and there can be no
assurance that competitors or customers will not independently develop such
know-how or obtain access to our know-how, ideas, concepts and
documentation. In addition, some aspects of the technologies embodied in our
products are generally available to other manufacturers.
We are not aware of any infringement on the proprietary rights of
others and have not received any notice of any claimed infringement. We have
not, however, conducted any investigation as to possible infringement.
Therefore, there can be no assurance that third parties will not assert
infringement claims against us in connection with our products, that any
such assertion of infringement will not result in litigation, that we would
prevail in such litigation or be able 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 or violation of
proprietary rights. Failure to do any of the foregoing could have a material
adverse effect on our business. Furthermore, if our products or technologies
are deemed to infringe patents or proprietary rights of others, we could,
under certain circumstances, become liable for damages, which would have a
material adverse effect on our business.
We hold a registered trademark with the United State Patent and
Trademark Office for the WIDEfax(r) name only. We are not aware of any
infringement on the proprietary rights of others and have not received any
notice of claimed trademark infringement. We have not, however, conducted
any investigation as to possible trademark infringement. Therefore, there
can be no assurance that third parties will not assert trademark
infringement claims against us in connection with our use of any of our
marks, that any such assertion of infringement will not result in
litigation, or that we would prevail in such litigation.
We depend on our President and Vice President. Our success is largely
dependent on the personal efforts of Raja S. Tuli, our Chief Executive
Officer and President, Suneet S. Tuli, our Executive Vice President of
Sales and Marketing, and other key personnel. Although we have entered into
five-year employment agreements with Messrs. Raja Tuli and Suneet Tuli, the
loss of the services of such persons or other key employees could have a
material adverse effect on our business and prospects. We have 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 $750,000.
Our success may also be dependent upon our 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 we will be able to
hire or retain additional qualified personnel.
Potential Conflicts of Interest. We were organized by Raja, Suneet
and Lakhbir Tuli. Lakhbir Tuli is the father of Raja and Suneet Tuli. We
have engaged in transactions with entities that are affiliated with our
organizers which may involve potential conflicts of interest. For example,
Indo Widecom International Ltd., our wholly owned subsidiary, leases our
Indian facility from Widecom Fax and Plotters, Ltd., a company controlled by
Lakhbir S. Tuli. We have also engaged Widecom Fax as a non-exclusive
distributor in India on the same terms and conditions as unaffiliated
distributors. Moreover, we engage Lakhbir S. Tuli as an independent
consultant and, for the fiscal years ended March 31, 1998 and 1999, we paid
him (and certain companies controlled by him) $159,600 and $134,000,
respectively, in consideration for such services. In connection with the
establishment of NovImage, two companies in which Raja S. Tuli has a
beneficial interest each acquired 5% of NovImage solely in exchange for the
licensing of their technologies to NovImage. These two companies are
3294412 Canada, Inc. and 3294421 Canada, Inc. Although management believes
these transactions have been advantageous to us, there can be no assurance
that future transactions or arrangements between us and our affiliates will
be advantageous, that conflicts of interest will not arise with respect
these transactions or that if conflicts do arise, that they will be
resolved entirely in our favor.
The Tuli family controls Widecom. At present, Raja, Suneet and
Lakhbir Tuli, in the aggregate, beneficially own approximately 37.15% of
Widecom's outstanding Common Stock. Accordingly, such persons, acting
together, will most likely be in a position to control Widecom. Therefore,
they may elect all of our directors, increase the authorized capital,
dissolve, merge, or sell our assets and generally direct our affairs.
Our outstanding options and warrants may depress our stock price. As
of the date of this Registration Statement, there were currently outstanding
warrants to purchase 887,191 shares of common stock. The exercise prices of
those warrants are as follows:
* 25,000 are exercisable at $8.50 per share;
* 15,000 are exercisable at a price of $10.00 per share;
* 232,441 are exercisable at a price of $5.00 per share for a
period of 120 days from the effective date of this registration
statement and $10.00 thereafter;
* 192,500 are exercisable at $16.00 per share;
* 41,250 are exercisable at $33.00 per share;
* 106,000 are exercisable at $2.00 per share;
* 50,000 are exercisable at $3.00 per share;
* 50,000 are exercisable at $1.20 per share;
* 25,000 are exercisable at $8.00 per share; and
* 150,000 are exercisable at $8.00 per share, but may be exercisable
at $2.00 per share upon the occurrence of events specified in the
warrant agreement.
In addition, debentures in the principal amount of $150,000 are
outstanding which are convertible into shares of our 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. If our common stock price
materially decreases, the holders of the debentures will be entitled to
additional shares of our common stock upon conversion of the debentures.
Further, ten convertible notes in the aggregate amount of $200,000 are also
outstanding. These notes are convertible at the rate of $4.00 per share
into a total of 50,000 shares of our common stock. There can be no
assurances that the additional shares would not result in substantial
dilution to the shares of common stock held by our other shareholders.
Additionally, we have reserved 125,000 shares of common stock for
issuance upon the exercise of options which may be granted under our Stock
Option Plan. As of March 31, 1999, options to purchase 114,583 shares of
common stock were outstanding with exercise prices ranging from $3.28 to
$8.50. We have the right to redeem, for $.40 per warrant, 232,441 warrants
exercisable at $5.00 per share for a period of 120 days after the effective
date of the registration statement and $10.00 thereafter. Although we may
choose to do so in light of our current working capital position, heavy
downward pressure on our stock price would likely result as warrant holders
could exercise their warrants and sell 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 our
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 we 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 we would, in all likelihood, be able to obtain any needed capital
on terms more favorable to us than those provided in the outstanding options
and warrants.
We have sold restricted shares which may depress our stock price. As
of the date of this Registration Statement, Widecom has 2,543,541 shares of
common stock outstanding. Of the outstanding Shares, 1,066,230 Shares are
"restricted securities" under the Securities Act which may only be sold
pursuant to an effective registration statement under the Securities Act, or
in reliance on the exemption provisions of Rule 144 or pursuant to another
exemption under the Act. An additional 114,583 shares of common stock which
are issuable upon exercise of certain options, will also be "restricted
securities" and, absent an exception, may not be sold without being
registered under the Securities Act. There can be no assurances that we will
be able to sell these "restricted securities." Even if we are able to sell
these "restricted securities," there can be no assurances: (1) that the
sales of these shares, or even the availability of those shares for sale,
will not have a material adverse effect on the market prices of our common
stock prevailing from time to time or (2) of our ability to raise capital
through the sale of additional equity securities.
We have a significant amount of debt. On May 19, 1997, we conducted a
private placement in which we sold five units of our securities. Each unit
consisted of (1) one $50,000 convertible debenture with an 8% rate of
interest and (2) 2,500 warrants to purchase one share of our common stock at
a price of $16.00 per share. The holders of the debentures have the right,
at any time commencing on the 121st day following the issuance of the
debentures, to convert all of the unpaid balance into shares of our common
stock. The conversion price is equal to the lower of: (1) $20.00 or (2) 80%
of the average closing bid price of the common stock over the twenty trading
days immediately preceding the date we receive the holder's notice to
convert. On February 11, 1998, one debenture was converted into 14,742
shares of our common stock. On April 24, 1998 a second debenture was
converted into 17,213 shares of our common stock. The holder has requested
to convert the three remaining debentures into shares of our common stock
or, in the alternative, to repay the principal amount of $50,000 for each of
the three remaining debentures. These remaining debentures came due on May
19, 1998. Thus far, we have failed to comply with either request.
We have not paid dividends. We have never declared a dividend on our
common stock. We anticipate that all of our earnings in the foreseeable
future will be retained for the development and expansion of our business.
Therefore, we have no current plans to pay cash dividends. Future dividend
policy will depend upon our earnings, capital requirements and financial
condition as well as on the restrictions that arise from any lines of credit
or other lending agreements into which we may enter. In addition, no
dividends may be declared or paid until all of the principal and interest on
the notes offered in our private offering of units, which commenced in
February, 1999 have been paid in full.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, Washington,
D.C., a registration statement on Form SB-2 under the Securities Act of
1933, with respect to the common stock offered hereby. This prospectus does
not contain all of the information in the registration statement and the
exhibits and schedules. For further information about us and our common
stock, please refer to the registration statement and the exhibits and
schedules filed. Statements contained in this prospectus as to the contents
of any contract or document filed as an exhibit to the registration
statement are qualified to such exhibit as filed.
We are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and file reports, proxy statements and
other information with the Securities and Exchange Commission. In addition
to the registration statement, and the exhibits and schedules thereto, our
reports, proxy statements and other information filed with the Securities
and Exchange Commission 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, New York, New
York 10048; and Chicago Regional Office, Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois, 60661. 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. The Commission
maintains a Website that contains reports, proxy statements and other
information regarding issuers that file electronically with the Commission.
The address of that Website is: http://www.sec.gov
USE OF PROCEEDS
Some of the Shares being sold will be acquired from us upon the
exercise of currently outstanding Public or Private Warrants. We would
receive $2,384,205 in proceeds if all the Public and Private Warrants are
exercised within 120 from the effective date of this registration statement
and $4,546,410 in proceeds if all the Public and Private Warrants are
exercised thereafter. We plan to use all proceeds generated from the
exercise of warrants for working capital and general corporate purposes. We
will receive none of the proceeds from the sale of the common stock.
SELLING SECURITY HOLDERS
We have agreed to register the resale of outstanding Shares of common
stock and the Shares underlying the Public and Private Warrants under the
Securities Act and to pay all expenses in connection therewith. An
aggregate of 1,039,441 Shares underlying the Public and Private Warrants and
currently outstanding Shares may be offered and sold pursuant to this
prospectus by the Selling Shareholders. Except as set forth below, none of
the Selling Shareholders has ever held any position or office with us or had
any other material relationship with us.
SELLING SECURITY HOLDERS AND
TRANSACTIONS WITH SELLING SECURITY HOLDERS
<TABLE>
<CAPTION>
Shares/
Warrant Shares/ Shares/ Percentage of
Debentures Shares/ Warrant Shares/ Shares
Beneficially Warrant Shares/ Debentures Owned After
Name and Address of Owned Prior to Debentures Owned After Offering
Security Holder Offering Offered Offering (1)
---------------- ------------------- --------------- --------------- -------------
<S> <C> <C> <C> <C>
Luis Barros (2) 0/6,180/0 0/6,180/0 0 *
Cantella & Co.,Inc. (3) 0/2,190/0 0/2,190/0 0 *
Goldstein & DiGioia, LLP (4) 13,500/0/0 13,500/0/0 0 *
Timothy J. Flanagan (5) 0/13,530/0 0/13,530/0 0 *
Capitol Bay Securities (6) 0/5,820/0 0/5,820/0 0 *
George Scritchfield (7) 0/23,280/0 0/23,280/0 0 *
Robb Peck McCooey Clearing Corp. (8) 0/5,000/0 0/5,000/0 0 *
Diversified Investors Capitol
Services of N.A., Inc. (9) 0/100,000/0 0/100,000/0 0 *
Harris Shapiro (10) 0/50,000/0 0/50,000/0 0 *
Vecchio Consulting, Inc. (11) 0/25,000/0 0/25,000/0 0 *
Mitchell Feinsod (12) 12,500/0/0 12,500/0/0 0 *
Jack O'Leary (13) 0/150,000/0 0/75,000/0 0/75,000/0 *
- -------------------
<FN>
<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 3,031,982
shares of Common Stock outstanding on the effective date of this
Registration Statement.
<F2> Shares issuable upon exercise of Warrants at an exercise price of
$1.20 per share exercisable until February 19, 2004.
<F3> Shares issuable upon exercise of Warrants at an exercise price of
$1.20 per share exercisable until February 19, 2004.
<F4> Includes 6,075 restricted shares currently held by Victor J. DiGioia,
5,075 restricted Shares currently held by Stanley R. Goldstein, 1,350
restricted shares currently held by Brian C. Daughney and 1,000
restricted shares currently held by Michael Goldstein.
<F5> Shares issuable upon exercise of Warrants at an exercise price of
$1.20 per share exercisable until February 19, 2004.
<F6> Includes 4,620 Shares issuable upon exercise of Warrants at an
exercise price of $1.20 per share exercisable until February 19, 2004
and 1,200 Shares issuable upon exercise of Warrants at an exercise
price of $2.00 per share exercisable until August 27, 2004.
<F7> Includes 18,480 Shares issuable upon exercise of Warrants at an
exercise price of $1.20 per share exercisable until February 19, 2004
and 4,800 Shares issuable upon exercise of Warrants at an exercise
price of $2.00 per share exercisable until August 27, 2004.
<F8> Shares issuable upon exercise of Warrants at an exercise price of
$1.20 per share exercisable until February 19, 2004.
<F9> Shares issuable upon exercise of Warrants at an exercise price of
$2.00 per share exercisable until July 26, 2004.
<F10> Shares issuable upon exercise of Warrants at an exercise price of
$3.00 per share exercisable until April 12, 2004.
<F11> Shares issuable upon exercise of Warrants at an exercise price of
$8.00 per share exercisable until October 1, 1999.
<F12> Includes 12,500 restricted Shares.
<F13> Includes 75,000 Shares, which are being included in this prospectus,
issuable upon exercise of Warrants at an exercise price of $8.00
per share exercisable until October 8, 2009 unless specified events
occur which would result in an adjustment of the exercise price to
$2.00 per share; and includes 75,000 Shares issuable upon exercise
of Warrants at an exercise price of $8.00 per share exercisable
until October 8, 2009 unless specified events occur which would
result in an adjustment of the exercise price to $2.00 per shares,
which Shares, however, do not vest until the occurrence of events
specified in the warrant agreement and are not covered by this
prospectus.
</FN>
</TABLE>
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
Earnings (loss) before extraorinary item (4,487,824) (3,335,865) (2,244,351)
Net Earnings (loss) (4,487,824) (3,335,865) (2,244,351)
Earnings (loss) per share before
extraordinary item (3.96) (2.36) (1.28)
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>
Year Ended March 31,
--------------------------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Working Capital $1,818,883 $1,429,046 $ 229,470
Total Assets 6,925,187 6,925,187 4,278,216
Total Liabilities 1,681,884 1,424,246 1,970,893
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 and
$1,957,711, or 24% and 76%, respectively.
Our 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 the 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. Our research
and development is conducted by Technologies NovImage, which 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
Various statements contained herein constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995. We desire to avail ourself of certain "safe harbor" provisions
of the 1995 Reform Act and therefore include this special note to enable us
to do so. Forward-looking statements included in this prospectus involve
known and unknown risks, uncertainties, and other factors which could cause
our actual results, financial and operating performance or achievements to
differ from the future results, financial or operating performance or
achievements expressed or implied by those forward looking statements. These
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 the our recent losses, our
ability to develop and market our product line, the commercial acceptance of
our products, the need for additional capital, the effects of competition
and technological changes and dependence upon key personnel.
Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income, which establishes standards for reporting and display of
comprehensive income, its components and accumulate balances. Comprehensive
income is defined to include all changes in equity except those resulting
from investments by owners and distributions to owners. Among other
disclosures, SFAS 130 requires that all items that are required to be
recognized under current accounting standards are components of
comprehensive income be reported in a financial statement
that is displayed with the same prominence as other financial statements.
SFAS 130 is effective for financial statements for periods beginning
after December 15, 1997 and requires comparative information for earlier
years to be initiated. Because of the recent issuance of this standard
management has been unable to fully evaluate the impact, if any the standard
may have on future financial statements disclosures. Results of operations
and financial position, however, will be unaffected by implementation of
this standard.
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, Disclosures about segments of an Enterprise and Related Information
which supersedes SFAS No. 14, Financial Reporting for Segments of a Business
Enterprise. SFAS 131 establishes standards for the way that public companies
report information about operating segments in annual financial statements
and requires reporting of selected information about reporting segments in
interim financial statements issued to the public. It also establishes
standards for disclosures regarding products and services, geographic areas
an major customers. SFAS 131 defines operating segments as components of a
company about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance.
SFAS 131 is effective for financial statements for periods beginning
after December 15, 1997 and requires comparative information for earlier
years to be restated. Because of the recent issuance of this standard,
management has been unable to fully evaluate the impact, if any, it may have
on future financial statement disclosures. Results of operations and
financial position, however, will be unaffected by implementation of this
standard.
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 178.8% 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 research and development expenditures and 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 $24,566, 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 the 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 our fiscal year.
Operating expenses for the year ended March 31, 1998 were $5,437,962,
a decrease of $235,710, or 4.1%, 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 178.8% 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 costs.
The decrease in research and development expenses was due to the
formation of NovImage. 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 United
States.
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.
Quarter Ended June 30, 1999 Compared
to Quarter Ended June 30, 1998
Revenues for the quarter ended June 30, 1999 were $786,496, an
increase of $58,520 or 8.0% as compared to $727,976 for the quarter ended
June 30, 1998. Sales for the quarter ended June 30, 1999 were $785,398, an
increase of $167,702 as compared to $617,696 for the quarter ended June 30,
1998. Sales of Widecom's SLC 936 and 1036 Series Scanners accounted for a
majority of the sales increase. Operating expenses for the quarter ended
June 30, 1999 were $636,522, a decrease of $272,639, or 30.0%, as compared
to $909,161 for the quarter ended June 30, 1998.
Selling, general and administrative expenses for the quarter ended
June 30, 1999 decreased by $240,784 and decreased as a percentage of
revenues from 98.2% to 60.3%. 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.
We also continue to incur legal, administration and other related costs
associated with our warrant call and initial public offering.
Our share of the loss incurred by NovImage amounted to $68,246 for the
first quarter of fiscal 2000.
During the first quarter of fiscal 2000, we earned $1,098 interest on
short-term investments compared to $10,393 earned in the same period of
1999.
Quarter Ended June 30,1998 Compared
to Quarter Ended June 30,1997
Revenues for the quarter ended June 30,1998 were $727,796, a decrease
of $221,800 or 23.36% as compared to $949,596 for the quarter ended June
30,1997. Sales for the quarter ended June 30,1998 were $617,696, a decrease
of $267,937 as compared to $885,633 for the quarter ended June 30,1997.
Operating expenses for the quarter ended June 30,1998 were $909,161, a
decrease of $366,177, or 28.71 %, as compared to $1,275,338 for the quarter
ended June 30,1997. Research and development expenses decreased from
$87,719 for the quarter ended June 30,1997 to $0 for the quarter ended June
30,1998. Selling, general and administrative expenses for the quarter ended
June 30,1998, decreased by $254,026 and decreased as a percentage of
revenues from 102.0% to 98.23%. We continue to incur legal, administration,
and other related costs associated with our warrant call.
Our share of the loss incurred by NovImage for the quarter ended June
30,1998, amounted to $131,765 as compared to $92,220 for the quarter ended
June 30,1997.
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 our 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.
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, each unit consisting of 10,000
shares of our common stock and a 12% three-year convertible note in the
principal amount of $20,000. 9.5 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 selling agents are entitled to
warrants for the purchase of a total of 50,000 shares of our common stock at
an exercise price of $1.20.
Subsequently, we conducted an additional private placement of 325,000
shares of our common stock. Under the terms of the offering, each share was
offered at $2.00 per share. This offering was fully subscribed at the
closing, which took place of July 6, 1999. The selling agent in this
offering received warrants for the purchase of 100,000 shares of our common
stock at an exercise price of $2.00 per share.
DESCRIPTION OF BUSINESS
Widecom designs, assembles and markets 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 design our document management systems in response to perceived
market demand for systems which facilitate the efficient management and
transmission of wide format documents. Our primary market is for
architectural, engineering and construction applications. In addition, 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 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 3994340 Canada Inc., operating as Technologies NovImage
("NovImage"), with an economic development agency of the Province of Quebec.
All of 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.
This generation of SLC936 series scanners also provide the industry standard
SCSI interface which overcomes compatibility problems with the proprietary
interface of the SLC 436 series scanners associated with Intel's Pentium
II(tm) processors. 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
thoroughput 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" 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 SLC1036; a more advanced
model of our single line contact color scanner that is marketed along side
our SLC936 product. Capable of direct Scan-to-File and Scan-to-Print
functions, the SLC1036 has throughput of over 4 inches per second at 400 dpi
resolution. At the monochrome setting, the SLC1036 is capable of scanning a
36" x 48" monochrome image in less than 12 seconds. The SLC1036 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 SLC1036 offers an interpolated resolution up to
1000 dpi.
SLC972
We also recently 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 similar 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 SLC972 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 SLC972 model
no later than the end of this fiscal year.
Plotter/Printer (WC 936P)
We introduced the WC436P, a plain paper plotter late in fiscal 1998.
This product 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.
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 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. This new unit is also
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(tm) and AutoCad(tm) 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.
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.
Acquisition of Diprin, Inc.
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. We believe that architectural,
engineering and construction firms, for which reproduction, archiving and
transmission of wide format documents are essential, is our primary market.
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, of which roughly 3/4 are pursuant to written agreements.
Generally, our distributor agreements are 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% of the list
price and rarely approach 25%. 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 27.9 $1,246,270 43.0 $1,338,704 52
Middle East 346,595 20.6 312,042 11.0 200,711 8
Asia 266,346 15.9 322,685 11.0 583,077 23
Europe 475,552 28.3 686,478 24.0 241,708 9
Canada 122,675 7.3 322,968 11.0 211,735 8
Total $1,678,933 100.0 $2,890,444 100.0 $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. This limited warranty covers the workmanship and parts.
During the term of the warranty of products sold directly by us, we will
repair our products and 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. 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.
We 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. This often results in
rapid product obsolescence or shortened product lifecycles. As a result, our
ability to compete may be dependent upon: (1) our ability to continually
enhance and improve our products; (2) to complete development and
introduction into the marketplace of our new products in a timely manner;
and (3) to successfully develop and market these new products. There can be
no assurance: (1) that we will be able to compete successfully; (2) that
competitors will not develop technologies or products that could render our
products obsolete or less marketable; or (3) 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. NovImage's 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: (1)
developing a high speed, high quality wide format color plotter/printer and
(2) improving printer resolution and developing thermal transfer mechanisms
for incorporation into the plain paper plotter, including color printing
capabilities. Our 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 next generation scanners are
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. These methods includes, but are not limited to, nondisclosure
agreements with our employees and distributors. However, these methods may
not afford complete protection. 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 various aspects of our technology.
There can be no assurance 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, some 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. We have not, however, 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. Further,
there can be no assurance 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 pending and approved patents, trademarks,
copyright material and all of our technology relating to our 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, except for the Province of
Quebec, Canada. This license allows us to use 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 these rights with respect to the Province of
Quebec, Canada. We have no other restrictions on our sales and marketing
activities in Quebec.
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.
Effect of Government Regulation
Compliance with laws and regulations governing our business can be
complicated, expensive, and time-consuming and may require significant
managerial and legal supervision. Failure to comply with such laws and
regulations could have a materially adverse effect on our business.
Further, any changes in any of these laws and regulations could materially
and adversely affect our business. There is no assurance that we will be
able to secure on a timely basis, or at all, necessary regulatory approvals
in the future.
At present, environmental compliance issues do not have a material
effect on the management and earnings of our business, nor is any change
anticipated.
Enforcement of Civil Liabilities
Our headquarters are located in, and our officers, directors and
auditors are residents of Canada. Further, a substantial portion of our
assets are, or may be, located outside the United States. Accordingly, it
may be difficult for investors to effect service of process within the
United States upon non-resident officers and directors, or to enforce
against them judgments obtained in the United States courts predicated upon
the civil liability provision of the Securities Act of 1933, as amended or
state securities laws. However, there is doubt as to the enforceability in
Canada against us or against any of our directors, controlling persons,
officers or the experts named herein, who are not residents of the United
States, in original actions or in actions for enforcement of judgments of
U.S. courts, of liabilities predicated solely upon U.S. federal securities
laws. Service of process may be effected, however, upon our duly appointed
agent for service of process. If investors have questions with regard to
these issues, they should seek the advice of their individual counsel.
Properties
In February 1996, we purchased property in the Noida Export Processing
Zone, a Free Trade Zone located near New Delhi, India. The purchase price
was approximately $67,500 and we 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 that the project should be completed in
the next fiscal year.
We lease (1) 3,000 square feet at 72 Devon Road, Unit #18, Brampton,
Ontario, Canada, under a two-year lease entered into in 1998, and (2) 7,000
square feet in the Free Trade Zone, pursuant to a five-year lease entered
into in 1994. The current annual rents are $23,357.64 and $15,200,
respectively. Upon completion of construction of the Company'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
$1,000.00 in Santa Rosa, California and a sales and service facility in
Pittsburgh, Pennsylvania, at a monthly rent of $2,300.00. The current annual
rental rates of these facilities are approximately $12,000.00 and $27,600.00
respectively and $39,600.00 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.
LEGAL PROCEEDINGS
On December 20, 1996, two individuals, John Keenan and Vincent
DiGiulio, filed a lawsuit in the United Stated District Court for the
District of Rhode Island, seeking 60,000 shares and 40,000 warrants. This
action has been formally dismissed. An additional three 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 the Company, Raja S. Tuli
and Suneet S. Tuli in the United States District Court for the Southern
District of New York. The complaint alleged improper conduct with respect
to the arrangement of the redemption of certain warrants. The action was
settled, along with two substantially similar class actions. In
consideration of the settlement, we 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.
We have 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 that our prospects for a
successful resolution are strong and that settlement options 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.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
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>
Raja S. Tuli, our founder, 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 (1) a Canadian citizen ordinarily resident in Canada, (2) a Canadian
citizen not ordinarily resident in Canada who is a member of a prescribed
class of persons, or (3) 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.
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> Amounts paid as consulting fees by Widecom to a consulting company
owned by our respective officers 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,
were available under the Plan and such shares subject to options which
terminate unexercised will be available for future option grants. At
present, options to purchase 114,583 shares of common stock have been
granted.
SECURITY OWNERSHIP OF CERTAIN BENEFICIALOWNERS AND MANAGEMENT
The following table sets forth, as of September 28, 1999, information
as to (i) the common stock beneficially owned by all directors, nominees and
named executive officers, (ii) the common stock beneficially owned by any
person who is known by 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 493,377(3) 19.40%
Lakhbir S. Tuli 243,915(5) 9.59
Suneet S. Tuli 207,649(4) 8.16
Dr. Ajit Singh -- --
Bruce Vallillee -- --
Willem J. Botha -- --
All executive officers and directors
as a group (six persons) 944,941(2)(3)(4)(5) 37.15%
- -------------------
<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 him, 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) 43,750 shares of common stock 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 18,750 shares of common stock 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.
<F5> Includes 18,750 shares of common stock issuable upon exercise of
currently exercisable options at a price of $8.50 per share.
</FN>
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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. Each of Widecom and
Innovatech purchased 450 shares of the Class A Common Stock of NovImage
Inc., a Quebec corporation, 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, 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. These latter two companies are wholly-owned by
Raja S.Tuli, our President and Chief Executive Officer,
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 license, except for the
Province of Quebec, 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 the fiscal year ended March 31, 1999, we made loans to NovImage
totaling $196,034.
In connection with the transaction, we 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. The Stock Exchange Agreement also
granted Innovatech demand-registration rights should it acquire shares of
our common stock. This amount represents less than 5% of our outstanding
shares and is accordingly omitted from the table of beneficial ownership.
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 made loans to shareholders aggregating $29,384
and loans to affiliates totaling $64,939.
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 on January 27, 1999. This acquisition was financed
by the issuance of 125,000 shares of our common stock.
In May, 1999, we accepted the surrender of 4,010 shares of common
stock from one of our principals in satisfaction of indebtedness owed to us.
In April, 1999, we issued a total of 61,618 shares of common stock to two
consulting companies run by our affiliates in full satisfaction of
indebtedness owned to those entities. In addition, in fiscal 1999, we
issued 294,117 shares of common stock to three of our principals in full
satisfaction of indebtedness owed to them.
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 us and our 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.
DESCRIPTION OF SECURITIES
We are authorized to issue 5,000,000 shares of common stock, par value
$.01 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 Widecom. All outstanding shares of common stock are fully
paid and nonassessable.
LEGAL MATTERS
Certain legal matters relating to our common stock will be passed
upon for us by the law firm of Goldstein & DiGioia, LLP, New York, New York.
Members of the firm of Goldstein & DiGioia, LLP own Shares of our common
stock registered in this prospectus.
EXPERTS
The financial statements and schedules included in this prospectus
have been audited by Schwartz, Lewitsky, Feldman, LLP, independent certified
public accountants, to the extent and for the periods indicated in their
reports with respect thereto.
CHANGES IN ACCOUNTANTS
On June 15, 1999, our Board of Directors determined that it would be
in the 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 Widecom and BDO Dunwoody, LLP with
respect to the Company'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, Lewitski,
Feldman, LLP to replace BDO Dunwoody, LLP as our independent accountant and
auditors. The firm has audited our financial statements included our Form
10-KSB for our fiscal year ended March 31, 1999 and filed with the
Securities and Exchange Commission.
We intend to have Schwartz, Lewitski, 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.
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 our By-laws.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons
controlling Widecom, pursuant to the foregoing provisions, we have been
informed that in the opinion of the Commission indemnification is against
public policy as expressed in the Securities Act and is therefore
unenforceable.
Except for the payment by us of expenses incurred or paid by any of
our directors, officers or controlling persons in the successful defense of
any action, suit or proceeding, in the event that a claim for
indemnification against liabilities is asserted by a director, officer or
controlling person in connection with the securities being registered, we
will, unless in the opinion of our counsel the matter is settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether indemnification by us is against public policy as expressed
in the Securities Act and will be governed by final adjudication of the
issue.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock and Public Warrants are quoted on the Nasdaq SmallCap
Market under the symbols "WIDE" and "WIDWF", respectively, and on the Boston
Stock Exchange under the symbols "WDE" 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>
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
</TABLE>
PLAN OF DISTRIBUTION
The Shares of common stock, including the Shares underlying the Public
and Private Warrants, may be offered and sold from time to time by the
Selling Shareholders 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 registered hereby may be sold by one or more of the following
methods, without limitation: (1) 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;
(2) purchases by a broker or dealer as principal and resale by such broker
or dealer for its account pursuant to this Prospectus; (3) ordinary
brokerage transactions and transactions in which the broker solicits
purchasers; and (4) face-to-face transactions between sellers and purchasers
without a broker-dealer. In effecting sales, brokers or dealers engaged by
the Selling Shareholders may arrange for other brokers or dealers to
participate. Brokers or dealers may receive commissions or discounts from
the Selling Shareholders in amounts to be negotiated immediately prior to
the sale. These 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.
FORWARD LOOKING STATEMENTS
Certain statements in this Prospectus constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995. We desire to avail ourselves of certain "safe harbor"
provisions of the 1995 Reform Act and are therefore including this special
note to enable us 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 our stockholders and
other publicly available statements issued or released by us 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 those forward looking statements.
These future results are based upon management's best estimates of current
conditions and the most recent results of our operations. The statements
appear in a number of places in this Prospectus and include statements
regarding our intent, belief or current expectations, and those of our
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. Our actual results could differ materially from
those anticipated in the forward looking statements as a result of certain
factors, including those discussed throughout this Prospectus. 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 this
Prospectus and our Securities and Exchange Commission filings, including our
Annual Report on Form 10-KSB, Form 10-QSB as well as recently filed Reports
on Form 8-K, if any, each of which could adversely affect our business and
the accuracy of the forward looking statements contained herein.
INDEX TO FINANCIAL STATEMENTS
Unaudited Financial Statements
- ------------------------------
Letter of Accountants on Unaudited Financial Statements F-2
Balance Sheets F-3
Statements of Operations F-4
Statements of Cash Flow F-5
Notes to Financial Statements F-6
Audited Financial Statements
- ----------------------------
Consent of Accountants on Audited Financial Statements F-7
Report of Accountants F-8
Balance Sheets F-9
Statements of Operations F-10
Statements of Stockholders' Equity F-11
Statements of Cash Flows F-12
Notes to Financial Statements F-13
Schwartz Levitsky Feldman llp
Chartered Accountants
Toronto, Montreal, Ottawa
ADVISORY LETTER IN CONNECTION WITH THE UNAUDITED FINANCIAL STATEMENTS
OF THE WIDECOM GROUP INC. FOR THE QUARTER ENDED JUNE 30, 1999
The accompanying consolidated balance sheet of The WideCom Group Inc. ("the
Company") as of June 30, 1999, and the consolidated statements of
operations, shareholders' equity and cash flows for the quarter ended June
30,1999 were compiled by management and were included in Form 10QSB as
filed by the Company and Incorporated in the Registration Statement Form
SB2.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited,
reviewed or otherwise been associated with the accompanying financial
statements and, accordingly, do not express an opinion or any other form of
assurance on them.
Toronto, Ontario
October 7, 1999
/s/ Schwartz Levitsky Feldman llp
---------------------------------
Chartered Accountants
1167 Caledonia Road
Toronto, Ontario M6A 2x1
Tel: 416-785-5353
Fax: 416-785-5663
THE WIDECOM GROUP INC.
CONSOLIDATED BALANCE SHEET
(in United States dollars)
<TABLE>
<CAPTION>
June 30,
1999 1998
---- ----
(unaudited) (unaudited)
- ------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 59,236 $ 290,282
Accounts receivable 549,272 601,255
Prepaid expenses 43,426 93,884
Advance to related parties 201,486 175,013
Inventory (Note 3) 1,162,649 1,685,576
Deferred financing costs 54,068 -
----------------------------
Total current assets 2,070,137 2,846,010
Capital assets (Note 4) 1,497,205 1,610,852
Purchased research and development technology 72,876 -
Investment in affiliates 491,822 894,096
----------------------------
Total assets $ 4,132,040 $ 5,350,958
==============================================================================
Liabilities and Shareholders' Equity
Current liabilities
Bank indebtedness 219,177 271,315
Accounts payable and accrued liabilities 977,592 841,800
Loan from related parties 66,748 -
Convertible debentures (Note 5) 350,000 150,000
----------------------------
Total current liabilities 1,613,517 1,263,115
----------------------------
Shareholders' equity
Common shares $ 13,871,808 $13,252,497
Contributed surplus 159,825 159,825
Deficit (10,981,968) (9,124,622)
Cumulative translation adjustment (531,142) (199,857)
----------------------------
2,518,523 4,087,843
----------------------------
Total liabilities and shareholders' equity $ 4,132,040 $ 5,350,958
==============================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
THE WIDECOM GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in United States dollars)
<TABLE>
<CAPTION>
For the three months ended
June 30, June 30,
1999 1998
(unaudited) (unaudited)
- ----------------------------------------------------------------------------
<S> <C> <C>
Product sales $ 785,398 $ 617,696
Cost of product sales 171,362 163,689
-------------------------
Gross profit 614,036 454,007
Research and development grants - 99,887
Interest income 1,098 10,393
-------------------------
Net revenue 615,134 564,287
-------------------------
Expenses
Selling, general and administrative 474,163 714,947
Interest and bank charges 18,126 9,417
Management fees and salaries 69,686 75,493
Amortization 74,547 88,122
Foreign exchange loss - 21,182
-------------------------
Total operating expenses 636,522 909,161
-------------------------
Operating income (loss) (21,388) (344,874)
Equity in earnings (loss) of Joint Venture (68,246) (131,765)
-------------------------
Earnings (loss) before extraordinary item (89,634) (476,639)
Extraordinary item, net of tax - -
-------------------------
Net earnings (loss) for the period $ (89,634) $ (476,639)
============================================================================
Loss per common share before
extraordinary item, basic and diluted $ (0.04) $ (0.32)
============================================================================
Loss per common share, basic
and diluted $ (0.04) $ (0.32)
============================================================================
Weighted average number of shares outstanding 2,130,290 1,488,795
============================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
THE WIDECOM GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in United States dollars)
<TABLE>
<CAPTION>
For the three months ended
June 30, June 30,
1999 1998
---- ----
(Unaudited) (Unaudited)
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash provided by (used in)
Operating activities
Loss for the period before
extraordinary item $ (89,634) $(476,639)
Add (deduct) items not requiring a cash outlay
Amortization 74,547 88,122
Foreign exchange loss - 21,182
Shares issued to settle lawsuits 197,150 -
Equity in loss of affiliate 68,246 131,765
Net changes in non-cash working capital balances
related to operations
Decrease (increase) in accounts receivable 18,971 (41,731)
Decrease (increase) in inventory 45,052 (311,505)
Increase (decrease) in accounts payable and accrued liabilities (356,847) 194,361
(Decrease) increase in prepaid expenses 1,355 (7,961)
-------------------------
(41,160) (402,406)
-------------------------
Investing activities
Purchase of capital assets (69,194) (5,683)
-------------------------
(69,194) (5,683)
-------------------------
Financing activities
Increase (decrease) in bank indebtedness (52,024) 77,899
Shares issued 124,289 -
Issuance of convertible debentures 15,000 -
-------------------------
87,265 77,899
-------------------------
Effect of exchange rate changes on cash (73,868) (72,361)
-------------------------
Net increase (decrease) in cash during the period (96,957) (402,551)
Cash and equivalents, beginning of period 156,193 692,833
-------------------------
Cash and equivalents, end of period $ 59,236 $ 290,282
===============================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
THE WIDECOM GROUP INC.
Item 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Presentation of Interim Information
In the opinion of Management, the accompanying unaudited financial
statements include all normal adjustments necessary to present fairly
the financial position at June 30, 1999, and the results of operations
for the three months ended June 30, 1999 and 1998 and cash flows for
the three months ended June 30, 1999. Interim results are not
necessarily indicative of results for full year.
The condensed consolidated financial statements and notes are
presented as permitted by Form 10QSB and do not contain certain
information included in Widecom's audited consolidated financial
statements and notes for the fiscal year ended March 31, 1999.
2 Financial Statements
The consolidated financial statements include the accounts of Widecom
and its wholly owned subsidiary. All significant intercompany
balances, transactions and stockholdings have been eliminated.
3. Inventories
Inventories are summarized as follows: -
<TABLE>
<CAPTION>
June June
30, 1999 30, 1998
-------- --------
<S> <C> <C>
Raw materials $ 684,325 $ 908,884
Work in progress 29,178 158,203
Finished goods 449,146 618,489
-------------------------
Total inventories $1,162,649 $1,685,576
=========================
</TABLE>
4. Capital Assets
Capital assets consist of:
<TABLE>
<CAPTION>
June 30, 1999 June 30, 1998
--------------------------- ---------------------------
Accumulated Accumulated
Cost Amortization Cost Amortization
<S> <C> <C> <C> <C>
Machinery, plant and
Computer equipment $1,971,670 $1,176,002 $1,868,227 $ 888,893
Furniture and fixtures 111,076 58,551 111,076 45,939
Prototype and jigs 297,444 142,337 297,444 107,429
Land 57,830 - 57,830 -
Building under
construction 436,075 - 318,536 -
----------------------------------------------------------
$2,874,095 $1,376,890 $2,653,113 $1,042,261
==========================================================
Net book value $1,497,205 $1,610,852
========== ==========
</TABLE>
5. 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 $ 28,630.
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 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. Nine and one-half units closed in our preceding
quarter, however, one-half unit closed during the first quarter of
fiscal 2000. Included in accounts payable is accrued interest on the
debentures of $8,000.
6. Contingent Liabilities
(a) Widecom has been served with an action claiming breach of
contract regarding Widecom'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 Superior Court of Justice in the
Province of Ontario. Resolution options remain open and the
action is presently scheduled for mediation in the fall of 1999.
(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.
Loss, if any, on the above claims will be recorded when
settlement is probable and the amount of the settlement is
estimable.
Schwartz Levitsky Feldman llp
Chartered Accountants
Toronto, Montreal, Ottawa
CONSENT OF SCHWARTZ LEVITSKY FELDMAN LLP
The undersigned, Schwartz Levitsky Feldman llp, Chartered Accountants
hereby consent to the use of our name and the use of our opinion dated July
5,1999 on the consolidated financial statements of The WideCom Group Inc.
("the Company") included in the General Form for Registration of Securities-
Form SB2 being filed by the Company.
Toronto, Ontario
October 7, 1999
/s/ Schwartz Levitsky Feldman llp
---------------------------------
Chartered Accountants
1167 Caledonia Road
Toronto, Ontario M6A 2x1
Tel: 416-785-5353
Fax: 416-785-5663
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>
<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
1,039,441 SHARES
THE WIDECOM GROUP, INC.
COMMON STOCK
PROSPECTUS
_____________, 1999
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Article 6 of our By-Laws limits the personal liability of directors
and officers to us or our shareholders for monetary damages arising from a
breach of their fiduciary duty in certain circumstances. Article 6 of our
By-Laws also provides that we may indemnify our officers and directors to
the fullest extent permitted by the Ontario Business Corporations Act from
any liability and all costs, charges and expenses that such officer or
director sustains in respect to any action, suit or proceeding that is
proposed or commenced against him or her for or in respect the execution of
the duties of his or her office. Part IX of the Ontario Business
Corporations Act authorizes a corporation to indemnify directors and
officers unless such party has been adjudicated in any proceeding not to
have acted in good faith in the reasonable belief that his action was in the
best interests of the corporation. The effect of these provisions is to
permit such indemnification by us for liabilities arising under the
Securities Act.
Item 25. Other Expenses of Issuance and Distribution
We will bear all expenses in connection with the issuance and
distribution of the Shares, including those set forth below. None of these
expenses will be borne by the Selling Shareholders.
Items Amounts
----- -------
Securities and Exchange Commission Registration Fee $1,751.85
Printing and Engraving Expenses $_____
Accounting Fees and Expenses $_____*
Legal Fees and Expenses $_____
Blue Sky Fees and Expenses $_____*
Transfer Agent and Registrar Fees $_____*
Miscellaneous Fees and Expenses $_____*
------
Total $_____*
======
- -------------------
* Estimated
Item 26. Recent Sales of Unregistered Securities
During fiscal 1999, our 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, each unit consisting of 10,000
shares of our common stock and a 12% three-year convertible note in the
principal amount of $20,000. 9.5 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 were granted
warrants to purchase a total of 50,000 shares of our common stock at an
exercise price of $1.20.
Subsequently, we conducted an additional private placement of 325,000
shares of our common stock. Under the terms of the offering, each share was
offered at $2.00 per share. This offering was fully subscribed at the
closing, which took place of July 6, 1999. The selling agent in this
offering received warrants for the purchase of 100,000 shares of our common
stock at an exercise price of $2.00 per share.
In May, 1997, we completed a private offering pursuant to Regulation D
promulgated under the Securities Act, wherein we raised $250,000 in gross
proceeds in connection with the sale to a single investor of five units of
our securities. Each unit was comprised of the following: (1) one $50,000
principal amount convertible debenture and (2) a common stock purchase
warrant to purchase 2,500 shares. Under the debentures, the investor 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 into shares of
our common stock. The conversion price is the lower of $20 or 80% of the
average closing bid price of Widecom's Common Stock as quoted on Nasdaq
system over the twenty trading days immediately preceding the date of the
our receipt of notice requesting conversion. In February, 1998, $50,000 of
the outstanding debentures were converted into 14,742 shares of common
stock. In April, 1998, an additional $50,000 of the debentures were
converted into 17,213 shares of common stock. The remaining $150,000
principal amount of debentures are convertible into an aggregate of 89,818
shares of common stock based on a conversion price of $.79 for the first
$50,000; $.63 for the second $50,000 and $.29 for the final $50,000. The
warrants noted above are exercisable over five years and have an exercise
price of $16.00 per share, subject to adjustment in certain circumstances.
We previously registered the shares of common stock underlying the
debentures and warrants in a registration statement which was declared
effective by the SEC in March, 1998.
On September 9, 1998, Raja S. Tuli, President and Chief Executive
Officer, Suneet S. Tuli, our Executive Vice President and Secretary, and
Lakhbir S.Tuli, an independent consultant for us and the father of Raja and
Suneet Tuli, purchased an aggregate of 294,117 shares of our common stock at
$.68 cents per share in a private transaction in order to provide us with
funds for working capital.
Item 27. Exhibits.
The following exhibits are filed herewith.
Exhibit
No. Description
- ------- -----------
3.1 Articles of Incorporation (Exhibit 3.1 to Form F-1
Registration Number 33-78004, filed May 6, 1994)
3.2 Bylaws (Exhibit 3.1 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 Warrant Issued in Widecom's Initial Public Offering
(Exhibit ___ to Form F-1 Registration Number 33-78004, filed
November 21, 1994)
4.3 Form of Warrant Issued to Selling Shareholders
4.4 Form of Convertible Notes issued in 1999 private placement of
Units
5. Opinion of Goldstein & DiGioia, LLP., re: legality of shares.*
10.1 Financial Consulting Agreement, dated February 1, 1998, by
and between The Widecom Group Inc. and Quantum Resources of
New York, Inc.
10.2 Financial Consulting Agreement, dated August 1998, by and
between The Widecom Group Inc. and Robb Peck McCooey Clearing
Corporation.
10.3 Agreement, dated September 9, 1998, by and between The Widecom
Group, Inc. and Cantella & Co.
15. Letter on Unaudited Interim Financials from Schwartz
Levitsky Feldman, LLP
16. Letter from BDO Dunwoody, LLP on change in Certifying
Accountant (Exhibit 16.1 to Form 8-K, filed June 21, 1999)
22. Subsidiaries of Registrant (Exhibit 22.1 to Form F-1
Registration Number 33-78004, filed April 21, 1994)
23.1 Consent of Schwartz Lewitski Feldman, LLP, independent
accountants.
23.2 Consent of Goldstein & DiGoia, LLP, contained in Exhibit 5.
- -------------------
* To be filed by amendment.
Item 28. Undertakings
(a) We hereby undertake:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section 10 (a)
(3) of the Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events
arising after the effective date of the Registration Statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of a
prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no
more than a twenty percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration
Fee" table in the effective Registration Statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Registration Statement; provided, however,
that paragraphs (a) (1) (i) and (a) (1) (ii) above do not apply
if the Registration Statement is on Form S-3, Form S-8 or Form
F-3, and the information required to be included in a post-
effective amendment by those paragraphs is contained in
periodic reports filed with or furnished to the Commission by
Widecom pursuant to Section 13 or Section 15(d) of the Exchange
Act that are incorporated by reference in the Registration
Statement;
(2) That, for the purpose of determining any liability under
the Securities Act, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, we certify
that we have reasonable grounds to believe that we meet all of the
requirements for filing on Form SB-2 and have duly caused this Registration
Statement to be signed on our behalf by the undersigned, thereunto duly
authorized, in the City of Montreal, Quebec, Canada, on October 14, 1999.
THE WIDECOM GROUP INC.
By: /s/ RAJA S. TULI
--------------------------------
Raja S. Tuli
Chief Executive Officer and
President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below substitutes and appoints Raja S. Tuli his true and lawful
attorney-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and
thing requisite and necessary to be don in and about the premises, as fully
to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or his
substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1933,
this registration statement has been signed below by the following persons
on our behalf and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ RAJA S. TULI President, Chief Executive Officer and October 14, 1999
Raja S. Tuli Director (Principal Executive Officer)
/s/ WILLEM J. BOTHA Treasurer and Chief Financial Officer October 14, 1999
Willem J. Botha (Principal Financial and Accounting
Officer)
/s/ SUNEET S. TULI Executive Vice President of Sales and October 14, 1999
Suneet S. Tuli Marketing, Secretary and Director
/s/ BRUCE D. VALLILLEE Director October 14, 1999
Bruce D. Vallillee
/s/ AJIT SINGH Director October 14, 1999
Ajit Singh
</TABLE>
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.
THE TRANSFERABILITY OF THIS WARRANT IS
RESTRICTED AS PROVIDED IN SECTION 2
Warrant No. ___ ________, l999
THE WIDECOM GROUP, INC.
COMMON STOCK PURCHASE WARRANT
For good and valuable consideration, the receipt of which is hereby
acknowledged by THE WIDECOM GROUP, INC., an Ontario corporation (the
"Company"),____________________________________ is hereby granted the right
to purchase, at any time from the date hereof until 5:00 P.M., New York City
time, on ________, 2004 (the "Warrant Exercise Term"), up to Twenty Thousand
(20,000) paid and non-assessable shares of the Company's Common Stock, $.00l
par value per share ("Common Stock").
This Warrant is exercisable at a per share price of $1.20 (the
"Exercise Price"), subject to adjustment as provided in Section l hereof,
payable in cash or by certified or official bank check in New York Clearing
House funds, or by cashless exercise as provided in paragraph 1.6. Upon
surrender of this warrant certificate with the annexed Subscription Form
duly executed, together with payment of the Exercise Price for the shares of
Common Stock purchased at the Company's principal executive offices
(presently located at 72 Devon Road, Brampton, Ontario L6T 5B4 Canada), the
registered Holder of the Warrant ("Holder") shall be entitled to receive a
certificate or certificates for the shares of Common Stock so purchased (the
"Warrant Shares").
l. Exercise of Warrant
l.l The purchase rights represented by this Warrant are exercisable
at the option of the Holder hereof, in whole or in part (but not as to
fractional shares of the Common Stock) during any period in which this
Warrant may be exercised as set forth above. In the case of the purchase of
less than all the shares of Common Stock purchasable under this Warrant, the
Company shall cancel this Warrant upon the surrender thereof and shall
execute and deliver a new Warrant of like tenor for the balance of the
shares of Common Stock purchasable hereunder.
l.2 The issuance of certificates for shares of Common Stock upon the
exercise of this Warrant shall be made without charge to the Holder hereof
including, without limitation, any tax which may be payable in respect of
the issuance thereof, and such certificates shall be issued in the name of,
or in such names as may be directed by, the Holder hereof; provided,
however, that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of
such certificate in a name other than that of the Holder and the Company
shall not be required to issue or deliver such certificates unless or until
the person or persons requesting the issuance thereof shall have paid to the
Company the amount of such tax or shall have established to the satisfaction
of the Company that such tax has been paid.
l.3 In case at any time or from time to time the Company shall
subdivide as a whole, split its Common Stock or issue a dividend payable in
shares or otherwise, the number of shares of Common Stock then outstanding
into a greater or lesser number of shares, the Warrant Price then in effect
shall be increased or reduced proportionately, and the number of shares
issuable upon exercise of this Warrant shall accordingly be increased or
reduced proportionately.
l.4 In case of any reclassification or change of outstanding shares
of Common Stock issuable upon exercise of this Warrant (other than change in
par value, or from par value to no par value, or from no par value to par
value, or as a result or a subdivision or combination), or in case of any
consolidation or merger of the Company with or into another corporation
(other than a merger in which the Company is the continuing corporation and
which does not result in any reclassification or change of outstanding
shares of Common Stock, other than a change in number of the shares issuable
upon exercise of the Warrant) or in case of any sale or conveyance to
another corporation of the property of the Company as an entirety or
substantially as an entirety, the Holder of this Warrant shall have the
right thereafter to exercise this Warrant into the kind and amount of shares
of stock and other securities and property receivable upon such
reclassification, change, consolidation, merger, sale or conveyance by a
Holder of the number of shares of Common Stock of the Company for which the
Warrant might have been exercised immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance. The
above provisions of this Section l.4 shall similarly apply to successive
reclassifications and changes of shares of Common Stock and to successive
consolidations, mergers, sales or conveyances.
l.5 The Company covenants that it will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of
issuance upon exercise of this Warrant as herein provided, such number of
shares of Common Stock as shall then be issuable upon the exercise of this
Warrant. The Company covenants that all shares of Common Stock which shall
be so issuable shall be duly and validly issued and fully-paid and non-
assessable.
1.6 Cashless Exercise. At any time during the Warrant Exercise
Term, the Holder may, at its option, exchange the Warrants represented by
such Holder's Warrant Certificate, in whole or in part (a "Warrant
Exchange"), into the number of fully paid and non-assessable Warrant Shares
determined in accordance with this Section 1.6, by surrendering such Warrant
Certificate at the principal office of the Company or at the office of its
transfer agent, accompanied by a notice stating such Holder's intent to
effect such exchange, the number of Warrants (the "Total Share Number") to
be exchanged and the date on which the Holder requests that such Warrant
Exchange occur (the "Notice of Exchange"). The Warrant Exchange shall take
place on the date specified in the Notice of Exchange, or, if later, the
date the Notice of Exchange is received by the Company (the "Exchange
Date"). Certificates for the Warrant Shares issuable upon such Warrant
Exchange and, if applicable, a new Warrant Certificate of like tenor
evidencing the balance of the Warrant Shares remaining subject to the
Holder's Warrant certificate, shall be issued as of the Exchange Date and
delivered to the Holder within three (3) days following the Exchange Date.
In connection with any Warrant Exchange, the Holder's Warrant certificate
shall represent the right to subscribe for and acquire (I) the number of
Warrant Shares (rounded to the next highest integer) equal to (A) the Total
Share Number less (B) the number of Warrant Shares equal to the quotient
obtained by dividing (i) the product of the Total Share Number and the then
current Exercise Price per Warrant Share by (ii) the current Market Price
(as hereafter defined) of a share of Common Stock.
As used herein, the phrase "Market Price" at any date shall be deemed
to be the last reported sale price, or, in case no such reported sale takes
place on such day, the average of the last reported sale prices for the
preceding three trading days, in either case as officially reported by the
principal securities exchange on which the Common Stock is listed or
admitted to trading or as reported in the Nasdaq National Market System, or,
if the Common Stock is not listed or admitted to trading on any national
securities exchange or quoted on the Nasdaq National Market System, the last
reported sale price as furnished by the National Association of Securities
Dealers, Inc. through Nasdaq or similar organization if Nasdaq is no longer
reporting such information, or if the Common Stock is not quoted on Nasdaq,
as determined in good faith by resolution of the Board of Directors of the
Company, based on the best information available to it for the two days
immediately preceding the Exchange Date.
2. Restrictions on Transfer
The Holder acknowledges that he has been advised by the Company that
this Warrant and the shares of Common Stock (the "Warrant Shares") issuable
upon exercise thereof (collectively the "Securities") have not been
registered under the Securities Act of l933, as amended (the "Securities
Act"), that the Warrant is being issued, and the shares issuable upon
exercise of the Warrant will be issued, on the basis of the statutory
exemption provided by section 4(2) of the Securities Act relating to
transactions by an issuer not involving any public offering, and that the
Company's reliance upon this statutory exemption is based in part upon the
representations made by the Holder contained herein. The Holder
acknowledges that he has been informed by the Company of, or is otherwise
familiar with, the nature of the limitations imposed by the Securities Act
and the rules and regulations thereunder on the transfer of securities. In
particular, the Holder agrees that no sale, assignment or transfer of the
Securities shall be valid or effective, and the Company shall not be
required to give any effect to any such sale, assignment or transfer, unless
(i) the sale, assignment or transfer of the Securities is registered under
the Securities Act, and the Company has no obligations or intention to so
register the Securities except as may otherwise be provided herein, or (ii)
the Securities are sold, assigned or transferred in accordance with all the
requirements and limitations of Rule l44 under the Securities Act or such
sale, assignment, or transfer is otherwise exempt from registration under
the Securities Act. The Holder represents and warrants that he has acquired
this Warrant and will acquire the Securities for his own account for
investment and not with a view to the sale or distribution thereof or the
granting of any participation therein, and that he has no present intention
of distributing or selling to others any of such interest or granting any
participation therein. The Holder acknowledges that the securities shall
bear the following legend:
"These securities have not been registered under the Securities
Act of l933. Such securities may not be sold or offered for
sale, transferred, hypothecated or otherwise assigned in the
absence of an effective registration statement with respect
thereto under such Act or an opinion of counsel to the Company
that an exemption from registration for such sale, offer,
transfer, hypothecation or other assignment is available under
such Act."
3. Registration Rights
3.1 The Company shall advise the Holder of this Warrant or of the
Warrant Shares or any then Holder of Warrants or Warrant Shares (such
persons being collectively referred to herein as "Holders") by written
notice at least 30 days prior to the filing by the Company with the
Securities and Exchange Commission of any registration statement under the
Securities Act of l933 (the "Act") covering securities of the Company,
except on Forms S-4 or S-8 (or similar successor form), and upon the request
of any such Holder within ten days after the date of such invoice, include
in any such registration statement such information as may be required to
permit a public offering of the Warrant Shares. The Company shall supply
such number of prospectuses and other documents as the Holder may reasonably
request in order to facilitate the public sale or other disposition of the
Warrant Shares, qualify the Warrant Shares for sale in such states as any
such Holder reasonably designates and do any and all other acts and things
which may be necessary or desirable to enable such Holders to consummate the
public sale or other disposition of the Warrant Shares, and furnish
indemnification in the manner as set forth in Subsection 3.2 of this Section
3. Such Holders shall furnish information and indemnification as set forth
in Subsection 3.2 of this Section 3. For the purpose of the foregoing,
inclusion of the Warrant Shares by the Holder in a Registration Statement
pursuant to this sub-paragraph 3.l under a condition that the offer and/or
sale of such Warrant Shares not commence until a date not to exceed 90 days
from the effective date of such registration statement shall be deemed to be
in compliance with this sub-paragraph 3.l.
3.2 The following provisions of this Section 3 shall also be
applicable to the exercise of the registration rights granted under this
Section 3.l:
(A) The foregoing registration rights shall be contingent on
the Holders furnishing the Company with such appropriate information
(relating to the intentions of such Holders) as the Company shall
reasonably request in writing. Following the effective date of such
registration, the Company shall upon the request of any owner of
Warrants and/or Warrant Shares forthwith supply such number of
prospectuses meeting the requirements of the Act as shall be requested
by such owner to permit such Holder to make a public offering of all
Warrant Shares from time to time offered or sold to such Holder,
provided that such Holder shall from time to time furnish the Company
with such appropriate information (relating to the intentions of such
Holder) as the Company shall request in writing. The Company shall
also use its best efforts to qualify the Warrant Shares for sale in
such states as such Holder shall reasonably designate.
(B) The Company shall bear the entire cost and expense of any
registration of securities initiated by it under Subsection 3.l of
this Section 3 notwithstanding that Warrant Shares subject to this
Warrant may be included in any such registration. Any Holder whose
Warrant Shares are included in any such registration statement
pursuant to this Section 3 shall, however, bear the fees of his own
counsel and any registration fees, transfer taxes or underwriting
discounts or commissions applicable to the Warrant Shares sold by him
pursuant thereto.
(C) The Company shall indemnify and hold harmless each such
Holder and each underwriter, if any, within the meaning of the Act,
who may purchase from or sell for any such Holder any Warrant Shares
from and against any and all losses, claims, damages and liabilities
caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any post-
effective amendment thereto or any registration statement under the
Act or any prospectus included therein required to be filed or
furnished by reason of this Section 3 or caused by any omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading except insofar as such losses, claims, damages or
liabilities are caused by any such untrue statement or alleged untrue
statement or omission or alleged omission based upon information
furnished or required to be furnished in writing to the Company by
such Holder or underwriter expressly for use therein, which
indemnification shall include each person, if any, who controls any
such underwriter within the meaning of such Act; provided, however,
that the Company shall not be obliged so to indemnify any such Holder
or underwriter or controlling person unless such Holder or underwriter
shall at the same time agree to indemnify the Company, its directors,
each officer signing the related registration statement and each
person, if any, who controls the Company within the meaning of such
Act, from and against any and all losses, claims, damages and
liabilities caused by any untrue statement or alleged untrue statement
of a material fact contained in any registration statement or any
prospectus required to be filed or furnished by reason of this Section
3 or caused by any omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading insofar as such losses, claims, damages or liabilities are
caused by any untrue statement or alleged untrue statement or omission
based upon information furnished in writing to the Company by any such
Holder or underwriter expressly for use therein.
(D) The Company may withdraw the registration at any time.
4. Miscellaneous.
4.l All the covenants and agreements made by the Company in this
Warrant shall bind its successors and assigns.
4.2 No recourse shall be had for any claim based hereon or otherwise
in any manner in respect hereof, against any incorporator, stockholder,
officer or director, past, present or future, of the Company or of any
predecessor corporation, whether by virtue of any constitutional provision
or statute or rule of law, or by the enforcement of any assessment or
penalty or in any other manner, all such liability being expressly waived
and released by the acceptance hereof and as part of the consideration for
the issue hereof.
4.3 No course of dealing between the Company and the Holder hereof
shall operate as a waiver of any right of any Holder hereof, and no delay on
the part of the Holder in exercising any right hereunder shall so operate.
4.4 This Warrant may be amended only by a written instrument
executed by the Company and the Holder hereof. Any amendment shall be
endorsed upon this Warrant, and all future Holders shall be bound thereby.
4.5 All communications provided for herein shall be sent, except as
may be otherwise specifically provided, by registered or certified mail: if
to the Holder of this Warrant, to the address shown on the books of the
Company; and if to the Company, to 72 Devon Road, Brampton, Ontario L6T 5B4
Canada, Attention: Office of the President, or to such other address as the
Company may advise the Holder of this Warrant in writing. Notices shall be
deemed given when mailed.
4.6 The provisions of this Warrant shall in all respects be
constructed according to, and the rights and liabilities of the parties
hereto shall in all respects be governed by, the laws of the Province of
Ontario. This Warrant shall be deemed a contract made under the laws of the
Province of Ontario and the validity of this Warrant and all rights and
liabilities hereunder shall be determined under the laws of said Province.
4.7 The headings of the Sections of this Warrant are inserted for
convenience only and shall not be deemed to constitute a part of this
Warrant.
IN WITNESS WHEREOF, THE WIDECOM GROUP, INC. has caused this Warrant to
be executed in its corporate name by its officer, and its seal to be affixed
hereto.
Dated: , 1999
Ontario, Canada
THE WIDECOM GROUP, INC.
By:_____________________________
Raja Tuli
President
SUBSCRIPTION FORM
TO: THE WIDECOM GROUP, INC.
72 Devon Road
Brampton Road
Ontario L6T 5B4 CANADA
The undersigned Holder hereby irrevocably elects to exercise the right
to purchase shares of Common Stock covered by this Warrant
according to the conditions hereof and herewith makes full payment of the
Exercise Price of such shares.
Kindly deliver to the undersigned a certificate representing the
Shares.
INSTRUCTIONS FOR DELIVERY
Name: _____________________________________________________________
(please typewrite or print in block letters)
Address: __________________________________________________________
Dated: _________________________
Signature _________________________________________________________
NEITHER THIS NOTE NOR THE SHARES OF COMMON STOCK INTO WHICH THIS NOTE
IS CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.
THIS NOTE IS SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN
SUBSCRIPTION AGREEMENT OF EVEN DATE (THE "SUBSCRIPTION AGREEMENT").
12% Three-Year Convertible Secured Subordinated Promissory Note
Due February 19, 2002
February 19, 1999
$_______
The Widecom Group Inc., a corporation formed under the laws of the
province of Ontario, Canada (hereinafter called the "Company"), for value
received, hereby promises to pay to ____________________, or registered
assigns (the "Payee"), on the 19th day of February, 2002, or sooner set
forth in paragraph 3(a) herein (the "Due Date") the principal amount
of_______________ on the Due Date. Interest on the unpaid portion of said
principal amount shall be payable from the date hereof at the rate of 12%
per annum and be payable quarterly (computed on the basis of a 360 day year
of twelve 30 day months) commencing on June 30, 1999 and thereafter on
September 30, and December 31, and March 31, of each year until the Due
Date. Both the principal hereof and interest hereon are payable at the
principal office of the Company in Ontario, Canada in such coin or currency
of the United States of America as at the time of payment shall be legal
tender for the payment of public and private debts.
1. Authorized Issue. This Note is one of a duly authorized issue of
12% Three-Year Convertible Secured Subordinated Promissory Notes due
February 19, 2002 (herein called the "Notes") made or to be made by the
Company in aggregate amount of up to $1,500,000 in original authorized
principal amount, similar in terms except for dates, principal amounts and
named payees, offered by the Company in a private placement of securities
(the "Offering") pursuant to an Offering Memorandum dated November 12, 1998,
as supplemented (the "Memorandum"). All capitalized terms not otherwise
defined herein shall have the meaning ascribed to such terms in the
Memorandum.
2. Conversion.
-----------
(a) Unless redeemed as provided in Paragraph 3(a), up to one half of
the unpaid principal amount of this Note may, at the election of the holder,
be converted into shares of Common Stock, at any time during the 30 day
period commencing 180 days following the Initial Closing Date and the
balance of the Note at any time 360 days after the Initial Closing Date,
provided, however, the Notes may be converted in full at the option of the
holder at any time following the receipt of the Notice of Redemption by the
Company. The principal amount of the Note may be converted at the
Conversion Price of $4.00, subject to adjustment in certain circumstances to
prevent dilution. No fractional shares will be issued and a cash adjustment
will be made in lieu thereof. No adjustment for interest will be made on
conversion of any Note. Accordingly, accrued interest will not be paid on a
Note if it is converted between an interest payment date and the next record
date for interest payments. However, any unpaid interest accruing prior to
the interest payment due immediately preceding the conversion will be paid
by the Company. A holder who converts his Note will be deemed to have waived
as of the date of conversion, any default existing under the Note prior to
conversion except the payment of accrued interest.
(b) (i) Any Note may be converted in full or in part by the holder
thereof by surrender of such Note with the notice of conversion thereon duly
executed by such holder (specifying the portion of the principal amount
thereof to be converted in the case of a partial conversion) to the Company
at its principal office. Upon any partial conversion of a Note, the Company
at its expense will forthwith issue and deliver to or upon the order of the
holder thereof a new Note or Notes in principal amount equal to the unpaid
and unconverted principal amount of such surrendered Note, such new Note or
Notes to be dated and to bear interest from the date to which interest has
been paid on such surrendered Note. Each conversion shall be deemed to have
been effected immediately prior to the close of business on the date on
which such Note shall have been so surrendered to the Company or such
agency; and at such time the rights of the holder of such Note as such
shall, to the extent of the principal amount thereof, and accrued interest
thereon, converted, cease, and the person or persons in whose name or names
any certificate or certificates for Shares shall be issuable upon such
conversion shall be deemed to have become the holder or holders of record
thereof.
(ii) No payment or adjustment of dividends shall be made upon
the conversion of any Note or Notes.
(c) As promptly as practicable after the conversion of any Note in
full or in part, and in any event within 15 calendar days thereafter, the
Company at its expense (including the payment by it or any applicable issue
taxes) will issue and deliver to the holder of such Note, or as such holder
(upon payment of such holder of any applicable transfer taxes) may direct, a
certificate or certificates for the number of full Shares issuable upon such
conversion, plus, in lieu of any fractional Shares to which such holder
would otherwise be entitled, cash equal to such fraction multiplied by the
market value determined in good faith by the Board of Directors of the
Company of one full share as of the close of business on the date of such
conversion.
(d) Adjustments to Conversion Price and Number of Securities.
(i) In case at any time or from time to time, the Company shall
subdivide as a whole, split its Common Stock or issue a dividend payable in
Shares or otherwise, the number of Shares then outstanding into a greater or
lesser number of Shares, the Conversion Price then in effect shall be
increased or reduced proportionately, and the number of Shares issuable upon
conversion of this Note shall accordingly be increased or reduced
proportionately.
(ii) In case of any reclassification or change of outstanding
Shares issuable upon conversion of this Note (other than change in par
value, or from par value to no par value, or from no par value to par value,
or as a result or a subdivision or combination), or in case of any
consolidation or merger of the Company with or into another corporation
(other than a merger in which the Company is the continuing corporation and
which does not result in any reclassification or change of outstanding
Shares, other than a change in number of the Shares issuable upon conversion
of the Note) or in case of any sale or conveyance to another corporation of
the property of the Company as an entirety or substantially as an entirety,
the holder of this Note shall have the right thereafter to convert this Note
into the kind and amount of Shares of stock and other securities and
property receivable upon such reclassification, change, consolidation,
merger, sale or conveyance by a holder of the number of Shares of the
Company for which the Note might have been converted immediately prior to
such reclassification, change, consolidation, merger, sale or conveyance.
The above provisions of this Paragraph 2 shall similarly apply to successive
reclassifications and changes of Share sand to successive consolidations,
mergers, sales or conveyances.
(e) The Company will at all times reserve and keep available, solely
for issuance and delivery upon the conversion of the Notes, all Shares from
time to time issuable upon the conversion of the Notes. All Shares issuable
upon conversion of the Notes shall be duly authorized and, when issued,
validly issued, fully paid and nonassessable with no liability on the part
of the holders thereof.
3. Redemption.
-----------
(a) Subject to the provisions of paragraph 3(e) hereof, the
Notes are redeemable, in whole or in part, at the option of the Company
provided that: (i) the Shares underlying the Notes are registered for resale
under the Act; (ii) during the 20 consecutive trading days ending within 10
days of the date of the written Notice of Redemption (as defined below), the
closing bid price of the Common Stock is not less than 150% of the
Conversion Price, and (iii) the trading volume of the Common Stock is not
less than 30,000 Shares per day. The redemption price shall be equal to
the principal amount of the Note then outstanding plus all accrued and
unpaid interest (the "Redemption Price"). No such notice will be given
until there is a current Registration Statement and a prospectus on file
with the Securities and Exchange Commission at the time such notice is given
to the Note holders.
(b) If the conditions set forth in Section 3(a) are met, and
the Company desires to exercise its right to redeem the Notes, it shall mail
a notice of redemption ("Notice of Redemption") to each of the Note holders
to be redeemed, first class, postage prepaid, not later than the 45th day
before the date fixed for redemption, at their last address as it appears on
the records maintained by the Company. Any notice mailed in the manner
provided herein shall be conclusively presumed to have been duly given
whether or not the Note holder receives such Notice of Redemption.
(c) The Notice of Redemption shall specify (i) the redemption
price, (ii) the date fixed for redemption, (iii) the place where the Notes
shall be delivered and the redemption price paid, and (iv) that the right to
convert the Note shall terminate at 5:00 P.M. (New York time) on the
business day immediately preceding the date fixed for redemption. The date
fixed for the redemption of the Note shall be the Redemption Date. No
failure to mail such notice nor any defect therein or in the mailing thereof
shall affect the validity of the proceedings for such redemption except as
to a Note holder (a) to whom notice was not mailed or (b) whose notice was
defective and then only to the extent that the Note holder is prejudiced
thereby. An affidavit of the Secretary or an Assistant Secretary of the
Company that notice of redemption has been mailed shall, in the absence of
fraud, be prima facie evidence of the facts stated therein.
(d) Any right to convert a Note shall terminate at 5:00 P.M.
(New York time) on the business day immediately preceding the Redemption
Date. On and after the Redemption Date, Note holders shall have no further
rights except to receive, upon surrender of the Note, the Redemption Price.
(e) From and after the Redemption Date specified for, the
Company shall, at the place specified in the notice of redemption, upon
presentation and surrender to the Company by or on behalf of the Note holder
thereof of one or more Notes evidencing the Notes to be redeemed, deliver or
cause to be delivered to or upon the written order of such Holder a sum in
cash equal to the redemption price of each such Note. From and after the
Redemption Date and upon the deposit or setting aside by the Company of a
sum sufficient to redeem all the Notes called for redemption, such Notes
shall expire and become void and all rights hereunder and under the Notes,
except the right to receive payment of the Redemption Price, shall cease.
4. Restrictions on Transfer. (a)(i) Unless a Registration Statement
with respect thereto under the Securities Act is at the time in effect, this
Note or the Shares into which the Note may be converted shall not be
transferred (such term to include any disposition which would constitute a
sale within the meaning of the Securities Act), except upon compliance with
the conditions specified in this subsection 4(a) and unless such
Registration Statement with respect to this Note or the Shares has been
filed and is declared effective. The Company may issue or cause to be
issued stop orders preventing any transfer that the Company believes to be
in violation of applicable securities laws.
(ii) The holder of this Note by the acceptance thereof agrees,
prior to any transfer or attempted transfer of this Note, that it shall not
transfer this Note unless a Registration Statement under the Securities Act
is in effect with respect to such transfer or, prior to such transfer, it
shall have delivered to the Company an opinion of counsel experienced in
Securities Act matters reasonably acceptable to the Company and counsel to
the Company in a form reasonably acceptable to the Company, or a "no action"
letter from the Securities and Exchange Commission, to the effect that the
proposed transfer may be effected without registration under the Securities
Act. The legend set forth on the facing page of this Note shall be removed
from any such Note to be disposed of in accordance with this clause (ii)
unless, in the opinion of counsel for the Company, such legend is required
by the applicable provisions of the Securities Act.
(b) The holder of this Note and/or the Shares issuable upon
conversion of this Note have certain registration rights as provided in the
Subscription Agreement of even date herewith.
5. Transfer and Exchange. Provided the Note holder otherwise complies
with the restrictions in paragraph 4 hereof, this Note is transferable on
the note register of the Company at the expense of the Company (except for
any stamp tax or other governmental charge with respect to any transfer)
upon surrender of this Note for transfer at the principal office of the
Company, accompanied by a written instrument of transfer in form reasonably
satisfactory to the Company duly executed by the holder of this Note or his
attorney duly authorized in writing, and thereupon one or more new Notes,
each in the denominations of $10,000 or an integral multiples thereof and
for the same aggregate principal amount as the Note surrendered, and dated
the date to which interest has been paid on the Notes, will be issued to the
designated transferee or transferees. This Note is exchangeable for a like
aggregate principal amount of Notes of different denominations, as requested
by the holder or his attorney surrendering the same.
The Company and its agents may treat the holder of this Note as the
owner for purposes of receiving payment as herein provided and for all other
purposes, whether or not this Note be overdue, and neither the Company nor
any such agent shall be affected by notice to the contrary.
Any new Note or Notes to be delivered to the Note holder or upon the
Note holder's order, pursuant to this Section 5, in substitution for or in
lieu of any Note held by the Note holder, will be delivered to the Note
holder at his address as shown on the records of the Company, or at such
other address as the Note holder may request, without any expense to Note
holder in connection with such delivery and insured to the Note holders
satisfaction.
6. Subordination of Indebtedness/Security Interest.
------------------------------------------------
(a) This Note is issued subject to the provisions of this
Section 6; and each person taking or holding this Note, accepts and agrees
to be bound by these provisions.
(b) This Note is an obligation of the Company fully
subordinated to all "senior indebtedness" except to the extent of the
Collateral (as defined in the Subscription Agreement). "Senior Indebtedness"
is all indebtedness, liabilities and obligations of the Company for money
borrowed from banks, savings and loan associations, the Small Business
Administration and other financial institutions, and their affiliates, or
any deferrals, renewals or extensions of any such senior indebtedness and
notes or other instruments or evidences of indebtedness issued in respect of
or in exchange for any such senior indebtedness or any funding to pay or
replace any such senior indebtedness or credit, unless in the instrument
creating or evidencing the same, or pursuant to which it is outstanding, it
is provided that such indebtedness or such deferral, renewal or extension
thereof is not senior in right of payment to this Note. No payment or
distribution of any kind or character on account of principal, premium, if
any, or interest on this Note shall be permitted during the continuance of
any default in the payment of principal, premium, if any, or interest on any
senior indebtedness.
7. Default.
--------
If one or more of the following events (herein called "Events of
Default") shall occur for any reason whatsoever (and whether such occurrence
shall be voluntary or involuntary or come about or be effected by operation
of law or pursuant to or in compliance with any judgment, decree or order of
any court or any order, rule or regulation of any administrative or
governmental body), and the holder of any Note shall have given fifteen (15)
days prior written notice to the Company by certified or registered mail,
return receipt requested, and the Company shall not have cured the default
within such period:
(i) default in the due and punctual payment of the principal
of, or interest on, any Note when and as the same shall become due and
payable, whether at maturity or at a date fixed for prepayment or by
acceleration or otherwise;
(ii) breach by the Company of any covenant contained in this
Note and/or any provision of the Subscription Agreement executed in
connection with the sale and purchase of the Notes;
(iii) the Company makes an assignment for the benefit of
creditors or admits in writing its inability to pay its debts generally as
they become due;
(iv) an order, judgment or decree is entered adjudicating the
Company or any subsidiary bankrupt or insolvent;
(v) the Company petitions or applies to any tribunal for the
appointment of a trustee or receiver of the Company, or of any substantial
part of the assets of the Company, or commences any proceedings (other than
proceedings for the voluntary liquidation and dissolution of a subsidiary)
relating to the Company or a subsidiary under any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt, dissolution
or liquidation law of any jurisdiction whether now or hereafter in effect;
(vi) any such petition or application is filed, or any such
proceedings are commenced, against the Company, and the Company by any act
indicates its approval thereof, consent or acquiescence therein, or an
order, judgment or decree is entered appointing any such trustee or
receiver, or approving the petition in any such proceedings, and such order,
judgment or decree remains unstayed and in effect for more than 60 days;
(vii) any order, judgment or decree is entered in any
proceedings against the Company or any subsidiary decreeing the dissolution
of the Company and such order, judgment or decree remains unstayed and in
effect for more than 60 days;
(viii) any order, judgment or decree is entered in any
proceedings against the Company or any subsidiary decreeing a split-up of
the Company which requires the divestiture of a substantial part of the
consolidated assets of the Company and its subsidiaries, or the divestiture
of the stock of a subsidiary and such order, judgment or decree remains
unstayed and in effect for more than 60 days,
then and in each and every such case, so long as such Event of Default shall
not have been remedied (i) the holder of any Note, by notice in writing to
the Company, may declare the principal of this Note then outstanding and the
interest accrued thereon if not already due and payable, to be due and
payable immediately, or convertible pursuant to paragraph 2 hereof, and upon
any such declaration the same shall become and shall be immediately due and
payable, anything in this Note contained to the contrary notwithstanding.
8. Miscellaneous. (a) To the extent permitted by applicable law, the
Company hereby agrees to waive, and does hereby absolutely and irrevocably
waive and relinquish, the benefit and advantage of any valuation, stay,
appraisement, extension or redemption law now existing or which may
hereafter exist, which, but for this provision, might be applicable to any
sale made under the judgment, order or decree of any court, or otherwise,
based on the Notes or on any claim for principal or interest on the Notes.
(b) Each Note is issued upon the express condition, to which each
successive holder expressly assents and by receiving the same agrees, that
no recourse under or upon any obligation, covenant or agreement of the
Notes, or for the payment of the principal of, or premium, if any, or the
interest on, a Note, or for any claim based on a Note, or otherwise in
respect hereof, shall be had against any incorporator or any past, present
or future stockholder, officer or director, as such, of the Company or of
any successor corporation, whether by virtue of the constitution, statute or
rule of law or by any assessment or penalty or otherwise, all such
individual liability being hereby expressly waived and released as a
condition of and as a part of the consideration for the execution and issue
of the Notes; provided, however, that nothing herein shall prevent
enforcement of the liability, if any, of any stockholder or subscriber to
capital stock upon or in respect of capital stock not fully paid.
(c) Upon receipt by the Company of evidence satisfactory to it of
the loss, theft, destruction or mutilation of any Note and of indemnity
reasonably satisfactory to it, and upon reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation
of any such Note if mutilated, the Company will make and deliver a new Note
of like tenor in lieu of any such Note so lost, stolen, destroyed or
mutilated. Any new Note made and delivered in accordance with the
provisions of this subsection 9(c) shall be dated as of the date from which
unpaid interest has then accrued on the Note so lost, stolen, destroyed or
mutilated.
(d) No course of dealing between the Company and the holder of any
Note or any delay on the part of the holder in exercising any rights under a
Note shall operate as a waiver of any rights of any holder of the Note.
(e) Any and all covenants or events of default under the Notes,
except for the due and punctual payment of principal and interest, may be
waived by the Holders of the majority in interest of the principal amount of
outstanding Notes.
10. Binding Effect. The Company agrees that the provisions of this
Note shall bind and shall inure to the benefit of the parties hereto and
their successors and assigns.
11. Amendment and Waiver. Except as otherwise provided herein, this
Note may be amended, and the performance and observance of any term of this
Note may be waived, with (and only with) the written consent of the Company
and such Note purchaser as to whom performance is to be waived.
12. Interest Rate. If any interest rate specified herein is held by
applicable law to be impermissible, then the rate charged on the
indebtedness represented hereby shall be reduced to the highest rate then
permitted by law.
13. Communications. All notices and other communications provided
for hereunder or under the Notes shall be in writing, and, if to a Note
holder, shall be delivered or mailed by registered mail addressed to the
Note holder at the Note holders address as shown in the records of the
Company in this Note hereto or to such other address as the Note holder may
designate to the Company in writing and, if to the Company, shall be
delivered or mailed by registered mail to the Company at 72 Devon Road, Unit
#18, Brampton, Ontario, Canada, L6T 5B4, or to such other address as the
Company may designate to the Note holder in writing.
14. Governing Law. This Note shall be construed in accordance with
and governed by the laws of the State of New York without regard to
principles of conflicts of law, and cannot be changed, discharged or
terminated orally but only by an instrument in writing signed by the party
against whom enforcement of any change, discharge or termination is sought.
15. Headings. The headings of the sections of this Note are inserted
for convenience only and do not affect the meaning of such section.
IN WITNESS WHEREOF, THE WIDECOM GROUP INC. has caused this Note to be
signed in its corporate name by a duly authorized officer and to be dated
the date and year first above written.
THE WIDECOM GROUP INC.
By
-------------------------
RAJA S. TULI
Chief Executive Officer
SUBSCRIPTION FORM
To Be executed by the Registered Holder to Convert Note
The undersigned Registered Note holder hereby irrevocably elects to
convert $ ________ principal amount and accrued interest represented by this
Note, and to purchase the Shares issuable upon the conversion of such Note,
and requests that certificates for such Shares shall be issued in the name
of:
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
(please print or type name and address)
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
_________________________________________________________________
and be delivered to
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
(please print or type name and address)
and if the so amount converted shall not represent the entire unpaid
principal amount due and owing on this Note, the Company shall deliver a
new Note for the unpaid and unconverted principal amount of such surrendered
Note registered in the name of, and delivered, to, the Note holder at the
address stated below, such new Note or Notes to be dated and to bear
interest from the date to which interest has been paid on such surrendered
Note.
Dated:________________________ X______________________________
Signature
_________________________ ______________________________
Taxpayer Identification #
______________________________
Address
Quantum Resources of NY, Inc.
37 Saw Mill River Road
Hawthorne, New York 10532
Voice: 914-347-4800
Fax: 914-347-3927
E-mail [email protected]
February 1, 1998
Mr. Raja Tuli
WideCom Inc.
72 Devon Rd, Unit 18
Brampton, Ontario Canada L67 5B4
Dear Mr. Raja Tuli,
This Agreement, when executed by the parties hereto, will constitute an
agreement between WideCom, Inc. (the "Company") and Quantum Resources of NY,
Inc. ("Quantum") pursuant to which the Company agrees to retain Quantum and
Quantum agrees to be retained by the Company under the terms and conditions
set forth below.
1) The Company hereby retains Quantum to perform consulting services
related to the business structure and communications of the company.
In this regard, subject to the terms set forth below, Quantum shall
furnish to the Company advice and recommendations with respect to such
aspects of the business communication, sales and marketing affairs of
the Company as the Company shall, from time to time, reasonably
request upon reasonable notice. In addition, Quantum shall hold itself
ready to assist the Company in evaluating and negotiating particular
contacts with personnel the Company wishes to employ, if requested to
do so by the Company, upon reasonable notice.
2) As compensation for the services outlined in paragraph one above and
as an inducement to enter into this agreement, the Company agrees to
pay to Quantum a consulting fee of $5,000 a month beginning February
1, 1999, payable monthly in advance. In addition, the Company shall
issue to Quantum a five year warrant to purchase 37,500 shares of
common stock at $ 1.20 a share, post split for its prior advisory work
and for its role in the recruiting and hiring of an Sales Executive
Vice President. The warrant shall be in the form acceptable to
Quantum, shall include piggyback registration rights, and shall have a
provision for cash-less execution.
3) The company and Quantum acknowledge and agree that Quantum will act as
a finder or financial consultant in various business transactions in
which the Company may be involved, such as mergers, acquisitions or
joint ventures. The Company hereby agrees that in the event Quantum
shall first introduce to the Company another party or entity, and that
as a result of such introduction, a transaction ("Transaction") is
consummated, the Company shall pay to Quantum a fee equal to:
5% of the first two million dollars
4% of the second two million dollars
3% of the third two million dollars
2% of the fourth two million dollars
1% of the balance of the consideration (the "Consideration") received and/or
paid in such Transaction. Such fee shall be paid in cash unless the seller
in the contemplated transaction receives securities, in which case the fee
shall be paid in cash and securities in the same percentage of cash and
securities and at the same time as the consideration is paid to the seller.
In addition, if the Company shall, within 12 months immediately following
the termination of this Agreement, consummate a transaction with any party
first introduced by Quantum to the Company prior to such termination, the
Company shall pay to Quantum a fee with respect to such transaction
calculated in accordance with this paragraph.
4) For purposes hereof, "Consideration" shall mean the value of all cash,
securities and other property or other assets paid, received, payable
or receivable, including debt assumed, in connection with a
Transaction, including, without limitation: (a) any distributions made
to shareholders in anticipation of the closing; (b) any employment
contract enhancements or non competition payments (other than ordinary
and customary compensation in connection with bona fide employment
agreements); (c) any payments in connection with any separate
transactions affecting another business entity or any of its assets or
securities (e.g., purchase or lease of any real estate or other
assets, but in the case of a lease, Consideration shall include only
sums in excess of current rentals paid to unrelated or unaffiliated
third parties); (d) any indebtedness for money borrowed, including
receivables, pension liabilities and guarantees, which are assumed;
and (e) other business considerations (e.g. business discounts and/or
credits for services and/or products). For purposes of determining
Consideration, the value of any securities (whether debt or equity)
shall be deemed to be the greater of: (i) the fair market value
thereof as of the day the definitive agreement is executed by all
parties; or (ii) the average of the last reported sales prices of the
securities on the twenty (20) consecutive business days prior to the
consummation of the Strategic Transaction as reported on the principal
exchange on which the security is listed, or, as the case may be, the
NASDAQ National Market System; provided that the value of securities
that are not freely tradable or have no established public market
shall be the fair market value thereof as reasonably agreed upon by
the parties hereto. If any part of the Consideration shall be deferred
or contingent upon future earnings or other contingencies, then
Quantum shall be entitled to a Transaction Fee on such additional
Consideration, and the term Consideration shall include such
additional compensation which shall be payable on the basis of the
payment when made by the payor. The Transaction Fee for such
Consideration paid or received in the future shall be payable when
such Consideration is paid and shall be calculated using the formula
set forth above by adding this subsequent Consideration to all other
Consideration previously paid.
5) All obligations of Quantum contained herein shall be subject to
reasonable notice. Quantum shall devote such time and effort to the
performance of its duties hereunder as Quantum shall determine is
reasonably necessary for such performance. Quantum may look to such
others for such factual information, investment recommendations,
economic advice and/or research, upon which to base its advice to the
Company hereunder, as it shall deem appropriate. The Company shall
furnish to Quantum all information reasonably relevant to the
performance by Quantum of its obligations under this Agreement, or
particular projects as to which Quantum is acting as advisor, which
will permit Quantum to know all facts material to the advice to be
rendered, and all material or information reasonably requested by
Quantum, In the event that the Company fails or refuses to furnish any
such material or information reasonably requested by Quantum, and thus
prevents or impedes Quantum's performance hereunder, any inability of
Quantum to perform shall not be a breach of its obligations
hereunder, Nothing contained in this Agreement shall limit or
restrict the right of Quantum or of any partner, employee, agent or
representatives of Quantum, to be a partner, director, officer,
employee, agent or representative of, or to engage in, any other
business, whether of a similar nature or not, nor to limit or restrict
the right of Quantum to render services of any kind to any other
corporation, firm, individual or association.
6) Quantum shall hold in confidence any confidential information, which
the Company provided to Quantum pursuant to this Agreement unless the
Company gives Quantum permission to in writing to disclose such
confidential information to a specific third party. Notwithstanding
the foregoing, Quantum shall not be required to maintain
confidentiality with the respect to information (i) which is or
becomes part of the public domain; (ii) of which it had independent
knowledge prior to disclosure; (iii) which comes into the possession
of Quantum in the normal routine course of its own business from and
through independent non-confidential sources; or (iv) which is
required to be disclosed by Quantum by governmental requirements. If
Quantum is requested or required (by oral questions, interrogatories,
requests for information or document subpoenas, civil investigative
demands, or similar process) to disclose any confidential information
supplied to it by the Company, or the existence of other negotiations
in the course of its dealings with the Company or its representatives,
Quantum shall, unless prohibited by law, promptly notify the Company
of such request(s) so that the Company may seek an appropriate
protective order.
7) Each party agrees to indemnity and hold harmless the other, their
employees, agents, representatives and controlling persons (and the
officers, directors, employees, agents, representatives and
controlling persons of each of them) from and against any and all
losses, claims, damages, liabilities, cost and expenses (and all
actions, suits, proceeding or claims in respect thereof) and any legal
or other expenses in giving testimony or furnishing documents in
response to a subpoena or otherwise, as and when incurred, directly or
indirectly, caused by, relating to, based upon or arising out of the
services pursuant to this Agreement. The Company further agree that
Quantum shall incur no liability to the Company or any other party on
account of this Agreement or any acts or omissions arising out of or
related to the actions of Quantum relating to this Agreement or the
performance or failure to perform any services under this Agreement
except for Quantum's intentional or willful misconduct. This paragraph
shall survive the termination of this Agreement.
8) This Agreement may not be transferred, assigned or delegated by any of
the parties hereto without the prior written consent of the other
party hereto.
9) The failure or neglect of the parties hereto to insist in any one or
more instances, upon the strict performance of any of the terms and
conditions of this Agreement, or their waiver of strict performance of
any of the terms and conditions of this agreement, shall be construed
as a waiver of strict performance of any of the terms or conditions of
this Agreement, shall not be construed as a waiver or relinquishment
in the future of such term and condition, but the same shall continue
in full force and effect.
10) The term of this Agreement is for 12 months. Either party may
terminate the agreement after Quantum has received three months of
consecutive payments and by giving 30 days written notice.
11) Any notices hereunder shall be sent to the Company and Quantum at
their respective addresses set forth above. Any notice shall be given
by registered or certified mail, postage prepaid, and shall be deemed
to have been given when deposited in the United States mail. Either
party may designate any other address to which notice shall be given,
by giving written notice to the other of such change of address in the
matter herein provided.
12) This Agreement has been made in the State of New York and shall be
construed and governed in accordance with the laws thereof without
giving effect to principles governing conflicts of law.
13) This Agreement contains the entire agreement between the parties, may
not be altered or modified, except in writing, signed by the party to
be changed thereby, and supersedes any and all previous agreements
between the parties relating to the subject or matter hereof.
WideCom Corporation Quantum Resources of NY, Inc.
By: By:
___________________________________ ____________________________________
Raja Tuli, President Timothy J. Flanagan, President
ROBB, PECK, McCOOEY CLEARING CORPORATION
INVESTMENT DIVISION
55 BROADWAY
NEW YORK, N.Y. 10006
(800) 300-6861
FAX (212) 482-3558
MEMBERS:
NEW YORK STOCK EXCHANGE, INC
AND OTHER PRINCIPAL EXCHANGES
SECURITIES INVESTORS PROTECTION CORPORATION (SIPC)
August , 1998
Raja Tuli, President
WideCom Group Inc.
72 Devon Road, Unit 18
Brampton, Ontario
Canada L6T 534
You have advised us that WideCom Group Inc. ("WIDE") desires to retain
Robb, Peck, McCooey Clearing Corporation ("ROBB") as a nonexclusive external
investment banking advisor in connection with the identification, evaluation
and potential closing of an acquisition, merger, joint venture or other like
transactions. This letter, when executed by the parties hereto, will
constitute an agreement between WIDE and ROBB pursuant to which WIDE hereby
retains Robb under the terms and conditions set forth below.
1. WIDE retains ROBB to perform consulting services related to
corporate finance and other financial service matters. In this regard ROBB
shall furnish to WIDE advice and recommendations with respect to such
aspects of the business and affairs of WIDE as WIDE shall, from time to
time, reasonably request upon written notice.
2. In addition, ROBB shall hold itself ready to assist WIDE in
evaluating and negotiating particular contracts or transactions, if
requested to do so by WIDE, upon reasonable written notice, and will
undertake such evaluations and negotiations upon prior written agreement as
to additional compensation to be paid by WIDE to ROBB with respect to such
evaluations and negotiations. Nothing herein shall require WIDE to utilize
ROBB's services in any particular transactions.
3. As compensation for the services described in paragraph 1 above
and as an inducement for ROBB to enter into this agreement, WIDE shall issue
and deliver to ROBB a five-year warrant to purchase 50,000 common shares at
$.75 per share. The warrant shall be prepared in a form acceptable to ROBB.
WIDE shall use its best efforts to register the shares underlying the
warrants in conjunction with the registration statement filed to register
the shares sold in a certain private offering of August 1998 (the
"Offering'). In addition, WIDE shall deliver to ROBB, at the time it
executes this agreement, its check for five thousand dollars, $5,000.00,
(US). This amount shall be a non-refundable payment as an inducement to
enter into this agreement. However such payment shall be applied against any
compensation earned by ROBB under this agreement. WIDE will reimburse ROBB
for any and all reasonable out of pocket expenses incurred by ROBB in the
performance of its duties hereunder, and ROBB shall account for such
expenses to WIDE; provided, however, that any expenses in excess of $1,000
shall require the prior written approval of WIDE, which will not be
unreasonably withheld. Such reimbursement shall accumulate and be offset or
paid monthly.
4. Wide agrees that if the Offering is consummated, Robb shall have
an irrevocable preferential right for a period of three (3) years from the
date the Offering is completed to purchase for its account or to sell for
the account of Wide, or any subsidiary of or successor to Wide, or any of
its directors or officers, any securities of Wide or any such subsidiary or
successor which Wide, any such subsidiary or successor may seek to sell
through an underwriter, placement agent or broker-dealer whether pursuant to
registration under the Act or otherwise. Wide, any such subsidiary or
successor will consult Robb with regard to any such offering and will offer
Robb the opportunity to purchase or sell any such securities on terms not
more favorable to Wide, any such subsidiary or successor than it or they can
secure elsewhere. If Robb fails to accept such offer within 15 business days
after the mailing of a notice containing such offer by registered mail
addressed to Robb, then Robb shall have no further claim or right with
respect to the financing proposal contained in such notice. If, however, the
terms of such proposal are subsequently modified in any material respect,
the preferential right referred to herein shall apply to such modified
proposal as if the original proposal had not been made. Robb's failure to
exercise its preferential right with respect to any particular proposal
shall not affect its preferential rights relative to future proposals.
5. WIDE agrees that in the event ROBB shall first introduce to WIDE
another party or entity, and that as a result of such introduction, a
transaction (a "Transaction") is consummated, WIDE shall pay to ROBB a
Transaction fee equal to five percent of the amount of the consideration
paid in such transaction up to $5 million and two and one half percent of
the excess, if any, over $5 million. For purposes hereof, "Transaction"
shall mean a merger, acquisition, business, combination, joint venture or
similar transaction, and "Consideration" shall mean the value of all cash,
securities and other property or other assets paid, received, payable or
receivable, including debt assumed, in connection with a Transaction,
including, without limitation: (a) any distributions made to shareholders
in anticipation of the closing, (b) any employment contract enhancements or
non-competition payments (other than ordinary and customary compensation in
connection with bona fide employment agreements), (c) any payments in
connection with any separate transactions affecting another business entity
or any of its assets or securities (e.g., purchase or lease of any real
estate or other assets, but in the case of a lease, Consideration shall
include only sums in excess of current rentals paid to unrelated or
unaffiliated third parties), (d) any indebtedness for money borrowed,
including receivables, pension liabilities and guarantees, which are
assumed, and (e) other business considerations (e.g. business discounts
and/or credits for services and/or products). For purposes of determining
Consideration, the value of any securities (whether debt or equity) shall be
deemed to be the greater of : (I) the fair market value thereof as of the
day the definitive agreement is executed by all parties, or (ii) the average
of the last reported sales prices of the securities on the twenty (20)
consecutive business days prior to the consummation of the Transaction as
reported on the principal exchange on which the security is listed, or, as
the case may be, the NASDAQ National Market System, provided that the value
of securities that are not freely tradable or have no established public
market shall be the fair market value thereof as reasonably agreed-upon by
the parties hereto. If any part of the Consideration shall be deferred or
contingent upon future earnings or other contingencies, then ROBB shall be
entitled to a Transaction Fee on such additional Consideration, and the term
Consideration shall include such additional compensation which shall be
payable on the basis of the payment when made by the payor. The Transaction
Fee for such Consideration paid or received in the future shall be payable
when such Consideration is paid and shall be calculated using the formula
set forth in Section B (3) by adding this subsequent Consideration to all
other Consideration previously paid.
6. All obligations of ROBB contained herein shall be subject to
ROBB's reasonable availability for such performance, in view of the nature
of the requested service and the amount of notice received. ROBB shall
devote such time and effort to the performance of its duties hereunder as
ROBB shall determine is reasonably necessary for such performance. ROBB may
look to such others for such factual information, investment
recommendations, economic advice and/or research, upon which to base its
advice to WIDE hereunder, as it shall deem appropriate. WIDE shall furnish
to ROBB all information reasonably relevant to the performance by ROBB of
its obligations under this Agreement, or particular projects as to which
ROBB is acting as advisor, which will permit ROBB to know all facts material
to the advice to be rendered, and all material or information reasonably
requested by ROBB. In the event that WIDE fails or refuses to furnish any
such material or information reasonably requested by ROBB, and thus prevents
or impedes ROBB's performance hereunder, any inability of ROBB to perform
shall not be a breach of its obligations hereunder.
7. Nothing contained in this Agreement shall limit or restrict the
right of ROBB or of any partner, employee, agent or representative of ROBB,
to be a partner, director, officer, employee, agent or representative of, or
to engage in, any other business, whether of a similar nature or not, nor to
limit or restrict the right of ROBB to render services of any kind to any
other corporation, firm individual or association.
8. ROBB will hold in confidence any confidential information which
WIDE provides to ROBB pursuant to this Agreement unless WIDE gives ROBB
permission in writing to disclose such confidential information to a
specific third party. Notwithstanding the foregoing, ROBB shall not be
required to maintain confidentiality with respect to information (I) which
is or becomes part of the public domain; (ii) of which it had independent
knowledge prior to disclosure; (iii) which comes into the possession of ROBB
in the normal and routine course of its own business from and through
independent non-confidential sources; or (iv) which is required to be
disclosed by ROBB by governmental requirements. If ROBB is requested or
required (by oral question, interrogatories, requests for information or
document subpoenas, civil investigative demands, or similar process) to
disclose any confidential information supplied to it by WIDE, or the
existence of other negotiations in the course of its dealings with WIDE or
its representatives, ROBB shall, unless prohibited by law, promptly notify
WIDE of such request (s) so that WIDE may seek an appropriate protective
order.
9. In consideration of ROBB signing this Agreement and agreeing to
perform services as WIDE's financial advisor under this Agreement, WIDE
agrees to indemnify and hold harmless ROBB and each of its directors,
officers, agents, employees and controlling person (within the meaning of
the Securities Act of 1933, as amended) to the extent and as provided in
Exhibit A attached hereto and incorporated herein by reference.
10. WIDE further agrees that ROBB shall incur no liability to WIDE
or any other party on account of this Agreement for any acts or omissions
arising out of or related to the actions of ROBB relating to this Agreement
or the performance or failure to perform any services under this Agreement
except for ROBB's intentional or willful misconduct as provided for in
Exhibit A. Neither termination nor completion of the engagement of ROBB
referred to above shall affect these indemnification provisions which shall
remain operative and in full force and effect and this paragraph and Exhibit
A shall survive the termination of this Agreement.
11. This Agreement may not be transferred, assigned or delegated by
any of the parties hereto without the prior written consent of the other
party hereto.
12. The failure or neglect of the parties hereto to insist, in any
one or more instances, upon the strict performance of any of the terms or
conditions of this Agreement, or their waiver of strict performance of any
of the terms or conditions of this Agreement, shall not be construed as a
waiver or relinquishment in the future of such term or condition, but the
same shall continue in full force and effect.
13. This Agreement is for a term of 12 months and may be terminated
by WIDE or by ROBB at any time upon 30 days' notice. Paragraphs 4, 7 and 8
shall survive the expiration or termination of this Agreement under all
circumstances.
14. Any notices hereunder shall be sent to WIDE and to ROBB at their
respective addresses set forth above. Any notice shall be given by
registered or certified mail, postage prepaid, and shall be deemed to have
been given when deposited in the United States mail. Either party may
designate any other address to which notice shall be given, by giving
written notice to the other of such change of address in the manner herein
provided.
15. This Agreement has been made in the State of New York and shall
be construed and governed in accordance with the laws thereof without giving
effect to principles governing conflicts of law.
16. This Agreement contains the entire agreement between the
parties, may not be altered or modified, except in writing and signed by the
party to be charged thereby, and supersedes any and all previous agreements
between the parties relating to the subject matter hereof.
17. This Agreement shall be binding upon the parties hereto, the
indemnified parties referred to in Section 8, and their respective heirs,
administrators, successors and permitted assigns.
If you are in agreement with the foregoing, please execute two copies
of this letter in the space provided below and return to the undersigned.
Very truly yours,
ROBB, PECK, MCCOOEY CLEARING
CORPORATION
By:_________________________________
An Authorized Representative
ACCEPTED AND AGREED TO AS OF
THE DATE FIRST ABOVE WRITTEN
WIDECOM GROUP INC.
By:________________________________
Name:
EXHIBIT A
WIDE agrees to indemnify and hold harmless ROBB, its officers,
directors, partners, employees, agents, and counsel, and each person, if
any, who controls ROBB within the meaning of Section 15 of the Act or
Section 20(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), against any and all losses, claims, damages, obligation,
penalties, judgments, awards, liabilities, costs expenses and disbursements
(and any and all actions, suits, proceedings and investigations in respect
hereof and any and all legal and other costs, expenses and disbursements in
giving testimony or furnishing documents in response to a subpoena or
otherwise), including, without limitation, the costs, expenses and
disbursements, as and when incurred, of investigating, preparing or
defending any such action, suit, proceeding or investigation (whether or not
in connection with litigation in which ROBB is a party), directly or
indirectly, caused by, relating to, based upon, arising out of, or in
connection with (a) any untrue statement or alleged untrue statement of a
material fact contained in, or omissions from any offering document,
including any amendment thereof or supplement thereto, or similar statements
or omissions in or from any other information furnished by WIDE to ROBB or
any prospective participant in a Transaction or purchaser of the WIDE's
securities; (b) violation or breaches of any representation, warranty,
covenant or agreement contained or incorporated in the Agreement or in any
instrument, document, agreement or certificate delivered by WIDE to ROBB or
any prospective participant in a Transaction or purchaser or the WIDE's
securities; (c) ROBB's acting for WIDE, including, without limitation, any
act or omission by ROBB in connection with its acceptance of or the
performance or non-performance of its obligations under the agreement to
which this exhibit is attached (the "Agreement"), and (d) any offering of
any security of WIDE by ROBB. WIDE also agrees that ROBB shall not have any
liability (whether direct or indirect, in contract or tort or otherwise) to
WIDE for or in connection with the engagement of ROBB or the Agreement,
except where such loss has been judicially determined to be solely due to
ROBB's gross negligence or willful misconduct.
These indemnification provisions shall be in addition to any liability
which WIDE may otherwise have to ROBB or the persons indemnified below in
this sentence and shall extend to the following: ROBB, its affiliated
entities, partners, employees, legal counsel, agents and controlling persons
(within the meaning of the federal securities laws), and the officer,
directors, employees, legal counsel, agents and controlling persons of any
of them. All references to ROBB in these indemnification provisions shall be
understood to include any and all of the foregoing.
If any action, suit, proceeding or investigation is commenced, as to
which ROBB proposes to demand indemnification, it shall notify WIDE with
reasonable promptness (provided, however, that any failure by ROBB to notify
WIDE shall not relieve WIDE from its obligations hereunder), and WIDE shall
have the right to assume the defense of such action. ROBB shall have the
right to retain counsel of its own choice to represent it, but the fees and
expenses of such counsel shall be at its expense unless the employment of
such counsel shall have been authorized in writing by WIDE in connection
with the defense of such action or WIDE shall not have promptly employed
counsel reasonably satisfactory to ROBB to have charge of the defense of
such action or ROBB shall have reasonably concluded that there may be one or
more legal defenses available to it which are different from or additional
to those available to WIDE, in any of which events such fees and expenses
shall be borne by WIDE. Any such counsel of ROBB shall, to the extent
consistent with its professional responsibilities, cooperate with WIDE and
any counsel designated by WIDE. WIDE shall be liable for any settlement of
any claim against ROBB made with WIDE's written consent, which consent shall
not be unreasonably withheld. WIDE shall not, without the prior written
consent of ROBB, settle or compromise any claim, or permit a default or
consent to the entry of any judgment in respect thereof, unless such
settlement, compromise or consent includes, as a unconditional term thereof,
the giving by the claimant to ROBB of an unconditional release from all
liability in respect of such claim.
In order to provide for just and equitable contribution, if a claim
for indemnification pursuant to these indemnification provisions is made but
it is found in a final judgment by a court of competent jurisdiction (not
subject to further appeal) that such indemnification may not be enforced in
such case, even though the express provisions hereof provide for
indemnification in such case, then WIDE, on the one hand, and ROBB, on the
other hand, shall contribute to the losses, claims, damages, obligations,
penalties, judgments, awards, liabilities, costs expenses and disbursements
to which the indemnified person may be subject in accordance with the
relative benefits received by WIDE, on the one hand, ROBB, on the other
hand, and also the relative fault of WIDE, on the one hand, and ROBB, on the
other hand, in connection with the statements, acts or omissions which
resulted in such losses, claims, damages, obligations, penalties, judgments,
awards, liabilities, costs, expenses or disbursements and the relevant
equitable considerations shall also be considered. No person found liable
for a fraudulent misrepresentation shall be entitled to contribution from
any person who is not also found liable for such fraudulent
misrepresentation. Notwithstanding the foregoing, ROBB, shall not be
obligated to contribute any amount hereunder that exceeds the amount of fees
previously received by ROBB pursuant to the Agreement.
Neither termination nor completion of the engagement of ROBB referred
to above shall affect these indemnification provisions which shall remain
operative and in full force and effect and this paragraph shall survive the
termination of this agreement. WIDE further agrees that ROBB shall incur no
liability to WIDE or any other party on account of this Agreement for any
acts or omissions arising out of or related to the actions of ROBB relating
to this Agreement or the performance or failure to perform any services
under this Agreement except for ROBB's intentional or willful misconduct.
Cantella & Co., Inc.
- -----------------------------------------------------------------------
37 SAW MILL RIVER ROAD Telephone: (914) 347-4800
HAWTHORNE, NY 10532 Fax: (914)347-3927
July 9, 1998
Raja Tuli, President
The WideCom Group
72 Devon Road, Unit 18
Brampton, Ontario
Canada L6T 5B4
Re: US$2,000,000 Private Placement
Dear Raja:
The purpose of this letter agreement (the "Agreement") is to confirm
the engagement of Cantella & Co., Inc, as placement agent and arranger in
connection with the WideCom Group's ("the Company") offer and sale of 50
units (each unit consisting of 15,625 shares of WideCom Group's shares of
common stock and a $30,000 convertible note), (the "Offering"). The
Offering is expected to take the form of a private offering of the
Securities to accredited investors within the meaning of Rule 501(A) (1),
(2), (3) or (D) of Regulation D under the U.S. Securities Act of 1933, as
amended (the "Act").
As placement agent and arranger of the Offering, the Placement
Agent's role will involve various aspects of the Offering including:
working with the Company to (a) prepare the offering attachments thereto
(the "Private Placement Memorandum"), (b) assess market conditions in
connection with the Offering, and (c) market the Offering to accredited
investors in the United States, all in accordance with applicable law.
The Placement Agent will use its best efforts to sell the Securities.
The Placement Agent's engagement hereunder does not constitute any
commitment by it to purchase all or any part of the Securities.
The Company shall pay to Placement Agent a fee equal to ten percent
(10%) of the gross proceeds of the Offering. The company shall also pay
to the Placement Agent, a non-accountable expense allowance of 3% of the
gross proceeds of the Offering. Upon execution of this letter the Company
will deliver to the Placement Agent a check in the amount of $15,000 which
shall be applied against the Placement Agent's non-accountable expense
allowance. Additionally, the Company shall, at the closing of the Offering,
grant to the Placement Agent certain warrants to purchase up to 298,550
shares of the Company's common stock under the terms and conditions set
forth on a term sheet agreed upon by the Company, attached hereto as
Schedule I.
The Company represents and warrants to the Placement Agent that at
all times prior to and at the time of the consummation of the Offering or
termination of the Placement Agent's engagement hereunder, the Private
Placement Memorandum will not contain any untrue statement of a material
fact or omit to state any material fact to make the statements contained
therein in light of the circumstances under which they were made, not
misleading.
In consideration for the Placement Agent's agreeing to provide the
services referred to herein, the Company agrees to fully indemnify to hold
harmless the Placement Agent in accordance with the terms of Annex 1.
This Agreement shall automatically terminate in one (1) month from the
date hereof unless on or prior thereto the Company has in writing agreed to
the terms and conditions proposed herein. In addition, the Placement
Agent's engagement hereunder may be terminated by the Company or by the
Placement Agent at any time prior to execution of the Placement Agent
Agreement, upon written notice to the other party without any liability of
continuing obligation of any party to any other party, provided that, if
the Company terminates this Agreement the Placement Agent shall be entitled
to retain all of the fees paid to it under this Agreement and if the
Placement Agent at any time prior to the expiration of four (4) months
after any such termination by the Company of this Agreement, the Company
consummates any financing of the type contemplated in the Agreement, the
Placement Agent will be entitled to payment of an amount equal to the fees
set forth in Schedule I of this Agreement less the amount of any fees
previously paid to the Placement Agent hereunder. The representations and
expense reimbursement and indemnity obligation of the Company hereunder
shall survive any termination of the Placement Agent's engagement hereunder
and any consummation of the Offering.
The Placement Agent's commitment to this process will be subject to
the following standard requirements: (a) satisfactory due diligence process,
(b) satisfactory finalization of all standard documentation, including
presentation in the Private Placement Memorandum of information sufficient
to meet the standards of accredited investors (c) the absence of a material
adverse change in the current financial, political or economic conditions
that would in the Placement Agent's view, be likely to prejudice the success
of the offering and distribution of the securities or dealings of the
securities in the secondary market.
In connection with this engagement, the Company has given, or will be
giving to the Placement Agent certain written information concerning the
Company (all such information being referred to herein as the "confidential
material"). The term "confidential material" does not include information
which (i) prior to the delivery of such information to the Placement Agent
was already in its possession on a non-confidential basis, (ii) was or
becomes generally available to the public other than as a result of
disclosures by the Placement Agent, (iii) becomes available to the
Placement Agent on a non-confidential basis from a source other than the
Company or its respective affiliates, provided that such source is not bound
by a confidentiality agreement with an obligation of secrecy to the Company
and such disclosure does not constitute a breach of any fiduciary
obligation or privilege, (iv) is disclosed in the offering materials
relating to the Offering, or (v) was or is independently developed by the
Placement Agent. Except as otherwise required by law or regulation
confidential material which is given to the Placement Agent will be treated
confidentially by it so long as it remains non-public and the Placement
Agent will not disclose such material to a third party other than its
attorneys, accountants or other advisors or agents without the prior written
consent of the Company, or use such confidential material for any other
purpose other than the engagement contemplated hereunder provided that,
notwithstanding the foregoing, the Placement Agent's obligation to maintain
such confidentiality shall expire five (5) years from the date hereof unless
the information sooner becomes public.
Each of the parties hereto irrevocable submits to the non-exclusive
jurisdiction of any New York or Federal court sitting in the City of New
York or any Suit, action or proceeding arising out of or relating to this
Agreement and irrevocably waives to the fullest extent permitted by law,
any objection to the laying of venue on the grounds that such suit, action
or proceeding has been brought in an inconvenient forum. The Company hereby
consents to the service of any and all process which may be reserved in any
suit, action or proceeding arising out of or relating to this Agreement by
means of personal delivery of courier service, addressed to it at its
address provided above and to the attention of any secretary or any other
officer, director, managing agent or general agent of the Company and the
Company hereby irrevocably waives, to the fullest extent permitted by law,
any objection it may now or hereafter have under New York law or any law of
any state of the United States or any other jurisdiction or otherwise to
service of process in such manner. Nothing in this paragraph shall affect
or limit any right to serve process in any manner permitted by law, to
begin proceedings in the courts of any jurisdiction or to enforce in any
lawful manner a judgement obtained in one jurisdiction in any other
jurisdiction.
This Agreement may be executed in any number of counterparts and by
the parties hereto in separate counterparts each of which when so executed
shall be deemed to be an original and all of which when taken together
shall constitute the same agreement.
This Agreement shall be governed by and consumed in accordance with
the laws of the State of New York without regards to the conflicts of laws
provisions thereof.
If the foregoing correctly sets forth the agreement by and between
the Company of the Placement Agent, please sign and return the enclosed
copy of this Agreement to the undersigned.
Sincerely,
CANTELLA & CO., INC.
/S/ Jim Freeman
---------------
Name: Jim Freeman
Title: President
Accepted and Agreed to as of the date set forth above.
The WideCom Group Inc.
/s/ Raja Tuli
-------------
Name: Raja Tuli
Title: President
Annex 1
In consideration for the Placement Agent agreeing to provide the
services referred to herein, the Company agrees to fully indemnify and hold
harmless the Placement Agent, its officers, directors, partners, employees,
agents and counsel, its affiliates and each other entity or person, if any,
controlling, controlled by or under common control with the placement agent
or any of its affiliates within the meaning of the federal securities laws
and their respective directors, officers, agents and employees (the
Placement Agent and each such entity or person being referred to as an
"Indemnified Person"), from and against any claim by any third party for
any losses, claims, damages, or liabilities (or actions in respect thereof)
relating to or arising out of the services performed pursuant to this
Agreement or the Placement Agent's role in connection therewith and to
reimburse any Indemnified Person on a current basis for all expenses
(including without limitation, fees and disbursements of counsel) incurred
in connection therewith. The Company shall not be liable for any settlement
of any proceeding effected without its written consent, but if settled
with such consent or if there be a final judgement for the Plaintiff, the
Company agrees to indemnify the Indemnified Person from and against any
loss or liability by reason for such settlement or judgment. The Company
shall not without the prior written consent of any indemnified person,
effect any settlement of any pending or threatened proceeding in respect of
which such Indemnified Person is or could have been a party and
indemnification could have been sought thereunder by such Indemnified
Person, unless such settlement includes an unconditional release of such
Indemnified Person from all liability or claims that are the subject matter
of such proceeding.
If any action, suit, proceeding or investigation is commenced, as to
which the Placement Agent proposes to demand indemnification, it shall
notify the Company with reasonable promptness (provided, however, that any
failure by the Placement Agent to notify the Company shall not relieve the
Company from its obligations hereunder), and the company shall have the
right to assume the defense of such action. The Placement Agent shall have
the right to retain counsel of its own choice to represent it, but the fees
and expenses of such counsel shall be at its expense unless the employment
of such counsel shall have been authorized in writing by the Company in
connection with the defense of such action or the Company shall not have
promptly employed counsel reasonably satisfactory to the Placement Agent to
have charge of the defense of such action or the Placement Agent shall have
reasonably concluded that there may be one or more legal defenses available
to the Company, in any of which events such fees and expenses shall be borne
by the Company. Any such counsel of the Placement Agent shall, to the extent
consistent with its professional responsibilities, cooperate with the
Company and any counsel designated by the Company. In no event shall the
Company be liable for fees and expenses of more than one counsel for all
indemnified parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances. Anything in this paragraph 12 to the
contrary notwithstanding, the Company shall not be liable for any settlement
of any claim or action effected without its written consent; provided
however, that such consent was not unreasonably withheld.
The Placement Agent, agrees to indemnify and hold harmless the
Company, its officers, directors, partners, employees, agents, and counsel,
and each person, if any, who control the Company within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, to the same
extent as the foregoing indemnity from the Company to the Placement Agent,
but only with respect to statements, if any, made in the Confidential
Offering Memorandum, or any amendment or supplement thereto, in reliance
upon and in conformity with written information furnished to the Company by
the Placement Agent concerning the Placement Agent expressly for inclusion
in the Confidential Offering Memorandum, or any amendment or supplement
thereof, provided, however, that the Placement Agent's obligations to
provide indemnification hereunder shall be limited to the fees actually
received by the Placement Agent pursuant to this Agreement. If any action
shall be brought against the Company, in respect of which indemnification
may be sought against the Placement Agent pursuant hereto, the Placement
Agent shall have the rights and duties given to the Company above, and the
Company shall have the rights and duties so given to the Placement Agent.
Schedule I
Below are the terms for the private offering for WideCom Group (the
Company and Cantella & Co., Inc.
1. Cantella & Co., Inc. ("Cantella") will use its best efforts to raise
$2,000,000 in gross proceeds for the Company in a private offering
(the "Offering") on a $1,000,000 minimum--$2,000,000 maximum basis.
2. Cantella proposes that the Offering will be made to Accredited
investors within the meaning of Rule 501(A) (1), (2), (3) or (D) of
Regulation D under the U.S. Securities Act of 1933, as amended (the
"Act") and will consist of 50 Units (the "Unit"), at an offering
price of $40,000 per Unit, each Unit consisting of 15,625 shares of
the Company's common stock and a $30,000 convertible note (the
"Note"), which may be convertible into 13,338 shares of the Company's
Common Stock. The Notes will be redeemable by the Company at any time
after the Company's common stock underlying the Notes is registered
under the Securities Act of 1933, as amended, provided, that during
the 20 consecutive trading days ending within 10 days of the date or
the notice of redemption the closing bid price of the Company's
Common Stock is not less than 150% of the conversion price, and the
trading volume of the Company's common stock is not less than 30,000
shares per day. The redemption price shall be equal to par value plus
accrued and unpaid Interest. One-half units will be issued if agreed
to by the Company and Cantella. The notes will mature three (3) years
from the date of issue. The Note will carry interest of 12% paid
quarterly. The Company will immediately, upon the closing of the
Offering, undertake to register the Unit(s) shares, the shares
underlying the Notes and the shares underlying the Agent warrants.
3. For acting as placement agent in connection with the Offering
Cantella shall be entitled to receive upon closing, a fee equal to
10% of the gross proceeds of all the units sold. In addition,
Cantella shall be entitled to receive a non-accountable expense
allowance of 3% of the gross proceeds. Upon execution of an
engagement letter, the Company shall deliver to Cantella a check in
the sum of $15,000 which said amount shall be applied against
Cantella's non-accountable expense allowance.
4. At the closing of the Offering the Company shall deliver to Cantella,
(or its designated affiliates or assignees) common stock purchase
warrants, ("Cantella Warrants"), to purchase 5,791 shares per Unit
sold or part thereof pro rata. The purchase price of the Cantella
Warrants shall be $.001 each. Such Cantella Warrants will expire five
(5) years from the date of the Closing and will have an exercise
price of $0.75 per share. Cantella shall have certain anti-dilution
rights, providing for adjustment in (i) the number of such shares,
and (ii) the exercise price of the warrants. Cantella will also have
certain registration rights for the underlying shares.
5. The Company shall prepare a Confidential Offering Memorandum. The
Company shall pay all fees, charges, expenses and disbursements in
connection with (i) the preparation, printing, filing, distribution
and mailing of the Confidential Offering Memorandum all other
documents relating to the Offering including the cost of all copies;
(ii) the issuance, sale, transfer and delivery of Units, including
any transfer or other taxes payable thereon and the fees of any
escrow agent, transfer agent or registrar; and (iii) the registration
or qualification of the Units for offer and sale under the securities
laws of such states and other jurisdictions as the Company and
Cantella may designate.
6. The Company shall also prepare or cause to be prepared, at its own
cost and expense such subscription agreements and other documentation
(including, without limitation, warrant agreements, escrow
agreements, warrants stock certificates and registration right
agreements) in connection with the Offering, all of which shall be in
form and content as shall be reasonably satisfactory to Cantella.
7. The Company agrees to have no more than 8,924,754 shares issued or
reserved on a "fully diluted" basis immediately prior to the closing,
except for shares issued in connection with the acquisition of the
photo printer business. In addition, the Company will have no more
than $200,000 in long term debt issued.
8. The Company agrees that subsequent to the Offering it will not issue
any additional debt for borrowed money except (i) bank and
institutional debt financing; or (ii) debt which is subordinated to
the Notes sold in the offering, without the written permission of
Cantella until 80% of the debt issued in the offering is either
repaid or converted.
9. This letter is conditioned on the execution of a mutually agreeable
financial consulting agreement between the Company and Robb Peck
McCooey ("Robb Peck"), under which Robb Peck will receive warrants to
purchase 50,000 shares or the Company's common stock in return for
financial consulting services including assistance in the completion
of this offering. The Company will deliver a check to Robb Peck for
$5,000 and a non-refundable advance against expenses. The agreement
will contain a right of first refusal by Robb Peck to act as
underwriter or Placement Agent for future offerings by the Company.
Exhibit 15
Schwartz Levitsky Feldman llp
Chartered Accountants
Toronto, Montreal, Ottawa
ADVISORY LETTER IN CONNECTION WITH THE UNAUDITED FINANCIAL STATEMENTS
OF THE WIDECOM GROUP INC. FOR THE QUARTER ENDED JUNE 30, 1999
The accompanying consolidated balance sheet of The WideCom Group Inc. ("the
Company") as of June 30, 1999, and the consolidated statements of
operations, shareholders' equity and cash flows for the quarter ended June
30,1999 were compiled by management and were included in Form 10QSB as
filed by the Company and Incorporated in the Registration Statement Form
SB2.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited,
reviewed or otherwise been associated with the accompanying financial
statements and, accordingly, do not express an opinion or any other form of
assurance on them.
Toronto, Ontario
October 7, 1999
/s/ Schwartz Levitsky Feldman llp
---------------------------------
Chartered Accountants
1167 Caledonia Road
Toronto, Ontario M6A 2x1
Tel: 416-785-5353
Fax: 416-785-5663
Exhibit 23.1
Schwartz Levitsky Feldman llp
Chartered Accountants
Toronto, Montreal, Ottawa
CONSENT OF SCHWARTZ LEVITSKY FELDMAN LLP
The undersigned, Schwartz Levitsky Feldman llp, Chartered Accountants
hereby consent to the use of our name and the use of our opinion dated July
5,1999 on the consolidated financial statements of The WideCom Group Inc.
("the Company") included in the General Form for Registration of Securities-
Form SB2 being filed by the Company.
Toronto, Ontario
October 7, 1999
/s/ Schwartz Levitsky Feldman llp
---------------------------------
Chartered Accountants
1167 Caledonia Road
Toronto, Ontario M6A 2x1
Tel: 416-785-5353
Fax: 416-785-5663
