SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended March 31, 2000.
COMMISSION FILE NUMBER 1-13588
THE WIDECOM GROUP INC.
(Exact Name of Registrant as specified in its Charter)
ONTARIO, CANADA 98-0139939
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
72 DEVON ROAD, UNIT #17, BRAMPTON, ONTARIO, CANADA L6T 5B4
(Address of principal executive offices) (Zip Code)
(905) 712-0505
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each Exchange on
Title of each class which Registered
------------------- ----------------
<S> <C>
COMMON STOCK, PAR VALUE $.01 PER SHARE BOSTON STOCK EXCHANGE
WARRANTS TO PURCHASE COMMON STOCK BOSTON STOCK EXCHANGE
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
<TABLE>
<CAPTION>
Name of each Exchange on
Title of each class which Registered
------------------- ----------------
<S> <C>
COMMON STOCK, PAR VALUE $.01 PER SHARE NASDAQ SMALLCAP MARKET
WARRANTS TO PURCHASE COMMON STOCK NASDAQ SMALLCAP MARKET
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter periods that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. _X__
The aggregate market value of the voting and non-voting common equity held
by non-affiliates of the registrant based upon the closing sale price of
Widecom's common stock on the Nasdaq SmallCap Market as of March 31, 2000
and June 29, 2000, respectively, was approximately $20,663,880 and
$9,201,884.
The number of shares outstanding of Widecom's common stock on March 31,
2000 and June 29, 2000 was 2,582,985 shares.
All references to "dollar" or "$" in this Annual Report are to United
States dollars.
PART I
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, either financial or operating, or achievements
to differ from the future results, performance, either 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 future revenues,
product development, the future of the wide format document system
industry, and 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, need for additional financing, competition, conflicts
of interest, limited operating history, dependence upon one product line, and
other risks detailed in this Form 10-KSB and other Securities and Exchange
Commission filings, including filings 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.
ITEM 1. DESCRIPTION OF BUSINESS
The Widecom Group, Inc. ("Widecom")
-----------------------------------
We design, assemble and market high-speed, high-performance document
systems that 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 54 inch wide scanner and a 72 inch wide 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 that 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, 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. Our capital investment in NovImage was approximately
US $1,875,000 each, for which we received 450 shares of the Class A common
stock of NovImage. This consideration was paid for by cash derived from our
working capital.
We currently maintain general business and products liability insurance. We
do not maintain directors and officers liability insurance.
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 Small Computer System 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 resolution capabilities of up to 900 dpi. The resolution
capabilities of our scanners results in our products being able to read an
image with resolution capabilities of greater that 200 dots per inch, which
is the traditional limit. Through this technology, the software subdivides
the image into a greater number of dots in the specific area. This
generation of SLC936 series scanners also provides the industry standard
Small Computer System 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 Geographic Information Systems,
Engineering Document Management Systems, Reprographic and graphic arts
applications with high fidelity to complex originals. The SLC936 Series
offer a four times faster throughput speed than the previous SLC436 and
SLC836 models.
To capture the image of a wide format document, our scanners employ our
exclusive technology where one head moves in a straight line in contact
with the paper. In contrast, traditional technology employs multiple
lenses, which do not touch the paper. The contact scanner consists of a 36"
fiber optic array, 8mm computer chips aligned to create a 36" length light
sensor, a 36" light emitting diode 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 computer chips, which
read the image. Because these computer 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 software and exclusive scanner
technology, which enable a single scanner head to come in contact with the
paper, enable our products to scan and reproduce 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 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 resolution of our SLC1036 is up to 1000 dpi. This scanner also
employs our exclusive technology that permits the scanner head to come into
contact with the paper.
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 thickness 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.
SLC954
We also announced ongoing development of another ultra-wide format scanner,
the SLC972, a color and monochrome scanner capable of handling documents up
to four and -a-half feet wide (54 inches)with thickness 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 954 has scanning resolutions of up to
800 dpi and is capable of direct interfacing with assorted application
specific software and functions well with most thermal ink-jet
printers/plotters. We commenced formal delivery of the 954 model during
the last quarter of fiscal year 2000.
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 Small
Computer System 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.
Original Equipment Manufacturers Components
We manufacture our own scan and print heads that possess our proprietary
technology which employs an array of sensor chips and are now making them
available to original equipment manufacturers for use in their products.
This technology combines a light emitting diode array with computer chips,
which can sense or read the image. 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, on request of the
customer, 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.
Formation of New Posternetwork Business Line
Widecom has recently established a majority owned subsidiary named
Posternetwork.Com, Inc., to engage in the business line of providing
customers with an Internet-based online printing service offering
customized, fast, inexpensive poster-size reproductions. Posternetwork
intends to create posters, large photographs, signs and other wide-format
prints to customers who provide deliver to a digital or analog images to
the its web site.
Widecom anticipates that Posternetwork will commence offering services
through its Posternetwork.com Internet site during the coming fiscal year.
We intend to market the Posternetwork services through traditional print
and media advertising and banner advertising and links on other Internet
provider home pages. To date, Posternetwork's operations have been limited
to organizational activities and financing.
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. The value of the shares given in exchange
was $93,750. 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 establish beneficial 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, 2000,
we had arrangements with approximately 90 distributors, dealers and sales
agents. We have written agreements with approximately 75% of them.
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, 1998, 1999 and 2000,
our five largest distributors accounted for approximately 43.1%, 20.3% and
27.7%, respectively, of our overall product sales.
No single distributor represented more than 15% of our sales for our fiscal
year ended March 31, 2000. During the years ended March 31, 1998, 1999 and
2000, sales by distributors accounted for approximately 93.9%, 94.7% and
96.4%, respectively, of our product sales. We support our U.S. and
international distribution channels through 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 the amount of our sales by geographic region. Sales amounts are
expressed both as a dollar amount and as a percentage of product sales for
the indicated period:
REGIONAL SALES BREAKDOWN
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------------------------------------
1998 1999 2000
------------------- ------------------- -------------------
REGION AMOUNT % AMOUNT % AMOUNT %
------ ------ --- ------ --- ----- ---
<S> <C> <C> <C> <C> <C> <C>
United States $1,246,270 43.1 $1,338,704 52.0 $1,535,204 59.9
Middle East & R.O.W. 312,042 10.8 200,711 7.8 117,733 4.6
Asia 322,685 11.2 583,077 22.6 286,394 11.2
Europe 686,478 23.7 241,708 9.4 355,385 13.9
Canada 322,968 11.2 211,735 8.2 267,559 10.4
---------- ----- ---------- ----- ---------- -----
Total $2,890,443 100.0 $2,575,935 100 $2,562,275 100.0
========== ===== ========== ===== ========== =====
</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 liquid crystal 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 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:
1. Contex Corporation, Vidar Systems Inc., Oce and Colortrac
Corporation in the market for wide format scanners;
2. Encad Corporation, Hewlett Packard Company, Oce and Mutoh
Corporation in the market for wide format plotters; and
3. 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:
* our ability to continually enhance and improve our products;
* to complete development and introduction into the marketplace of
our new products in a timely manner; 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
could render our products obsolete or less marketable; or
* that we will be able to successfully enhance our existing
products or develop new products to continue to compete.
Research and Development
In October 1996, Widecom formed a research and development consortium named
Technologies NovImage with Innovatech, an economic development agency of
the Province of Quebec. We are now conducting all of our research and
development activities at that facility. 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. First,
NovImage is researching the development of a high speed, high quality wide
format color plotter/printer. NovImage is also working to improve printer
resolution and develop 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 computer chips to sense or read the primary colors as well as
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.
As of the end of the first fiscal quarter of fiscal year 2001, Innovatech
has requested conversion of 4/5 of its holdings in Novimage into Widecom
common stock. The closing on this transaction will close subsequent to our
present reporting period.
The combined research and development expenditures for Widecom and NovImage
for the 2000 fiscal year was $1,466,932. We approved a small increase in
the prices of our products to reflect these costs.
Intellectual Property
We rely upon intellectual property and employ various methods to protect
the ideas, concepts and documentation of our proprietary technology. These
methods include 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 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.
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 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.
Employees
As of March 31, 2000, our North American operations had 13 full-time
employees, including sales staff and administrative personnel. We also
employ 146 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.
Item 2. Description of 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. Upon completion of construction of our new
manufacturing facility, we intend to transfer the majority of our
manufacturing operations to the new facility.
We lease the following properties:
1,050 square feet at 72 Devon Road, Unit #17, Brampton, Ontario,
Canada, under a one-year lease entered into in 2000, and
7,000 square feet in the Free Trade Zone. The current annual rents
are $23,357.64 and $15,200, respectively.
In addition, we currently lease a sales and service facility in Pittsburgh,
Pennsylvania, at a monthly rent of $2,400.00. The current annual rental
rate of this facility is approximately $28,800.
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 substantial increase in
demand for our products.
Item 3. 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 Widecom, 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
109,471 shares of common stock according to the terms of 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.
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 title of the action is Nexsys Consulting, Inc. and
Tern Solutions Group Corp. v. The Widecom Group, Inc. 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 result are strong and that settlement
options also remain viable. The action is presently scheduled for mediation
in September, 2000.
Any such significant litigation matter is set out in the contingent
liabilities section of our annual financial statements.
We are also involved in a number of small litigation matters relating to
disagreements with certain of our suppliers, which are currently pending
and being handled by our in-house counsel. These matters are neither
significant nor material.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On January, 27, 1999, an annual shareholders meeting was held wherein, via
proxy vote or otherwise, a majority of our shareholders carried four
specific resolutions detailed as follows:
1) Approval of a one for four 1:4 reverse split of our common
stock;
2) Approval of the acquisition of Diprin Inc., an Ontario
Corporation wholly owned by one of our principals (with
abstention of all related Board members);
3) Approval of the re-election of our existing Board of Directors;
4) Approval of a proposal to conduct a private placement to raise
capital funds.
No matters were submitted to a vote of our security holders during our
fiscal year ended March 31, 2000.
PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock and 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". The table below
represents the quarterly high and low closing prices for our common stock
and warrants as reported through March 31, 2000 and June 29, 2000. 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, 2000 was 98 and 16. 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 * *
Third Quarter (July 1-Sept.30/99) 10 3/8 6 3/4 * *
Fourth Quarter (Oct.1-Dec.31/99) 17 1/4 5 3/8 * *
2000
First Quarter (Jan.1-Mar.31/00) 10 3/8 7 * *
Second Quarter (Apr.1-June 30/00) 7 7/8 3 5/8 * *
</TABLE>
*= No formal market for warrants
--------------------------------
During fiscal 1999, our shareholders approved a private offering of ten
specific units each comprising 10,000 of our common shares and a
convertible note exercisable at $2.00 per share for the remainder. 9.5
units of the offering closed in fiscal 1999 and one-half unit (5,000 shares
only) closed in the first quarter of fiscal 2000. Additional shares of our
common stock can be purchased at $1.20 per share on the exercise of
placement agent warrants. During fiscal 2000, only 2,190 of these
additional underlying shares were issued.
During fiscal 2000, the board of directors approved a further private
offering, in straight equity, of 325,000 of our common shares at $2.00 per
share that was fully subscribed. This offering provided for a maximum over-
allotment of 12,500 additional shares that were also issued during fiscal
2000.
SELECTED FINANCIAL DATA
-----------------------
STATEMENT OF EARNINGS DATA:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Total Revenue $3,053,804 $3,075,609 $2,572,711
Product Sales 2,890,443 2,575,935 2,562,275
R & D grants 24,567 479,821 nil
Total Expenses 5,487,826 4,708,600 3,845,337
Net Earnings (Loss) (3,335,865) (2,244,351) (1,500,840)
Net Earnings(loss)per share (2.36) (1.28) (0.61)
Weighted average shares
outstanding 1,416,047 1,749,386 2,443,730
BALANCE SHEET DATA:
<CAPTION>
MARCH 31,
------------------------------------------
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Working Capital $1,429,046 229,470 237,653
Total Assets 5,651,190 4,278,216 3,435,361
Total Liabilities 1,414,246 1,970,893 1,568,610
Retained earnings(deficit) (8,647,983) (10,892,334) (12,393,174)
Shareholders' equity 4,236,944 2,307,323 1,866,751
</TABLE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
OVERVIEW
Since 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 WC936 copier systems late in fiscal 1998 had only
a small material impact on our revenues for the fiscal year 2000. During
the year, sales of printers and scanners were $226,092 and $2,160,459
respectively.
Widecom's Selling, General and Administration infrastructure was set up to
service our full product line of monochrome and color scanners, monochrome
and color printers and monochrome and color copiers. Neither the color
printer nor the 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 were aware of the potential year 2000 or "Y2K" problem and had reviewed
our computer software and hardware, which are critical to the our
operations and preparation of our financial statements, and 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.
There were no material impacts due to such concerns during the fiscal year
2000.
In February 2000, we established a majority-owned subsidiary, Posternetwork.COM
Inc., to engage in the business line of offering an online printing service.
Posternetwork is currently engaged in organizational and financing activities.
GOVERNMENT SPONSORED PROGRAMS
During 1997, a change in Canadian Tax legislation substantially reduced the
amount of subsidy available on Research and Development performed by
publicly traded companies. Subsidies of this nature have represented a
substantial portion of our revenue in the past. As noted earlier in Part I,
our research and development is conducted by Technologies Novimage whose
nature entitles us to receive grants in excess of 40% of qualified research
expenditures. Products derived from the research are then licensed back to
us at a nominal royalty of 0.5% of sales of those products. The formation
of NovImage allows us to obtain a substantial increase in the amount of
research that can be performed and at a lesser more beneficial cost.
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 any profound 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
YEAR ENDED MARCH 31, 2000 COMPARED TO YEAR ENDED MARCH 31, 1999
Revenues for the year ended March 31, 2000 were $2,572,711, a 16% decrease,
as compared to $3,075,609 for the year ended March 31, 1999. This decrease
was attributable to a non-recurring research and development grant of
$479,821 in the previous year, while product sales remained substantially
the same.
Operating expenses for the year ended March 31, 2000 were $3,845,337, a
decrease of $863,263, or 18%, as compared to $4,708,600 for the year ended
March 31, 1999. The decrease in operating expenses, is primarily
attributable to decreases in selling, general and administrative ("SG&A")
costs.
The decrease in SG&A cost was primarily due to a leveling off of
expenditures and economies undertaken to effect savings as we continued
expansion of our distribution channel in the USA. Total research and
development expenditures incurred by NovImage and WideCom was $1,466,932,
which we expect to substantially decline as the products being developed by
our subsidiaries Posternetwork and Diprin reach completion.
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 $5,487,826 for the year ended
March 31, 1998. Operating expenses also decreased as a percentage of
revenues from 179.7% for the year ended March 31, 1998 to 153.1% for the
year ended March 31, 1999. The decrease in operating expenses, both in
absolute dollars and as a percentage of revenues, is primarily attributable
to decreases in research and development expenditures and selling, general
and administrative ("SG&A") costs.
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, 2000, we had working capital of $237,653, as compared to $229,470
at March 31, 1999.
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 current plans and
assumptions relating to our operations, projected cash flow from operations
should 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.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2000, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Certain Derivative
Instruments and Certain Hedging Activities (amended SFAS No. 133).
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 will be unaffected
by implementation of the standard.
ITEM 7. Financial Statements
The following financial statements of The WideCom Group Inc. are included:
Report of Chartered Accountants;
Consolidated Balance Sheets as of March 31, 2000, 1999;
Consolidated Statements of Operations for the years ended March 31,
2000, 1999, 1998;
Consolidated Statements of Stockholders' Equity for the years
ended March 31, 2000, 1999, 1998;
Consolidated Statements of Cash Flows for the years ended March 31,
2000, 1999, 1998;
Summary of Significant Accounting Policies; and
Notes to Consolidated Financial Statements.
Item 8. Change in Accountants
On June 15, 1999, our Board of Directors determined that it would be in 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, Levitsky,
Feldman, LLP to replace BDO Dunwoody, LLP as our independent accountant and
auditors. The firm audited our financial statements included in our Form
10-KSB for our fiscal years ended March 31, 1999 and March 31, 2000.
We intend to have Schwartz, Levitsky, Feldman, LLP continue to serve as our
accountant and auditors for the fiscal year ending March 31, 2001.
PART III
ITEM 9. Directors and Executive Officers of the Registrant and Compliance
with Section 16(a) of the Exchange Act.
Our directors and executive officers are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Raja S. Tuli 34 President, Chief Executive Officer and Director
Willem J. Botha 64 Chief Financial Officer and Treasurer
Suneet S. Tuli 32 Executive Vice President, Secretary and Director
Lt. Colonel K.C. Sharma 59 Director
Dr. Ajit Singh 59 Director
Bruce D. Vallillee 79 Director
</TABLE
Our founder, Raja S. Tuli, has been President, Chief Executive Officer and
a director since Widecom's inception. From June 1990 to August 1993, Mr.
Tuli was also our Treasurer. From 1987 to 1990 Mr. Tuli was President of
CaCE Ltd. a family-owned architectural/construction business. Mr. Tuli
received a bachelor of Science degree in Computer Engineering in 1988 from
the University of Alberta. Mr. Tuli is a resident Canadian national. Mr.
Tuli is the brother of Suneet S. Tuli.
Willem J. Botha has been our Chief Financial Officer and Treasurer since
September 1993. From 1989 to September 1993, Mr. Botha was an independent
accounting consultant. From 1985 to 1989, Mr. Botha was employed by
Motorola Information Systems, a manufacturer of data communications
equipment, most recently 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 pharmaceuticals 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, Sales and Marketing, and
corporate Secretary since September 1993 and one of our director's since
October 1992. He 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.
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 the governments of Mexico and Tanzania,
and is the author of Takeovers, Their Relevance to the Stock market and the
Theory of the Firm. Dr. Singh is the uncle of Raja and Suneet S. Tuli.
Bruce D. Vallillee has been a director of Widecom since September 1995.
Since April 1994, Mr. Vallillee has been President of Vallillee Wide Format
Products, Ltd. a company engaged in wide format document management and
equipment sales. From 1987 to 1994, Mr. Vallillee was the President of
Vallillee Electronics, Ltd., a company engaged in the distribution of
electronic products. From 1976 to 1987, Mr. Vallillee was Vice President -
Sales and Marketing for ITT / Canon Canada, the Canadian joint venture of
ITT Corporation and Canon Electronics Corp. Mr. Vallillee is a resident
Canadian national.
Under Ontario law, a majority of our directors must be resident Canadians.
A resident Canadian is defined, generally, to be an individual who is (i) a
Canadian citizen ordinarily resident in Canada, (ii) a Canadian citizen not
ordinarily resident in Canada who is a member of a prescribed class of
persons, or (iii) a permanent resident within the meaning of the
Immigration Act (Canada), and ordinarily resident in Canada. All directors
hold office until the next annual meeting of shareholders and the election
and qualification of their successors. There is only one currently standing
committee of the Board of Directors, that being the Audit Committee.
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 such services as a
director during our year ended March 31, 2000. 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.
Item 10. EXECUTIVE COMPENSATION
The following table sets forth the compensation we have paid or accrued for
the benefit of those persons earning over $80,000.00 USD and serving as one
of our corporate officers for the year ended March 31, 2000:
2000 SUMMARY COMPENSATION TABLE
</TABLE>
<TABLE>
<CAPTION>
Name Salary & Commission Consulting Fees Shares In Lieu Total
<S> <C> <C> <C> <C>
Raja S. Tuli $42,449 $58,406 (1) nil $100,855
(President & C.E.O.)
Suneet S. Tuli $48,980 $57,143 (1) nil $106,123
Secretary, V.P.-
Sales & Marketing)
<FN>
--------------------
<F1> Such amounts were paid by Widecom to a consulting company owned by
the respective officers of the company for the year ended March 31,
2000.
</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 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(s) 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.
Following a June 27, 2000 amendment in the exercise price of the options
under the plan, the current exercise price of those options is now $4.00
USD.
An aggregate of 125,000 shares of Common stock (subject to adjustment as
provided in the Plan) were available under the Plan and such shares subject
to options which terminate unexercised will be available for future option
grants. At present, all of the employee stock options available under the
plan are fully allocated.
ITEM 11. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of March 31, 2000, 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
Beneficial Outstanding
Name and Address of Beneficial Owner (1) Ownership (2) Shares Owned
---------------------------------------- ------------- -------------
<S> <C> <C>
Raja S. Tuli 540,437(3) 20.9%
Lakhbir S. Tuli 111,533 4.32
Suneet S. Tuli 222,207(4) 8.6
Dr. Ajit Singh --- ---
Bruce Vallillee --- ---
Willem J. Botha --- ---
All executive officers and directors
as a group (six persons) 874,177(2)(3)(4) 33.84%
<FN>
--------------------
<F1> Unless otherwise indicated, the business address of each beneficial
owner is 72 Devon Road, Unit #17, Brampton, Ontario, Canada, L6T 5B4.
<F2> Except as indicated by footnote, the persons named in the table have
sole voting and investment power with respect to all shares of Common
Stock shown as beneficially owned by them. Each beneficial owner's
percentage ownership is determined by assuming that convertible
securities, options or warrants that are held by such person (but not
those held by any other person) and which are exercisable within 60
days of the date hereof have been exercised.
<F3> Includes (i) 50,000 Common Shares issuable upon exercise of currently
exercisable options at a price of $4.00 per share and 12,500 shares
issuable upon exercise of currently exercisable warrant at a price of
$4.00 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. Also includes 40,810 shares held by RST
Consulting Ltd.
<F4) Includes 12,500 Common Shares issuable upon exercise of currently
exercisable options at a price of $8.50 per share and 12,500 Common
Shares issuable upon exercise of currently exercisable warrant at a
price of $4.00 per share. Also includes 20,808 shares held by SST
Consulting Ltd.
</FN>
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In February, 2000 we established a majority owned subsidiary named
Posternetwork.Com, Inc., to engage in the business line of providing
customers with an Internet-based online printing service offering
customized, fast, inexpensive poster-size reproductions. Posternetwork
intends to create posters, large photographs, signs and other wide-format
prints for customers from digital or analog images directly through
its web site. In connection with the establishment of Posternetwork,
Widecom entered into two agreements with Posternetwork pursuant
to which Posternetwork will purchase the technology underlying Widecom's
wide-format printer in consideration for 12,000,000 shares of Posternetwork
common and a fee of $.015 per square foot of the posters and other products
produced with the technology. Pursuant to the second agreement, Widecom will
provide Posternetwork with certain administrative services and technical
support for a fee equal to 120% of cost.
As of January 30, 1997, we announced that we had finalized a joint venture
agreement with Societe Innovatech du Grand Montreal, an instrumentality of
the Province of Quebec, Canada ("Innovatech"). Each of the Registrant and
Innovatech purchased 450 shares of the Class A Common Stock of NovImage
Inc., a Quebec corporation ("NovImage") for a purchase price of
approximately US $1,875,000 each. The consideration we paid for the stock
of NovImage was in cash and was derived from our working capital. In
addition, two other corporations, 3294412 Canada Inc., a Quebec corporation
and 3294421 Canada Inc., a Quebec corporation, both of which corporations
are wholly-owned by Raja S.Tuli, our President and Chief Executive Officer,
each acquired 50 shares of the Class A Common Stock of NovImage in exchange
for the transfer to NovImage of certain patents, patent applications and
other technology and intellectual property rights of those companies.
In connection with the transaction, we licensed all of our patents 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
the Registrant an exclusive perpetual worldwide (with the exception of the
Province of Quebec, Canada) license to use such improved scanner and
plotter technology and developed software to manufacture, distribute,
market and sell those improved scanners, plotters and newly developed
software, as well as any new products developed by NovImage. NovImage
retained such rights with respect to the Province of Quebec, Canada.
In connection with the transaction, we also entered into a Stock Exchange
Agreement with Innovatech pursuant to which Innovatech would be permitted,
under certain circumstances, to exchange its shares of NovImage for up to
63,250 shares of Widecom's common stock for which Innovatech would have
demand registration rights. This amount represents less than 5% of our
outstanding shares and is accordingly omitted from the table of beneficial
ownership.
Innovatech's recent request to convert eighty percent of its share in
Novimage into Widecom common stock will close after our annual filing and
will be reported in a subsequent fiscal year.
Although we believe that the foregoing transactions were on terms no less
favorable than would have been available from unaffiliated third parties in
an arm's length transaction, there can be no assurance that this is the
case. All future transaction and loans between Widecom and its officers,
directors and 5% shareholders will be on terms no less favorable than could
be obtained from independent, third parties and will be approved by a
majority of the independent and disinterested members of the Board of
Directors. There can be no assurance, however, that future transactions or
arrangements between us and our affiliates will be advantageous, that
conflicts of interest will not arise with respect thereto or that if
conflicts do arise, that they will be resolved in our favor.
The Company has accrued debts for unpaid salaries, consulting fees and related
costs in favor of members of management in the aggregate amount of $310,653 as
of the year ended March 31, 2000.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) REPORTS ON FORM 8-K during Fiscal 2000
We filed a Report on Form 8-K on May 31, 2000 concerning our press release
establishing Posternetwork.com, Inc.
(b) EXHIBITS
See Exhibit Index.
EXHIBITS
The following exhibits are filed herewith. Exhibits with an asterisk (*)
denotes those exhibits 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 Underwriter's Warrants and Warrant Agreement (Exhibit
4.2 to Form F-1 Registration Number 33-78004, filed December 12,
1995)
4.3 Form of Bridge Note (Exhibit 4.3 to Form F-1 Registration Number
33-78004, filed December 12, 1995)
4.4 Form of Bridge Warrant (Exhibit 4.4 to Form F-1 Registration
Number 33-78004, filed December 12, 1995)
4.5 Form of Warrant Agreement (Exhibit 4.5 to Form F-1 Registration
Number 33-78004, filed December 12, 1995)
4.6 Form of Warrant Certificate (Exhibit 4.6 to Form F-1
Registration Number 33-78004, filed December 12, 1995)
4.7 Representative's Warrant to Purchase Shares of Common Stock
(Exhibit 4.2 to Form F-1 Registration Number 33-78994, filed
August 5, 1994)
4.8 Form of Warrant (Exhibit 4.3 to Form SB-2 Registration Number
333-89109, filed on October 15, 1999)
4.9 Form of Convertible Notes Issued in 1999 private placement
(Exhibit 4.4 to Form SB-2 Registration Number 333-89109, filed
on October 15, 1999)
10.1 Financial Consulting Agreement, dated June 2, 1997, by and
between The Widecom Group Inc. and Alex Moore & Co., (Exhibit
10.1 to Form S-3/A, File Number 333-35547)
10.2 Settlement Agreement, dated May 1, 1997, among Brett Whiton,
Richard Benjamin, Anthony Hand, and the Company, Messrs. Raja
and Suneet Tuli (Exhibit 10.2 to Form S-3/A, File Number
333-35547)
10.3 License Agreement between WideCom R & D Inc. and the Company
date August 24, 1993 (Exhibit 10.5 to Form F-1 Registration
Number 33-78004, filed April 21, 1994)
10.4 Employment Agreement with Exhibits between Raja Tuli and the
Company dated October 4, 1993 (Exhibit 10.6 to Form F-1
Registration Number 33-78004, filed April 21, 1994)
10.5 Employment Agreement with Exhibits between Suneet S. Tuli and
the Company dated October 4, 1993 (Exhibit 10.7 to Form F-1
Registration Number 33-78004, filed April 21, 1994)
10.6 Indemnity Agreement between Raja S. Tuli and the Company
(Exhibit 10.8 to Form F-1 Registration Number 33-78004, filed
November 21, 1994)
10.7 Financial Consulting Agreement, dated February 1, 1998, by and
between The Widecom Group Inc. and Quantum Resources of New
York, Inc. (Exhibit 10.1 to Form SB-2 Registration Number
333-89109, filed October 15, 1999)
10.8 Financial Consulting Agreement, dated August 1998, by and
between The Widecom Group Inc. and Robb Peck McCooey Clearing
Corporation. (Exhibit 10.2 to Form SB-2 Registration Number
333-89109, filed October 15, 1999)
10.9 Agreement, dated September 9, 1998, by and between The Widecom
Group, Inc. and Cantella & Co. (Exhibit 10.3 to Form SB-2
Registration Number 333-89109, filed October 15, 1999)
10.10 Agreement dated August 10, 1999 by and between The Widecom
Group, Inc., Robb Peck McCooey Clearing Corp. and Quantum
Resources of New York (Exhibit 10.4 to Amendment No. 1 to Form
SB-2, Registration Number 333-89109, filed on December 28, 1999)
10.11* Technology Transfer Agreement between The Widecom Group, Inc.
and Posternetwork.com, Inc.
10.12* Services Agreement between The Widecom Group, Inc. and
Posternetwork.com, Inc.
16 Letter from BDO Dunwoody, LLP on change in Certifying Accountant
(Exhibit 16.1 to Form 8-K, filed June 21, 1999)
21 Subsidiaries of Registrant (Exhibit 22.1 to Form F-1
Registration Number 33-78004, filed April 21, 1994)
23* Consent of Schwartz Levitsky Feldman llp, Chartered Accountants
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Date: July 14, 2000 THE WIDECOM GROUP INC.
By: /s/ RAJA S. TULI
--------------------
Raja S. Tuli
Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report to be signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
RAJA S. TULI President, Chief Executive Officer,
----------------------- Director (Principal Executive Officer) July 14,2000
Raja S. Tuli
/s/ WILLEM J. BOTHA Treasurer and Chief Financial Officer July 14,2000
----------------------- (Principal Financial and Accounting Officer)
Willem J. Botha
/s/ SUNEET S. TULI Executive Vice-President, July 14,2000
----------------------- Marketing, Secretary and Director
Suneet S. Tuli
/s/ BRUCE D. VALLILLEE Director July 14,2000
-----------------------
Bruce D. Vallillee
/s/ AJIT SINGH Director July 14,2000
-----------------------
Ajit Singh
/s/ COLONEL K.C. SHARMA Director July 14,2000
-----------------------
Col. K.C. Sharma
</TABLE>
The WideCom Group Inc.
Consolidated Financial Statements
For the years ended March 31, 1999 and 2000
(in United States Dollars)
Together with Report of Independent Auditors
The WideCom Group Inc.
Consolidated Financial Statements
For the years ended March 31, 1999 and 2000
(in United States Dollars)
Together with Report of Independent Auditors
TABLE OF CONTENTS
Report of Independent Auditors 3
Consolidated Balance Sheets 4
Consolidated Statements of Operations 5
Consolidated Statements of Stockholders' Equity 6
Consolidated Statements of Cash Flows 7
Notes to Consolidated Financial Statements 8 - 23
Schwartz Levitsky Feldman llp
CHARTERED ACCOUNTANTS
TORONTO, MONTREAL, OTTAWA
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
The WideCom Group Inc.
We have audited the accompanying consolidated balance sheets of The WideCom
Group Inc. (incorporated in Ontario, Canada) as of March 31, 2000 and 1999
and the related consolidated statements of operations, cash flows and
changes in stockholders' equity for each of the years ended March 31, 2000
and 1999. These consolidated financial statements are the responsibility
of the management of The WideCom Group Inc. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The
WideCom Group Inc. as of March 31, 2000 and 1999 and the results of its
operations and its cash flows for each of the years ended March 31, 2000
and 1999, in conformity with generally accepted accounting principles in
the United States of America.
The consolidated statements of operations, stockholders' equity and cash
flows for the year ended March 31, 1998 were audited by another firm of
Chartered Accountants with an unqualified audit report issued thereon.
Since the accompanying consolidated financial statements have not been
prepared and audited in accordance with generally accepted accounting
principles and standards in Canada, they may not satisfy the reporting
requirements of Canadian statutes and regulations.
Toronto, Ontario /s/ Schartz Levitsky Feldman llp
July 15, 2000 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 1999 2000
-----------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 156,193 $ 11,314
Accounts receivable (Note 1) 527,697 584,494
Inventory (Note 2) 1,175,112 909,583
Prepaid expenses 28,405 19,485
Advances to related parties (Note 3) 263,143 244,883
Deferred Financing costs 49,813 36,504
----------------------------
Total current assets 2,200,363 1,806,263
Capital assets (Note 4) 1,453,963 1,243,059
Purchased research and development
technology (Note 5) 78,777 50,279
Investment in affiliate (Note 6) 545,113 335,760
----------------------------
Total assets $ 4,278,216 $ 3,435,361
-----------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current Liabilities
Bank indebtedness (Note 7) $ 264,022 $ 179,465
Accounts payable and accrued liabilities
(Note 8) 1,299,454 806,446
Loans from related parties (Note 3) 64,939 382,699
Convertible debentures (Note 9) 342,478 200,000
----------------------------
Total current liabilities 1,970,893 1,568,610
----------------------------
Stockholders' equity (Note 10)
Common shares
5,000,000* shares authorized of no par
value
2,068,400* shares issued and outstanding
on March 31, 1999
2,582,985* shares issued and outstanding
on March 31, 2000 13,577,841 14,703,589
Contributed surplus 159,825 159,825
Deficit (10,892,334) (12,393,174)
Cumulative other comprehensive loss
(Note 11) (538,009) (603,489)
----------------------------
2,307,323 1,866,751
----------------------------
Total liabilities and stockholders'
equity $ 4,278,216 $ 3,435,361
-----------------------------------------------------------------------------
</TABLE>
* Adjusted for reverse split of Company's stock (1:4) on January 29,1999.
The accompanying notes are an integral part of the consolidated financial
statements.
The WideCom Group Inc.
Consolidated Statements of Operations
(in United States dollars)
<TABLE>
<CAPTION>
For the years ended March 31 1998 1999 2000
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue
Product sales $ 2,890,443 $ 2,575,935 $ 2,562,275
Research and development grants 24,567 479,821 -
Interest income 138,794 19,853 10,436
---------------------------------------------
Total revenue 3,053,804 3,075,609 2,572,711
---------------------------------------------
Expenses
Cost of product sales 809,935 726,909 718,353
Research and development 99,266 134,248 231,532
Selling, general and administrative 3,604,538 3,112,056 2,249,796
Interest and bank charges 49,431 51,504 69,217
Management fees and salaries 398,804 333,743 351,430
Amortization 489,733 362,108 296,147
Financing fees - - 17,981
Foreign exchange loss (gain) 36,119 (11,968) (89,119)
--------------------------------------------
Total expenses 5,487,826 4,708,600 3,845,337
--------------------------------------------
Operating loss (2,434,022) (1,632,991) (1,272,626)
Legal settlement costs (309,375) (158,741) -
Equity in loss of affiliate (592,468) (452,619) (228,214)
Net loss for the year $(3,335,865) $(2,244,351) $(1,500,840)
---------------------------------------------------------------------------------------
Loss per common share, basic and
diluted (Note 10(f)) $ (2.36) $ (1.28) $ (0.61)
---------------------------------------------------------------------------------------
Weighted average number of shares
outstanding * 1,416,047 1,749,386 2,443,730
---------------------------------------------------------------------------------------
</TABLE>
* Adjusted for reverse split of Company's stock (1:4) on January 29,1999.
The accompanying notes are an integral part of the consolidated financial
statements.
The WideCom Group Inc.
Consolidated Statements of Stockholders' Equity
(in United States dollars)
For the years ended March 31, 1998, 1999 and 2000
<TABLE>
<CAPTION>
Other Total
Common Contributed Comprehensive Stockholders'
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 affiliate (125,000)* 93,750 - - - 93,750
Class action settlement (54,752)* 83,457 - - - 83,457
Conversion of convertible
debentures (17,213)* 50,000 - - - 50,000
Shares issued on private placement
(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
Class action settlement (54,719) 75,239 - - - 75,239
Shares issued on private placement
(5,000) 5,000 - - - 5,000
Share issuance for corporate
indebtedness (61,618) 123,236 - - - 123,236
Class action settlement (18,748) 65,618 - - - 65,618
Shares issued on private placement
(337,500) - net of issuance costs 630,000 - - - 630,000
Conversion of convertible debentures
(21,310) 203,777 - - - 203,777
Shares issued for legal fees (13,500) 20,250 - - - 20,250
Warrant exercise (2,190) 2,628 - - - 2,628
Net loss for year - - (1,500,840) - (1,500,840)
Foreign currency
translation adjustment - - - (65,480) (65,480)
------------------------------------------------------------------------------------------------------------------
Balance, March 31, 2000 $14,703,589 $ 159,825 $(12,393,174) $(603,489) $ 1,866,751
------------------------------------------------------------------------------------------------------------------
</TABLE>
* Adjusted for reverse split of Company's Stock (1:4) on January 29,1999.
The accompanying notes are an integral part of the consolidated financial
statements.
The WideCom Group Inc.
Consolidated Statements of Cash Flows
(in United States dollars)
<TABLE>
<CAPTION>
For the years ended March 31 1998 1999 2000
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash provided by (used in)
Operating activities
Loss for the year $(3,335,865) $(2,244,351) $(1,500,840)
Add (deduct) items not requiring
a cash outlay Amortization 489,733 362,108 296,147
Foreign exchange loss (gain) 36,119 (11,968) (89,119)
Share issued to settle lawsuits
and corporate indebtedness 355,158 283,457 284,343
Equity in loss of affiliate 592,468 452,619 228,214
Net changes in non-cash
working capital balances
related to operations:
Decrease (increase) in accounts
receivable 160,122 (7,988) (8,839)
Decrease in research and
development grants receivable 687,307 - -
Decrease (increase) in inventory (133,663) 49,882 308,947
Increase (decrease) in accounts
payable and accrued liabilities (308,983) 551,213 (538,059)
Increase in prepaid expenses 8,969 42,920 22,772
------------------------------------------------
(1,448,635) (522,108) (996,434)
------------------------------------------------
Investing activities
Disposal (purchase) of capital assets (540,022) (179,241) 2,989
Advances to related parties (67,523) (55,330) (10,091)
------------------------------------------------
(607,545) (234,571) (7,102)
------------------------------------------------
Financing activities
Deferred financing costs incurred - (49,813) (2,882)
Increase (decrease) in bank indebtedness (121,954) 75,005 (93,942)
Shares and warrants issued, net of issue
costs 1,978,673 70,012 637,628
Loan from related parties - 64,939 310,422
Issuance of convertible debentures 250,000 190,000 10,000
------------------------------------------------
2,106,719 350,143 861,226
------------------------------------------------
Effect of exchange rate change on cash 10,808 (130,104) (2,569)
------------------------------------------------
Net increase (decrease) in cash during the year 61,347 (536,640) (144,879)
Cash and cash equivalents, beginning of year 631,486 692,833 156,193
------------------------------------------------
Cash and cash equivalents, end of year $ 692,833 $ 156,193 $ 11,314
------------------------------------------------------------------------------------------------
</TABLE>
Note: See Note 16 for supplementary information.
The accompanying notes are an integral part of the consolidated financial
statements.
The WideCom Group Inc.
Notes to Consolidated Financial Statements
(in United States dollars)
March 31, 1999 and 2000
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
The WideCom Group Inc. ("the Company") was incorporated under the laws of
Ontario, Canada 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 Statements
The accompanying consolidated financial statements are stated in United
States dollars, "the reporting currency". The transactions of the Company
have been recorded during the year in Canadian dollars, "the functional
currency". The translation of Canadian dollars into United States dollars
amounts have been made at the year end exchange rates for balance sheet
items and the average exchange rate for the year for revenues, expenses,
gains and losses. Translation adjustments to reporting currency are
included in equity as "cumulative other comprehensive loss" (see Note 11).
The consolidated financial statements reflect retroactively a reverse stock
split 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 of America.
Principles of Consolidation
These consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, Indo WideCom International Ltd., Diprin
Inc., and PosterNetwork.com Inc. All significant inter-company
transactions and accounts have been eliminated.
Investment in Affiliate
The investment in affiliate is accounted for on the equity basis.
Accounting Estimates
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
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
the replacement cost and for finished goods as the 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
Prototypes and jigs - 20% declining balance
Earning or Loss Per Share
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
128, "Earnings Per Share" during fiscal 1998. As a result of this
adoption, the Company has restated all periods presented in these financial
statements to reflect "basic" and "diluted" earning (loss) per share.
Basic earnings (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 Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation" encourages, but
does not require, companies to record compensation costs for stock-based
employee compensation plans at fair value. The Company chose to continue
to account for stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25. "Accounting for
Stock Issued to Employees", and related interpretations. Accordingly,
compensation cost for stock options is measured as the excess, if any, of
the quoted market price of the Company's stock at the measurement date over
the amount an employee must pay to acquire the stock. See Note 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 Cash 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.
Deferred Financing Charges
Deferred financing charges are amortized on a straight-line basis over
three years.
Foreign Currency Translation
Balances of the Company denominated in foreign currencies and the accounts
of the foreign subsidiary are translated into the functional currency as
follows:
(i) all assets and liabilities except for capital at year end
rates;
(ii) capital at historic rates;
(iii) revenue and expense transactions at the average rate of
exchange prevailing during the year; and
(iv) changes in cash flows at the average rate of exchange prevailing
during the year.
Exchange gains or losses arising on these translations are reflected in
other comprehensive loss for 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 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 the
current year's tax expense.
Concentrations of Credit Risk and Business Concentration
The Company's receivables are unsecured and are generally due in 30 days.
Currently the Company's customers are primarily local, national and
international users of wide format document management systems. The
company's receivables do not represent significant concentrations of credit
risk as at March 31, 2000 due to the wide variety of customers, markets and
geographic areas to which the Company's products are sold.
Fair Value of Financial Instruments
The carrying amounts of financial instruments of the 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 related parties cannot be
readily determined because of the nature of their terms.
The company realizes a significant portion of its sales and purchases in a
foreign currency. Consequently some liabilities and expenses are exposed
to foreign exchange fluctuations.
Research and Development
All research and development costs except for purchased research and
development technology are expensed as research and development expenses.
Purchased research and development technology is amortized over its
estimated useful life (see Note 5).
Recently Issued Accounting Standards
In June 2000, the Financial Accounting Standards Board issued SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging
Activities" (amended SFAS No. 133).
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 will
be unaffected by implementation of the standard.
The WideCom Group Inc.
Notes to Consolidated Financial Statements
(in United States dollars)
March 31, 1999 and 2000
---------------------------------------------------------------------------
1. Accounts Receivable
Accounts receivable consists of:
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
Trade Receivables $611,893 $640,822
Less: Allowance for doubtful accounts 84,196 56,328
----------------------
$527,697 $584,494
----------------------
</TABLE>
---------------------------------------------------------------------------
2. Inventory
Inventory consists of:
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
Raw Material $ 689,155 $564,980
Work-in-progress 13,587 25,654
Finished goods 472,370 318,949
------------------------
$1,175,112 $909,583
------------------------
</TABLE>
---------------------------------------------------------------------------
3. Advances to/Loans from Related parties
(a) Advances to related parties are non-interest bearing and will
be repaid as follows:
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
3294340 Canada Inc. (i) $196,034 $204,043
Vallillee Wide Format (ii) 37,725 40,840
Stockholders 29,384 -
----------------------
$263,143 $244,883
----------------------
</TABLE>
(i) Advances were made to a company as referred to in Note 5
to facilitate research and development activities. There is no fixed
term of repayment and the balance is due on demand.
(ii) A company controlled by a non-executive director,
incurred in the normal course of business which is expected to be
repaid during the fiscal year ending March 31, 2001.
(b) Non-interest bearing advances to the Company as short-term
loans in order to assist in certain working capital requirements.
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
Directors and officers $64,939 $382,699
---------------------
</TABLE>
(c) Transactions with companies controlled by, and fees paid to,
executive officers, the principal stockholders and directors during the
year were as follows:
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
Sales $ 8,790 $ -
Management fees and salaries expense 333,743 310,653
</TABLE>
The management fees are paid on a month to month basis to companies
controlled by certain executives who comprise senior management of the
Company.
---------------------------------------------------------------------------
4. Capital Assets
Capital assets consist of:
<TABLE>
<CAPTION>
1999 2000
------------------------- ------------------------
Accumulated Accumulated
Cost Amortization Cost Amortization
---- ------------ ---- ------------
<S> <C> <C> <C> <C>
Machinery, plant and
computer equipment $1,913,903 $1,088,694 $1,989,048 $1,361,419
Furniture and fixtures 108,065 54,411 112,487 67,224
Prototypes and jigs 289,380 131,563 301,220 165,408
Land 56,262 - 58,564 -
Building under
construction 361,021 - 375,791 -
----------------------------------------------------------
$2,728,631 $1,274,668 $2,837,110 $1,594,051
----------------------------------------------------------
Net book value $1,453,963 $1,243,059
----------------------------------------------------------
</TABLE>
---------------------------------------------------------------------------
5. Purchased Research and Development Technology
During 1999, the Company acquired at a cost of $93,750, the rights to
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"), which 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 still in the final stages
of completion which management estimates to be in the fiscal year ending
March 31, 2001.
The cost of the technology is being amortized on a straight-line
basis over 3 years commencing from September 30, 1998. As at March 31,
2000 the unamortized balance amounted to $50,279.
* Adjusted for reverse split of Company's Stock (1:4) on January 29, 1999.
---------------------------------------------------------------------------
6. Investment in Affiliate
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
3294340 Canada Inc. $545,113 $335,760
----------------------
</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 ("Innovatech"), an economic development agency of the government
of the Province of Quebec, pursuant to which Innovatech 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 Note 13(b)). The assets,
liabilities, revenue and expenses of 3294340 Canada Inc. for the year ended
March 31, 1999 and 2000 are as follows:
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
Current assets $ 1,014,554 $ 636,551
Capital assets 549,339 486,823
-----------------------------
1,563,893 1,123,374
Current liabilities 370,954 396,462
-----------------------------
Net assets $ 1,192,939 $ 726,912
-----------------------------
Revenue
Miscellaneous income $ 66,287 $ 100,958
Research and development 669,857 627,299
-----------------------------
736,144 728,257
Expenses 1,741,963 1,235,400
-----------------------------
Net loss for the period $(1,005,819) $ (507,143)
-----------------------------
</TABLE>
The Company's portion of the net loss is $228,214 ($452,619 in 1999).
During the year, Innovatech made a request to convert 80% of its
shares in 3294340 Canada Inc. into the Company's common stock. This
transaction is expected to close in the next fiscal year.
---------------------------------------------------------------------------
7. Bank Indebtedness
The Company has an operating line of credit available for
approximately $214,000 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, 2000 approximately $160,133
($249,000 in 1999) was utilized.
The Company's 2000 and 1999 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.
* Adjusted for reverse split of Company's Stock (1:4) on January 29, 1999.
---------------------------------------------------------------------------
8. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of:
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
Trade accounts payable $ 546,586 $495,382
Wages and employee deductions payable 191,382 64,023
Accrued liabilities 371,921 177,591
Accrued litigation costs 189,565 69,450
------------------------
$1,299,454 $806,446
------------------------
</TABLE>
---------------------------------------------------------------------------
9. Convertible Debentures
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
8% Convertible debentures $152,478 $ -
12% Convertible debentures 190,000 200,000
----------------------
$342,478 $200,000
----------------------
</TABLE>
For the 8% convertible debentures, which were in default, the Company
reached an agreement on December 21, 1999 resulting in a transfer of 21,310
shares of common stock in full payment of the outstanding debentures and
accrued interest. The resolution of the 8% debentures did not result in a
beneficial conversion to the debenture holders.
During 1999, the Company 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 following 360 days after the
initial closing. During the fiscal year ended March 31, 2000, the company
issued the remaining one-half unit comprising of 5,000 common shares (see
Note 10(b)(x)) and a three-year 12% convertible subordinated note in the
amount of $10,000.
The Company is presently in default on the interest payments on the
12% convertible debentures. The consequences of this default has not been
determined.
---------------------------------------------------------------------------
10. Share Capital
(a) Authorized
5 Million 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 2,582,985 shares outstanding as of March 31, 2000, 3,444*
shares have not been registered by the Company's stock transfer agent.
* Adjusted for reverse split of Company's Stock (1:4) on January 29, 1999.
(b) Changes to Issued Share Capital
(i) Effective January 29, 1999, the Company's stockholders
approved a 1:4 reverse stock split resulting in
1,788,649* common shares outstanding as of that date.
(ii) 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.
(iii) 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 accrued approximately
$122,000 for the cost of these shares representing the
fair value of the shares on February 2, 1998. The
Company 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.
(iv) 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.
(v) During fiscal 1999, it was determined that an accrual
for warrant costs was not required. As a result, a
reversal of the accrual was made consistent with APB 20 -
"Accounting changes".
(vi) 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.
(vii) During the fourth quarter of fiscal 1999, the Company's
stockholders 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.
(viii)During the fourth quarter of fiscal 1999, the Company and
its legal counsel approved an amendment to a legal
resolution with respect to a class action settlement. 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 109,471 common
shares were issued pursuant to two separate issuances
pursuant to Company instructions dated February 17, 1999
and May 21, 1999 (54,752 and 54,719 respectively).
(ix) 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.
(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 a 1/2 unit
closing after March 31, 1999. 95,000 shares were issued
pursuant to the placement between February 1999 and 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) 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 principals of the Company
in full satisfaction of corporate indebtedness to those
parties as approved by the Board of Directors.
* Adjusted for reverse split of Company's Stock (1:4) on January 29, 1999.
(xii) On May 26, 1999, the Company and its legal counsel, with
the approval of the Board of Directors, issued an
additional aggregate of 18,748 common shares as the final
stage of a settlement agreement with the Company.
(xiii)On July 6, 1999, the Company closed an additional private
placement involving up to 325,000 common shares of the
Company at $2.00 per share issued on October 6, 1999. As
a result of an over-subscription, a total of 337,500
shares of the Company's common stock was issued in the
offering.
(xiv) On December 21, 1999, the Company resolved three
outstanding debentures, each in the amount of $50,000,
and accrued interest in the amount of $56,351, by a
transfer of 21,310 shares of the Company's common stock.
(xv) On April 12, 1999, the Company settled an outstanding
legal account in favour of its independent legal counsel
by issuing 13,500 of the Company's common shares in full
and final satisfaction of payment for the services
rendered.
(xvi) On January 4, 2000, the Company issued 2,190 of its
common shares to Cantella and Associates on exercise of
a vested placement agent warrant in their favour.
(c) Warrants
As at March 31, 2000, the Company had 929,762 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
No. 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 employees' stock options 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 employees were outstanding with an exercise price
of $8.50. 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.
On April 11, 2000, 9,250 employee stock options were cancelled
and no new issuances occurred.
Pro-forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for the 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%
to 6%; dividend yield of 0.0%; volatility factors of the expected market
price of the Company's common stock of approximately 21% (122% in 1998 and
1999) and weighted-average expected life of the option of 10 to 13 years.
* Adjusted for reverse split of Company's Stock (1:4) on January 29, 1999.
The Company's pro-forma information is as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
March 31, March 31, March 31,
1998 1999 2000
---------- ---------- ----------
<S> <C> <C> <C>
Net loss
As reported $(3,335,865) $(2,244,351) $(1,500,840)
Pro-forma (3,840,790) (2,350,607) (1,571,758)
Net loss per share
As reported (2.36) (1.28) (0.61)
Pro-forma (2.72) (1.34) (0.64)
</TABLE>
(e) The Activity of the Company's Stock Option Plan is as Follows:
<TABLE>
<CAPTION>
Option Outstanding Option Exercisable
---------------------------- ----------------------------
Weighted Weighted
Average Price Option Average Price Options
Per Share Outstanding Per Share Exercisable
------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Balance, March 31,1998 $8.50 117,542 8.50 98,942
Granted 3.91 8,625
Cancelled 8.50 (9,667)
-------
Balance, March 31, 1999 8.15 116,500 8.15 104,958
-------
Granted - -
Cancelled - -
-------
Balance, March 31, 2000 8.15 116,500 8.15 95,750
-------
</TABLE>
At March 31, 2000, there were 8,500 options available for future
grants. As at March 31, 2000, the options have a weighted average
contractual life of 8.5 years.
Effective June 27, 2000, the Company's Board of Directors approved a
repricing of the exercise price under the plan of the options to $4.00 per
share from $8.50 per share. The effects of the repricing will be recognized
for the fiscal year ended March 31, 2001 in accordance with FASB
Interpretation No. 44.
(f) Loss per Common Share
The computation of loss per common share and common equivalent share
is based on the weighted average number of common shares outstanding during
the year except as noted below plus (in years which they have a dilutive
effect) the effect of common shares contingently issuable pursuant to
outstanding warrants and options. On March 31, 2000 there were 929,762
warrants and 116,500 options outstanding that were not considered because
they are anti-dilutive.
The weighted average number of common shares used in calculating
earnings per common share (after retroactive application of the reverse
stock split in 1999) is as follows:
<TABLE>
<CAPTION>
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Shares outstanding at year end* 1,477,320 2,068,400 2,582,985
---------------------------------------
Weighted average shares outstanding* 1,416,047 1,749,386 2,443,730
---------------------------------------
</TABLE>
(g) The company has filed a registration statement on February 4,
2000 (second amendment) to register 1,039,441 shares of common stock to allow
free-trading on the stock and underlying warrants for stock covered by the
registration. This registration has not been finalized.
* Adjusted for reverse split of Company's common stock (1:4) on January 29,
1999.
---------------------------------------------------------------------------
11. Cumulative Other Comprehensive Loss
The Company has adopted SFAS No.130, "Reporting comprehensive income"
as of January 1, 1998 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
stockholders' equity. The components of comprehensive loss are as follows:
<TABLE>
<CAPTION>
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Net Loss $(3,335,865) $(2,244,351) $(1,500,840)
Other comprehensive loss
and foreign currency
translation adjustments (54,325) (280,396) (65,480)
-----------------------------------------------
Comprehensive Loss $(3,390,190) $(2,524,747) $(1,566,320)
-----------------------------------------------
</TABLE>
The components of accumulated other comprehensive loss are as
follows:
<TABLE>
<S> <C>
Accumulated other translation loss March 31, 1998 $(257,613)
Foreign currency translation adjustment for the year
ended March 31, 1999 (280,396)
---------
Accumulated other translation loss March 31, 1999 (538,009)
Foreign currency translation adjustment for the year
ended March 31, 2000 (65,480)
---------
Accumulated other translation loss March 31, 2000 $(603,489)
---------
</TABLE>
---------------------------------------------------------------------------
12. Income Taxes
(a) The reconciliation of income taxes calculated at an approximate
statutory rate of 45% to the total tax provision is as follows:
<TABLE>
<CAPTION>
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Income taxes recovery $(1,488,000) $(1,001,000) (670,000)
Items not subject to income
taxes 309,000 252,000 274,000
Benefit of tax losses not
recognized 1,179,000 749,000 396,000
--------------------------------------------
$ - $ - -
--------------------------------------------
</TABLE>
Income tax provision and recovery is related solely to domestic
operations. Foreign operations are not subject to taxes.
(b) The Company has net operating loss carryforwards to reduce
federal taxable income of approximately $8,326,000 which expire in 2004
through 2007. The Company has net operating loss carryforwards available to
reduce Ontario taxable income of approximately $9,673,000 which expire
during the years 2001 through 2007. The potential tax benefits of these
losses have not been recognized in these consolidated financial statements.
The Company has share issue costs amounting to $2,800,000, which are
deductible against taxable income. When realized, the benefits will be
recorded as a capital transaction.
---------------------------------------------------------------------------
13. Commitments
(a) The Company leases premises, office equipment and motor
vehicles under operating leases expiring in 2004. The approximate annual
rental commitments during the lease terms are as follows:
<TABLE>
<S> <C>
Year ended March 31, 2001 $ 86,617
Year ended March 31, 2002 36,077
Year ended March 31, 2003 14,000
Year ended March 31, 2004 900
</TABLE>
Approximate rental expense incurred under operating leases is as
follows:
<TABLE>
<S> <C>
Year ended March 31, 1998 $169,000
Year ended March 31, 1999 177,000
Year ended March 31, 2000 178,000
</TABLE>
(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 Note 6).
(c) Capital commitments of the foreign subsidiary, Indo WideCom
International Ltd. in India, is approximately $16,000.
---------------------------------------------------------------------------
14. Segmented Information
The Company has adopted SFAS No. 131, " Disclosures about segments of
an enterprise" which establishes standards for reporting operating segments
in annual financial statements.
Description of type of product
The Company operates through one segment, wide format document
management systems, comprising of 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 total
Consolidated Statements of Operations and Consolidated Balance Sheets are
deemed by management to be wholly attributable to that segment.
(a) The Company operates 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, 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
For the year ended March 31, 2000
Revenue $ 2,540,161 $ 769,102 $ (736,552) $ 2,572,711
Net loss (1,232,624) (391,398) 123,182 (1,500,840)
Identifiable assets 3,650,014 1,779,172 (1,993,825) 3,435,361
</TABLE>
(b) The breakdown of sales by geographic region is as follows:
<TABLE>
<CAPTION>
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Canada $ 322,968 $ 211,735 $ 267,559
United States 1,246,270 1,338,704 1,535,204
Middle East 312,042 200,711 117,733
Asia 322,685 583,077 286,394
Europe 686,478 241,708 355,385
---------- ---------- ----------
$2,890,443 $2,575,935 $2,562,275
---------- ---------- ----------
</TABLE>
(c) In the years ended March 31, 2000, 1999 and 1998 no end user
accounted for more than 5% of the Company's product sales. In 2000,
approximately 27.7% of the Company's product sales were made through five
distributors, with the largest representing approximately 14.3%. For the
year ended March 31, 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 sales to one major
distributor amounted to approximately 23.7% of total product sales.
(d) Information with respect to revenues earned by country or by
product are not readily available. Management reviews only the information
set out in (a) above.
---------------------------------------------------------------------------
15. Contingent Liabilities
(a) The Company has been served with a claim, with respect to a
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. The claim seeks a total of $15.85 million in
damages and is in progress in the Province of Ontario. Management considers
that the prospects of a successful resolution are likely. This action is
presently scheduled for mediation in September 2000.
Several other claims against the Company are in various stages of
litigation. In management's opinion, these claims are not material and
accordingly no provision has been made in the consolidated financial
statements.
Loss, if any, on the above claims will be recorded when settlement is
probable and the amount of the settlement is estimable.
(b) The Company's wholly owned subsidiary, Indo WideCom
International Ltd. in India, has not met export obligations for the fiscal
year which may result in additional customs duty levied by the authorities
in India. As at year end, this amount was not determinable.
---------------------------------------------------------------------------
16. Supplemental Disclosure of Cash Flow Information
Cash Paid during the year:
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
Interest $ 42,711 $ 16,863
----------------------
Non monetary transactions during the year:
Shares issued for investment in subsidiary $ 93,750 $ -
Shares issued for conversion of debentures 50,000 203,777
----------------------
$143,750 $203,777
----------------------
</TABLE>
---------------------------------------------------------------------------
17. Subsequent Event
Subsequent to the year end, the Company sold its proprietary wide-
format printing technology and related patents to its wholly owned
subsidiary PosterNetwork.com Inc. ("PosterNetwork") in exchange for 12
million shares of PosterNetwork. The Company anticipates that within a
three month period after PosterNetwork is firmly established, all of the
shares will be delivered to its stockholders on a basis of 4 shares of
PosterNetwork for each share of the Company.
---------------------------------------------------------------------------
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. Although the change in date has
occurred, it is not possible to conclude that all aspects of the Year 2000
Issue that may affect the entity, including those related to customers,
suppliers, or other third parties, have been fully resolved.
---------------------------------------------------------------------------
19. Comparative Figures
Certain figures in the 1999 consolidated financial statements have
been reclassified to conform with the basis of presentation used in 2000.
