As filed with the Securities and Exchange Commission on February 4, 2000
File No. 333-89109
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM SB-2/A-2
SECOND AMENDMENT TO
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------
THE WIDECOM GROUP, INC.
(Exact name of Registrant as specified in its charter)
Ontario, Canada 3669 98-0139939
(State of Incorporation) (Primary Standard (I.R.S. Employer
Industrial Classification No.) Identification
Number)
---------
72 Devon Road, Unit # 17/18
Brampton, Ontario
Canada, L6T 5B4
(905) 712-0505
(Address, including zip code, and telephone number,
including area code, of Widecom's principal executive offices)
Suneet S. Tuli, Executive Vice President
c/o The Corporation Trust Company
1633 Broadway, New York, New York 10019
(905) 712-0505
(Name and address, including zip code, and telephone number,
including area code, of agent for service)
-----------------
With copies to:
Victor J. DiGioia, Esq.
Michael A. Goldstein, Esq.
Goldstein & DiGioia, LLP
369 Lexington Avenue
New York, New York 10017
Telephone (212) 599-3322
Facsimile (212) 557-0295
Approximate date of commencement of proposed sale to the public: As
soon as practicable after the effective date of this Registration
Statement.
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box.[ ]
CALCULATION OF REGISTRATION FEE(1)
<TABLE>
<CAPTION>
Proposed Proposed
Maximum Maximum Amount of
Amount to be Offering Price per Aggregate Registration
Title of Shares to be Registered Registered Share(2) Offering Price(2) Fee
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01(3) 538,441 $6.0625 $3,264,298.56 $ 907.47
Common Stock, par value $.01 451,000 $6.0625 $2,734,187.50 $ 760.11
Common Stock, par value $.01(3) 50,000 $6.0625 $ 303,125 $ 84.27
Total 1,039,441 $6,301,611.06 $1,751.85
<FN>
<F1> This registration statement on Form SB-2 is also being filed under
Rule 429 under the Securities Act of 1933, as amended. 82,500 shares
of common stock underlying underwriters' warrants, and 192,500 shares
of common stock underlying privately issued warrants were previously
registered, and a fee of $2,648.71 was previously paid, under our
registration statement on Form F-1, No. 333-78004, which is hereby
combined with this registration statement under Rule 429.
<F2> Total estimated solely for the purpose of determining the
registration fee. Based upon the closing bid price of Widecom's stock
on the Nasdaq Small Cap Market on October 11, 1999 ($6.0625).
<F3> Represents shares of common stock issuable upon exercise of
outstanding common stock purchase warrants and convertible notes held
by certain security holders as they relate to stock splits,
recapitalizations and the like. Under Rule 416 of the Securities Act
of 1933, as amended, there are being registered such additional
number of shares of common stock as may become issuable according to
the anti-dilution provisions of the warrants.
</FN>
</TABLE>
EXPLANATORY NOTE
The purpose of this registration statement on Form SB-2 of The
Widecom Group, Inc. is to register an additional 1,039,441 shares of our
common stock, par value $.01 per share. An additional 82,500 shares of
common stock underlying common stock purchase warrants issued to our
underwriters in our initial public offering and 192,500 shares of common
stock underlying privately issued common stock purchase warrants were
previously registered under our registration statement on Form F-1, No. 33-
78004, which is hereby combined with this registration statement under Rule
429 under the Securities Act.
Widecom hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until Widecom shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the registration statement shall
become effective on such date as the Commission may determine under Section
8(a).
P R O S P E C T U S
1,314,441 Shares
THE WIDECOM GROUP INC.
Common Stock
This prospectus covers an aggregate of 1,314,441 shares of common
stock, par value $.01, of The Widecom Group Inc., including:
* 232,441 shares issuable upon exercise of 929,764 outstanding common
stock purchase warrants which were originally sold as part of
Widecom's initial public offering;
* 82,500 shares underlying warrants issued and issuable to the
underwriter of Widecom's initial public offering;
* 498,500 shares underlying privately issued common stock purchase
warrants;
* 50,000 shares of common stock issuable upon conversion of $200,000
principal amount of convertible notes; and
* 451,000 Shares held by certain selling shareholders.
Widecom will not receive any of the proceeds from the sale of the
shares by the selling shareholders.
Widecom's common stock is traded in the over-the counter market and
is quoted on the Nasdaq Small Cap Market under the symbol "WIDE" and on the
Boston Stock Exchange under the symbol "WDE". On January 27, 2000, the
closing bid and asked prices for the common stock as reported on Nasdaq
were $8.8125 and $8.9375, respectively.
These securities involve a high degree of risk.
See "RISK FACTORS" Beginning on page 4 of this prospectus.
These securities have not been approved or disapproved by the
Securities and Exchange Commission nor any state securities commission, nor
has the Commission or any state commission passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this prospectus is , 2000
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TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY 1
THE OFFERING 3
RISK FACTORS 4
ADDITIONAL INFORMATION 12
USE OF PROCEEDS 13
SELLING SECURITY HOLDERS 14
SELECTED FINANCIAL DATA 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 19
DESCRIPTION OF BUSINESS 25
LEGAL PROCEEDINGS 36
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS 37
EXECUTIVE COMPENSATION 39
SECURITY OWNERSHIP OF CERTAIN BENEFICIALOWNERS AND MANAGEMENT 41
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 42
DESCRIPTION OF SECURITIES 44
LEGAL MATTERS AND EXPERTS 48
CHANGES IN ACCOUNTANTS 48
DISCLOSURE OF COMMISSION ON INDEMNIFICATIONFOR SECURITIES ACT
LIABILITIES 49
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 50
PLAN OF DISTRIBUTION 51
FORWARD LOOKING STATEMENTS 52
PROSPECTUS SUMMARY
The following summary is intended to set forth pertinent facts and
highlights from material contained in the body of this prospectus. More
detailed information is presented throughout this prospectus and the
consolidated financial statements. Each prospective investor is urged to
read this prospectus in its entirety. Unless otherwise indicated, all
numbers have been adjusted to reflect a one-for-four (1:4) reverse stock
split effective on January 29, 1999.
THE WIDECOM GROUP
The Widecom Group Inc. was incorporated in Ontario, Canada in June 1990. We
design, assemble and recently commenced marketing of high-speed, high-
performance document systems which transmit, receive, print, copy and/or
archive wide format documents, such as blueprints, schematics, newspaper
layouts and other mechanical and engineering drawings.
Our Products
In developing and marketing wide-format document systems, we currently
market four main product lines:
* Two types of 36-inch document scanners;
* One 72-inch document scanner; and
* One 36-inch Plotter/Printer.
Our Approach to the Market
Our primary marketing strategy is to sell our products to targeted
commercial markets that we believe have potential for significant uses of
wide format document systems. Our target markets are principally
architectural, engineering and construction firms. We believe that the
reproduction, archiving and transmission of wide format documents are
essential to those businesses. We also market our products for use by
manufacturers in the garment, woodworking and graphic arts industries,
utilities, government agencies and the newspaper and advertising
industries. We believe that our products are used by consumers in these
markets for a variety of uses, including the transmission of construction
plans, architectural drawings, newspaper and advertising layouts and
clothing patterns. In general, we believe that users of wide format
documents have an increasing need for systems which can more efficiently
scan, copy, print, transmit, receive and archive wide format documents.
About Widecom
Our executive offices are located at 72 Devon Road, Unit 17/18, Brampton,
Ontario, Canada L6T 5B4. Our telephone number is (905) 712-0505.
Recent Developments
We have recently agreed to convert outstanding debentures held by Global
Bermuda, L.P. These debentures came due on May 19, 1998 and have been in
default. Under an agreement with the holder dated December 22, 1999, we
agreed to convert the outstanding balance payable of $181,134.25 into 21,310
shares of common stock and a release. The shares issued upon conversion are
not covered by this prospectus.
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Securities Offered by Widecom 1,314,441
Common Stock Outstanding
Prior to Offering (1) 2,579,541
Common Stock Outstanding
After the Offering (1)(2) 3,893,982
Nasdaq Smallcap Market Symbol
(Common Stock): "WIDE"
Boston Stock Exchange Symbol
(Common Stock): "WDE"
- -------------------
<FN>
<F1> As of February 2, 2000. Does not include:
<F*> 125,000 shares of common stock reserved for issuance under Widecom's
1995 employee stock option plan, of which 114,583 shares have been
reserved for currently outstanding options and 10,417 shares are
available for future issuances.
<F2> Assumes the exercise of all of the warrants for which underlying
shares are being registered hereby.
</FN>
</TABLE>
RISK FACTORS
Our limited operating history has not allowed us to earn a profit and
makes evaluating our business difficult. During our limited operating
history we have not earned sufficient revenues to become profitable. Our
revenues may not increase in the future and our future operations may not
be profitable. In 1992 we began marketing our first 36" wide format
facsimile machine on a limited basis, primarily for demonstration purposes.
We began marketing other wide format document systems in 1994. We have only
recently commenced commercialization of the full line of our products.
Therefore, we have only a limited relevant operating history upon which an
evaluation of our prospects and performance can reasonably be based.
Since inception, we have generated limited revenues from operations
and have lost money every year since 1996. For the fiscal year ended March
31, 1998, we sustained a loss of $3,335,865. For the fiscal year ended
March 31, 1999, we sustained a loss of $2,244,351. For the quarter ended
September 30, 1999, we sustained a further loss of $238,902. The losses for
these fiscal years would have been greater if we did not receive revenues
from research and development grants and similar reimbursement programs
from various Canadian government programs. As of March 31, 1999, we had an
accumulated deficit of $10,892,334. We are subject to the risks, expenses,
delays, problems and difficulties typically encountered in the
establishment of a new business in an industry characterized by intense
competition. We must also account for similar risks in our efforts to shift
from product development to the commercialization of our new products.
Our common stock may be delisted from Nasdaq. Our common stock is
listed for trading on the Nasdaq SmallCap Market under the symbol WIDE.
Under Nasdaq rules, in order to maintain listing of its common stock and
warrants on the Nasdaq SmallCap Market, a company must have, among other
things, $2,000,000 of net tangible assets or market capitalization of
$35,000,000 or $500,000 of net income in the latest fiscal year or 2 of 3
previous fiscal years and a minimum bid price of $1.00 per share. In order
to comply with Nasdaq's minimum bid price requirement of $1.00, we
completed a one-for-four (1:4) reverse stock split in January, 1999. In
addition, Nasdaq reserves the right to withdraw or terminate a company's
listing on the Nasdaq SmallCap Market at any time and for any reason.
If delisted from Nasdaq, we will be subject to the penny stock rules.
If we are unable to maintain continued quotation on the Nasdaq Small Cap
Market, we may be subject to additional disclosure requirements applicable
to penny stocks under the Exchange Act Rules. If our securities become
subject to the Exchange Act Rules applicable to penny stocks, the market
liquidity for our securities could be adversely affected. Absent an
exception, the Exchange Act Rules make it unlawful for a broker/dealer to
sell or purchase penny stocks on behalf of any customer, other than an
established customer of such a broker/dealer or an accredited investor.
Further, these rules require broker/dealers to deliver a disclosure
schedule explaining the penny stock market and the risks associated
therewith to any potential purchaser prior to the execution of any
transaction involving the purchase or sale of a penny stock.
We have made sizeable capital investments which has reduced our
available working capital. We may need to obtain additional financing to
continue the introduction of our new products and to finance research and
development of further additional products. Our heavy investment in
property, plant, equipment and inventories, our continuing operating losses
and our $1,875,000 investment in Technologies NovImage have substantially
reduced our cash position. Additionally, the lack of product sales and
costs incurred while developing and introducing the new Series SLC936
Scanners have further weakened our capital position. To the extent that any
future financing involves the sale of our equity securities, the interests
of our then existing shareholders could be diluted.
We may need additional capital during certain periods, which may
dilute the interests of our existing shareholders. In various periods, we
may have revenues lower than necessary to continue to fund our operations.
In those periods, we would need additional capital to continue our
operations. If we determine to raise additional capital through an offering
of our equity securities, the interests of our then existing shareholders
could be diluted. Our operating results in any given period may be
insufficient due to the fact we operate in a competitive niche-market which
experiences a high-rate of product obsolescence, have a limited customer
base and rely on third-parties to sell and service our products.
We are currently defending a $15.85 million claim and may incur
significant damages and costs. We are the defendants in an action entitled
Nexsys Consulting, Inc. and Tern Solutions Group Corp. v. The Widecom
Group, Inc. Plaintiffs in this matter are seeking $15.85 million in damages
under claims of breach of contract and copyright and trademark
infringement. This matter exposes us to the risk of a substantial loss and
any resolution of this case which requires us to pay a significant damage
award may adversely impact our business and operations. Even if we settle
for an amount less than that sought by plaintiffs, our business may suffer.
This matter is currently pending in the Superior Court of Justice of the
Province of Ontario and is scheduled for mediation in February 2000.
We have been dependent on the sales of one product line, which has
been discontinued. If our new products are not accepted by consumers, our
business will be harmed. A substantial portion of our sales have been
derived from the sale of our 4-series scanner units since their
introduction in May 1995. We have, however, discontinued the production of
this product line. Accordingly, we may not obtain market acceptance of our
new product lines. Since we have only recently introduced our new products
and have not yet achieved significant sales revenue from these products, a
decline in the sale of our scanner units would have a material adverse
effect on our business. For the fiscal years ended March 31, 1998 and March
31, 1999, sales of our 4-series scanner units accounted for approximately
78.6% and 0%, respectively, of our product sales. We may be dependent upon
non-recurring sales of WIDEfax Modular Units to a limited number of
customers. These sales could constitute a substantial portion of our
revenues.
We compete in a niche-market which limits our customer base. The wide
format document systems industry is a highly specialized segment of the
document systems industry. The market for our products may not grow, we may
not have sufficient resources to achieve market acceptance and our efforts
may not result in market acceptance of our products. Market entrants seek
to establish their products and technologies as the preferred method for
reproducing, transmitting and storing wide format documents. As is typical
in the case of niche-markets, demand and market acceptance for newly
introduced products is subject to a high level of uncertainty. Potential
customers may elect to utilize other products which they believe to be more
efficient or have other advantages over our products or may be reluctant to
purchase our products due to significant capital investment in other wide
format document systems.
We depend on others to market our products which could harm our
ability to sell our products. We have limited marketing experience and
limited financial, personnel and other resources to independently undertake
extensive marketing activities. To the extent that third party dealers and
distributors provide inadequate service and support, our reputation, and
our ability to continue to sell additional products could be adversely
affected. Accordingly, our prospects depend to a large extent upon the
efforts of our distributors and dealers. and our ability to develop and
maintain strategic marketing relationships with these and additional
distributors and dealers. Some of our dealers and distributors represent
various product lines generally, and cannot be expected to increase their
sales efforts for our products in the absence of increased incentives. We
are also dependent upon our distributors and dealers to provide
installation and support services.
We rely on a limited number of distributors and dealers and if we
fail to maintain good relationships with all of our distributors, our
business will be harmed. We are dependent upon the efforts of a limited
number distributors for a significant portion of our revenues. If we fail
to maintain good relationships with all of these distributors our ability
to sell our products will suffer. Further, we have only recently entered
into marketing arrangements with many of our key distributors and dealers.
Although in the fiscal year ended March 31, 1999 our five largest
distributors accounted for approximately 8% of our product sales, in
previous years these distributors have represented a much greater
percentage of our sales. For example, in the fiscal year ended March 31,
1998 our five largest distributors accounted for approximately 43% of our
product sales. We expect that in future years we will continue to be
dependent on these distributors for a large percentage of our product
sales.
As our products have not achieved widespread use, they may not work
with all technology. Our products may not satisfactorily perform all of the
functions for which they have been designed nor be reliable or durable in
extensive applications if subjected to widespread use. Our products have
been only recently commercialized and are currently being utilized by only
a limited number of customers. We may be required to devote considerable
efforts and resources to enhance and refine our wide format products and to
develop additional products. Such efforts remain subject to risks during
the development and commercialization phases for new products. These risks
include unanticipated delays, expenses, technical problems or difficulties,
as well as the possible insufficiency of funds to implement efforts. The
occurrence of any of these risks could result in abandonment or substantial
change in product development or commercialization.
Our products may not be competitive. The markets for document systems
are characterized by intense competition between various manufacturers of
wide format copiers, scanners, plotters and printers. Widecom competes with
numerous well-established foreign and domestic companies that market or are
developing wide format document systems, as well as those which manufacture
standard facsimile machines, copiers, scanners, plotters, and printers. We
also expect that companies that manufacture and sell standard facsimile
machines, copiers, plotters, scanners and printers could develop, without
substantial delay of time, wide format document systems directly
competitive with our products. Many of these companies possess
substantially greater financial, technical, marketing, personnel and other
resources than we do. Further, many of our competitors have established
reputations for success in the development and marketing of facsimile
machines, copiers, plotters, scanners and printers and have sufficient
budgets to permit them to implement extensive advertising and promotional
campaigns.
If we cannot continuously enhance our products in response to rapid
changes in the market, our business will fail. The markets for our products
are characterized by rapidly changing technology and evolving industry
standards, which may result in rapid product obsolescence or short product
life cycles. Our inability to successfully complete development of a
product or our decision not to complete development or commercialization of
any product could have a material adverse effect on our business. Our
ability to compete is dependent upon:
* our ability to continually enhance and improve our products;
* to complete development of new products and introduce them into the
marketplace in a timely manner;
* to successfully develop and market these new products;
* to keep pace with evolving technological advances in the industry;
* and to ensure that our products meet targeted cost and performance
goals.
We may not be able to compete successfully, competitors may develop
technologies or products that render our products obsolete or less
marketable, and we may not be able to enhance successfully our existing
products or develop new products.
We may not receive any additional money from government-sponsored
programs. Although government sponsored research grants and subsidies have
been provided to us in the past to fund specific research programs, during
the fiscal years ended March 31, 1998 and March 31, 1999, we did not seek
reimbursement from the Canadian government for any expenses. In the past, a
substantial portion of Widecom's revenues have been derived from research
and development grants and reimbursement from the Canadian government.
However, these grants and programs may not be continued beyond the
immediate future. In the event of the discontinuance of any such programs,
we may incur higher research and development and employee costs.
Our dependence on third-party suppliers may result in delays and
quality-control issues. We are dependent upon third-party suppliers and
subcontractors for our supply of custom and component parts incorporated
into our products. We are also dependent on the ability of our suppliers
and subcontractors to, among other things, satisfy performance and quality
specifications and dedicate sufficient production capacity within scheduled
delivery times. The failure or delay by our suppliers and subcontractors in
supplying components or custom parts to us would adversely affect our
operating margins and our ability to manufacture and deliver products on a
timely and competitive basis. We are currently dependent upon Alberta
Microelectronics, Inc., our principal supplier of print heads. Moreover, we
do not maintain supply agreements with any of our suppliers or
subcontractors and we purchase components and custom parts in the ordinary
course of business.
Our reliance on sales to foreign countries exposes us to foreign
trade risks. We rely on sales to foreign markets for a substantial portion
of our revenues. We are and may become increasingly subject to risks of
foreign trade. These include shipping delays, increased collection risks,
trade restrictions, export duties and tariffs. All of these risks could
have an adverse effect on our operating margins and results of operations
and compound the risks of doing business. Further, the political volatility
of the Indian subcontinent makes us particularly vulnerable to these risks.
For the fiscal years ended March 31, 1998 and March 31, 1999, sales of our
products to customers in the Middle East and Asia accounted for
approximately 22% and 30.4%, respectively, of our sales. We are seeking to
expand product sales in foreign markets, but we may not be successful and
these markets may not be viable.
We may lose money on foreign currency exchange. We conduct a
substantial portion of our business in foreign currency, primarily the
Canadian dollar and Indian rupee. Disruptions in the exchange rates between
the United States dollar and the Canadian dollar or Indian rupee could have
an adverse effect on our operating results in the future. The Indian rupee
has experienced significant devaluation against the United States dollar
and other currencies in recent years. We seek, however, to limit our
exposure to the risk of currency fluctuations by engaging in foreign
currency transactions that could expose us to substantial risk of loss.
Fluctuations in foreign currency exchange rates may have a significant
impact on our future operating results.
Almost all of our manufacturing is performed in India and we are
subject to Indian laws and regulations regarding these activities.
Substantially all of our manufacturing activities are conducted in a free
trade zone in India. In connection therewith, we have been and will
continue to be subject to additional risks due to the fact we conduct these
operations outside of the United States. India may, from time to time,
impose duties, tariffs or quotas or other restrictions on our imports or
exports, or otherwise change regulations relating to the conduct of
business in the free trade zone. Similarly, the United States or Canada may
impose increased duties, tariffs and other restrictions on the import or
export of our products or supplies. Any of these possibilities could
adversely affect our operations.
Our lack of patents on all of the technology we use could harm our
competitive position. The steps that we have taken to protect our
intellectual property rights may not be adequate to protect our competitive
position. We rely upon proprietary know-how and employ various methods to
protect the majority of our ideas, concepts and documentation of our
proprietary technology. These methods include nondisclosure agreements with
our employees and distributors. These methods may not, however, afford us
complete protection. We hold one patent and have filed a number patent
applications relating to different aspects of our technology. However, no
additional patents may be issued to us. Even if additional patents are
issued to us, the breadth or degree of protection that future patents would
afford us may be limited, circumvented or invalidated. In addition, we hold
a registered trademark with the United State Patent and Trademark Office
for the WIDEfax(R) name only.
We cannot be certain that the steps we have taken to protect our
intellectual property rights will be adequate or that third parties will
not infringe or misappropriate our proprietary rights. Further, we can not
be sure that competitors will not independently develop technologies that
are substantially equivalent or superior to the proprietary technologies
employed in our products. In addition, we cannot be certain that our
business activities will not infringe on the proprietary rights of others,
or that other parties will not assert infringement claims against us. Any
claim of infringement of proprietary rights of others, even if ultimately
decided in our favor, could result in substantial costs and diversion of
resources. If a claim is asserted that we infringed the intellectual
property of a third party, we may be required to seek licenses to such
third-party technology. We cannot be sure that licenses to third-party
technology will be available to us at a reasonable cost, if at all. If we
were unable to obtain such a license on reasonable terms, we could be
forced to cease using the third-party technology. Any of the foregoing
could have a material adverse effect on our business.
The loss of certain officers would significantly harm our business.
Our success is largely dependent on the personal efforts of Raja S. Tuli,
our Chief Executive Officer and President, Suneet S. Tuli, our Executive
Vice President of Sales and Marketing, and other key personnel. Although we
have entered into five-year employment agreements with Messrs. Raja Tuli
and Suneet Tuli, the loss of the services of such persons or other key
employees could have a material adverse effect on our business and
prospects. We have obtained key-man life insurance on the life of Raja Tuli
in the amount of CDN $1,500,000 and on the life of Suneet Tuli in the
amount of CDN $750,000. Our success may also be dependent upon our ability
to hire and retain additional qualified technical, financial, marketing and
other personnel.
We may have conflicts of interest with our affiliates. We were
organized by Raja, Suneet and Lakhbir Tuli. Lakhbir Tuli is the father of
Raja and Suneet Tuli. We have engaged in transactions with entities that
are affiliated with our organizers which may involve potential conflicts of
interest. Transactions or arrangements between us and our affiliates may
not be advantageous and conflicts of interest may arise with respect these
transactions. For example, Indo Widecom International Ltd., our wholly
owned subsidiary, leases our Indian facility from Widecom Fax and Plotters,
Ltd., a company controlled by Lakhbir S. Tuli. We have also engaged Widecom
Fax as a non-exclusive distributor in India on the same terms and
conditions as unaffiliated distributors. Moreover, we engage Lakhbir S.
Tuli as an independent consultant and, for the fiscal years ended March 31,
1998 and 1999, we paid him and certain companies controlled by him $159,600
and $134,000, respectively, in consideration for such services. Further,
two companies in which Raja S. Tuli has a beneficial interest each acquired
a percentage of NovImage. If conflicts with our affiliates do arise, they
may not be resolved entirely in our favor.
Since the Tuli family controls Widecom, other shareholders may not be
able to influence our direction. At present, Raja, Suneet and Lakhbir Tuli,
in the aggregate, beneficially own approximately 36.63% of Widecom's
outstanding common stock. Accordingly, such persons, acting together, will
most likely be in a position to control Widecom. Therefore, they may elect
all of our directors, increase the authorized capital, dissolve, merge, or
sell our assets and generally direct our affairs.
Our outstanding options and warrants may depress our stock price.
Additional shares issued upon outstanding options and warrants may result
in a substantial dilution to the shares of common stock held by our other
shareholders and depress the market price of our stock. The exercise of
these outstanding convertible securities may also adversely impact the
terms upon which we will be able to obtain additional equity capital. This
could occur since the holders of outstanding options and warrants can be
expected to exercise their securities at a time when we would, in all
likelihood, be able to obtain any needed capital on terms more favorable to
us than those provided in the outstanding options and warrants.
As of the date of this registration statement, there were currently
outstanding warrants to purchase 1,620,764 shares of common stock. Of these
warrants, 247,250 have an exercise prices between $.66 per share and $3.00
per share; 1,699,764 have an exercise price of $5.00 per share for a period of
120 days from the effective date of this registration statement and $10.00
thereafter; 210,000 have an exercise price between $8.00 per share and
$10.00 per share and 233,750 have an exercise price of $16.00 per share or
greater. Further, the exercise price of 150,000 of the warrants exercisable
at $8.00 per share may be reduced to $2.00 upon the occurrence of events
specified in the warrant agreement.
Additionally, we have reserved 125,000 shares of common stock for
issuance upon the exercise of options which may be granted under our stock
option plan. As of March 31, 1999, options to purchase 114,583 shares of
common stock were outstanding with exercise prices ranging from $3.28 to
$8.50.
If we exercise our right to redeem the publicly issued warrants, our
stock price may fall. We have the right to redeem, with the consent of the
underwriters of our initial public offering, for $.40 per warrant, 929,764
warrants exercisable at $5.00 per share for a period of 120 days after the
effective date of the registration statement and $10.00 thereafter.
Although we may choose to do so in light of our current working capital
position, heavy downward pressure on our stock price would likely result as
warrant holders could exercise their warrants and sell the underlying stock
to avoid redemption of their warrants. In addition, our notice of
redemption could force the holders to exercise their warrants at a time
when it may be disadvantageous for them to do so, sell the warrants at the
current market price when they might otherwise wish to hold the warrants,
or to accept the redemption price, which may be substantially less than the
market value of the warrants at the time of redemption.
The conversion of outstanding convertible notes may depress our stock
price. We have issued notes which are convertible into common stock, which
could also reduce our stock price. There are ten convertible notes in the
aggregate amount of $200,000 outstanding to investors in our private
placement which closed earlier in the 1999 fiscal year. These notes are
convertible at the rate of $4.00 per share into a total of 50,000 shares of
our common stock.
We have sold restricted shares which may depress our stock price and
impair our access to capital markets. As of the date of this registration
statement, Widecom has 2,579,541 shares of common stock outstanding. Of the
outstanding shares, 1,066,230 shares are restricted securities under the
Securities Act which may only be sold under an effective registration
statement under the Securities Act, or in reliance on the exemption
provisions of Rule 144 or another exemption under the Act. The sales of
these shares, or even the availability of those shares for sale, may have a
depressive effect on the market prices of our common stock. Further, this
may impair our ability to raise capital through the sale of additional
equity securities. An additional 114,583 shares of common stock which are
issuable upon exercise of certain options, will also be restricted
securities and, absent an exception, may not be sold without being
registered under the Securities Act.
We have never paid dividends, therefore you may never receive income
from this investment. We have never declared a dividend on our common
stock. We anticipate that all of our earnings in the foreseeable future
will be retained for the development and expansion of our business.
Therefore, we have no current plans to pay cash dividends. Future dividend
policy will depend upon our earnings, capital requirements and financial
condition as well as on the restrictions that arise from any lines of
credit or other lending agreements into which we may enter. In addition, no
dividends may be declared or paid until all of the principal and interest
on the notes offered in our private offering of units, which commenced in
February, 1999 have been paid in full.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission,
Washington, D.C., a registration statement on Form SB-2 under the
Securities Act of 1933, for the common stock being offered. This prospectus
does not contain all of the information in the registration statement and
the exhibits and schedules. For further information about us and our common
stock, please refer to the registration statement and the exhibits and
schedules filed. Statements contained in this prospectus as to the contents
of any contract or document filed as an exhibit to the registration
statement are qualified to the exhibit as filed.
We are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and file reports, proxy statements and
other information with the Securities and Exchange Commission. In addition
to the registration statement, and the exhibits and schedules thereto, our
reports, proxy statements and other information filed with the Securities
and Exchange Commission may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. You may also copy and/or inspect our filings
at the following Regional Offices of the Commission: New York Regional
Office, 7 World Trade Center, New York, New York 10048; and Chicago
Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois, 60661. Copies of such material may be obtained from the
public reference section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. You may also call the
Commission at 1-800-SEC-0330. The Commission maintains a Website that
contains reports, proxy statements and other information regarding issuers
that file electronically with the Commission. The address of that Website
is: http://www.sec.gov
USE OF PROCEEDS
We may not receive any proceeds from this offering if none of the
warrants are exercised. However, some of the shares being sold may be
acquired from us upon the exercise of currently outstanding public or
private warrants. We would receive $7,415,180 in proceeds if all the
public and private warrants are exercised within 120 days from the effective
date of this registration statement and $10,539,885 in proceeds if all the
public and private warrants are exercised thereafter. We plan to use all
proceeds generated from the exercise of warrants as follows for working
capital and general corporate purposes. We will receive none of the
proceeds from the sale of the common stock.
<TABLE>
<CAPTION>
Amount (assuming Amount (assuming
exercise of all exercise of all
warrants within 120 warrants after 120
days from effective days from effective Percent of
Application of Proceeds date) date) Proceeds
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Working capital and general corporate uses. $7,415,180 $10,539,885 100%
- -------------------------------------------------------------------------------------------------------
</TABLE>
SELLING SECURITY HOLDERS
We have agreed to register the resale of outstanding shares of common
stock and the shares underlying the public and private warrants under the
Securities Act and to pay all expenses in connection therewith. An
aggregate of 1,341,441 shares underlying the public and private warrants
and currently outstanding shares may be offered and sold through this
prospectus by the selling shareholders. Except as set forth below, none of
the selling shareholders has ever held any position or office with us or
had any other material relationship with us.
SELLING SECURITY HOLDERS AND
TRANSACTIONS WITH SELLING SECURITY HOLDERS
<TABLE>
<CAPTION>
Shares/ Shares/ Shares/
Warrant Shares/ Warrant Shares/ Warrant Percentage of
Conversion Conversion Shares/ Shares
Shares Shares Conversion Owned After
Beneficially Offered Shares Offering
Name and Address of Owned Prior to Owned After (1)
Security Holder Offering Offering
<S> <C> <C> <C> <C>
Luis Barros (2)(3) 0/6,180/0 0/6,180/0 0 *
Cantella & Co., Inc. (2)(4) 2,190/0/0 2,190/0/0 0 *
Timothy J. Flanagan (2)(5) 1,000/13,530/0 0/13,530/0 1,000/0/0 *
Capitol Bay Securities (6) 0/5,820/0 0/5,820/0 0 *
George Scritchfield (7) 0/23,280/0 0/23,280/0 0 *
Robb Peck McCooey Clearing Corp. (2)(8) 0/5,000/0 0/5,000/0 0 *
Diversified Investors Capitol Services of N.A., Inc. (9) 0/100,000/0 0/100,000/0 0 *
Harris Shapiro (10)(15) 0/65,469/0 0/65,469/0 0 *
Vecchio Consulting, Inc. (11) 0/25,000/0 0/25,000/0 0 *
Mitchell Feinsod (12) 12,500/0/0 12,500/0/0 0 *
Jack O'Leary (13) 0/150,000/0 0/75,000/0 0/75,000/0 *
"The Roy S. and Cathleen Mollard Living Trust,
amended 1997" (12) (14) 10,000/0/5,000 10,000/0/5,000 0 *
James Noack (12)(14) 15,000/0/7,500 15,000/0/7,500 0 *
James Noack Cust FBO Patrick Noack (12)(14) 5,000/0/2,500 5,000/0/2,500 0 *
Joao Pinto Requiejo (12)(14) 5,000/0/2,500 5,000/0/2,500 0 *
Barry Perlow Management Plus Pension (12)(14) 2,500/0/1,250 2,500/0/1,250 0 *
Bob L. Hausler (12)(14) 2,500/0/1,250 2,500/0/1,250 0 *
Joseph M. Rodrigues (12)(14) 5,000/0/2,500 5,000/0/2,500 0 *
Antonio Rodrigues (12)(14) 2,500/0/1,250 2,500/0/1,250 0 *
Andrew & Jeanette Impagliazzo (12)(14) 2,500/0/1,250 2,500/0/1,250 0 *
Jay R. Bloom (12)(14) 10,000/0/5,000 10,000/0/5,000 0 *
Fred C. & Margaret Hoeppner (12)(14) 5,000/0/2,500 5,000/0/2,500 0 *
Jose Maria Salema Garcao (12)(14) 30,000/0/15,000 30,000/0/15,000 0 *
Michael and Judi Male (12)(14) 5,000/0/2,500 5,000/0/2,500 0 *
Artas Corp. (12) 10,000/0/0 10,000/0/0 0 *
D.P. Morton & Associates (12) 5,000/0/0 5,000/0/0 0 *
TLD Verhogensverwaltung GESMBH (12) 25,000/0/0 25,000/0/0 0 *
Jerome Schuster (12) 75,000/0/0 75,000/0/0 0 *
AMC Consumer (12) 25,000/0/0 25,000/0/0 0 *
Aarnel Funding Corp. Pension Plan (12) 37,500/0/0 37,500/0/0 0 *
Michael Gindi (12) 7,500/0/0 7,500/0/0 0 *
Ezra Missry (12) 37,500/0/0 37,500/0/0 0 *
Morris Missry (12) 37,500/0/0 37,500/0/0 0 *
Robert M. Kessler (12) 10,000/0/0 10,000/0/0 0 *
Mark Schachner (12)(20) 25,000/6,250/0 25,000/6,250/0 0 *
Whale Securities Co., L.P. (15) 0/56,127/0 0/56,127/0 0 *
William G. Walters (15) 0/5,602/0 0/5,602/0 0 *
Elliot J. Smith (15) 0/2,794/0 0/2,794/0 0 *
Estate of Howard D. Harlow (15) 0/2,090/0 0/2,090/0 0 *
James D. Whitten (15) 13,000/25,000/0 0/210/0 13,000/24,790/0 *
Cynthia Buckwalter (15) 0/209/0 0/209/0 0 *
Pell Limited (20) 0/31,250/0 0/31,250/0 0 *
Edward and Ann Weston (20) 0/6,250/0 0/6,250/0 0 *
David Miller (20) 0/25,000/0 0/25,000/0 0 *
Neill and Nita Freeman (20) 0/12,500/0 0/12,500/0 0 *
Robert Freedman (20) 0/12,500/0 0/12,500/0 0 *
Anandy E. Hazoury (20) 0/6,250/0 0/6,250/0 0 *
Pyrotech Limited (20) 0/12,500/0 0/12,500/0 0 *
Donald Schattle (20) 0/28,750/0 0/28,750/0 0 *
Marilyn Henderson (20) 0/18,750/0 0/18,750/0 0 *
Norton Herrick (20) 0/50,000/0 0/50,000/0 0 *
Stanley R. Goldstein (12)(16) 5,075/1,250/0 5,075/0/0 0/1,250/0 *
Victor J. DiGioia (12)(17) 6,075/1,250/0 6,075/0/0 0/1,250/0 *
Brian C. Daughney (12)(18) 1,350/0/0 1,350/0/0 0 *
Michael A. Goldstein (12)(19) 1,000/0/0 1,000/0/0 0 *
- ---------------------------------
<FN>
<F*> Percentage is less than 1%.
<F1> Computed for purposes herein to give effect to the exercise of all
warrants held by such selling security holder and not any other
selling security holder. Figures are computed based upon 3,893,982
shares of common stock outstanding on the effective date of this
registration statement.
<F2> Shares issuable upon exercise of warrants at an exercise price of
$1.20 per share exercisable until February 19, 2004.
<F3> Mr. Barros was retained by Widecom in connection with its first
private placement in the 1999 fiscal year.
<F4> Cantella & Co. was retained by Widecom in connection with its first
private placement in the1999 fiscal year. Mr. James Freeman has
investment control over the securities.
<F5> Mr. Flanagan was retained by Widecom in connection with its first
private placement in the 1999 fiscal year.
<F6> Includes 4,620 shares issuable upon exercise of warrants at an
exercise price of $1.20 per share exercisable until February 19, 2004
and 1,200 shares issuable upon exercise of warrants at an exercise
price of $2.00 per share exercisable until August 27, 2004. Capital
Bay Securities was retained by Widecom in connection with its private
placements in the 1999 fiscal year. Mr. George Scritchfield has
investment control over the securities.
<F7> Includes 18,480 shares issuable upon exercise of warrants at an
exercise price of $1.20 per share exercisable until February 19, 2004
and 4,800 shares issuable upon exercise of warrants at an exercise
price of $2.00 per share exercisable until August 27, 2004. Mr.
Scritchfield was retained by Widecom in connection with its private
placements in the 1999 fiscal year.
<F8> Robb Peck McCooey Clearing Corp. was retained by Widecom in connection
with its first private placement in the 1999 fiscal year. Steven
Freifeld, the managing director, has investment control over the listed
securities.
<F9> Shares issuable upon exercise of warrants at an exercise price of
$2.00 per share exercisable until July 26, 2004. Diversified Investors
was retained by Widecom in connection with its second private
placement in the 1999 fiscal year. Mr. Jake Berg has investment
control over the securities.
<F10>Includes 50,000 Shares issuable upon exercise of warrants at an
exercise price of $3.00 per share exercisable until April 12, 2004.
<F11>Shares issuable upon exercise of warrants at an exercise price of
$8.00 per share exercisable until October 1, 2004. Mr. Salvatore
Vecchio holds investment control of these securities.
<F12>Listed shares are restricted shares.
<F13>Includes 75,000 shares, which are being included in this prospectus,
issuable upon exercise of warrants at an exercise price of $8.00 per
share exercisable until October 8, 2009, unless specified events occur
which would result in an adjustment of the exercise price to $2.00 per
share. A change in control of Widecom will trigger the adjustment. Mr.
O'Leary was retained by Widecom to provide consulting services.
<F14>Includes shares issuable upon conversion of a 12% three-year
convertible promissory note.
<F15>Whale Securities Co., L.P. served as the underwriter in Widecom's
initial public offering in December, 1995. Represents shares
underlying underwriters warrants held in the name of Whale for the
accounts of certain current and former debt and equity owners and
employees of Whale. Does not include shares held in any customer
account or trading account of Whale.
<F16>Mr. Goldstein is a partner in Goldstein & DiGioia, LLP, counsel to
Widecom.
<F17>Mr. DiGioia is a partner in Goldstein & DiGioia, LLP, counsel to
Widecom.
<F18>Mr. Daughney is a partner in Goldstein & DiGioia, LLP, counsel to
Widecom.
<F19>Mr. Goldstein is an associate of Goldstein & DiGioia, LLP, counsel to
Widecom.
<F20>Includes shares issuable upon conversion of privately issued warrants
issued in Widecom's initial public offering.
</FN>
</TABLE>
SELECTED FINANCIAL DATA
Statement of Earnings Data:
<TABLE>
<CAPTION>
Year Ended March 31,
1997 1998 1999
<S> <C> <C> <C>
Total Revenue $1,820,713 $3,053,804 $3,075,609
Product Sales 1,678,933 2,890,443 2,575,935
R & D Grants ------ 24,567 479,821
Total Expenses 5,673,672 5,487,826 4,708,600
Earnings (loss) before extraordinary item (4,487,824) (3,335,865) (2,244,351)
Net Earnings (loss) (4,487,824) (3,335,865) (2,244,351)
Earnings (loss) per share before extraordinary item (3.96) (2.36) (1.28)
Net Earnings (loss) per share (3.96) (2.36) (1.28)
Weighted average shares outstanding 1,133,396 1,416,047 1,749,386
<CAPTION>
Balance Sheet Data:
Year Ended March 31,
1997 1998 1999
Working Capital $1,818,883 $1,429,046 $ 229,470
Total Assets 6,925,187 5,651,190 4,278,216
Total Liabilities 1,681,884 1,414,246 1,970,893
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Since our inception, we have generated limited revenues from
operations and have not yet achieved significant profitability. Our
revenues are primarily derived from product sales that are recognized for
accounting purposes when products are shipped.
Commercialization of our WC-series copier systems late in fiscal 1998
had only a small material impact on our revenues for the fiscal year 1999.
During the year, sales of printers and scanners were $618,224 and
$1,957,711, or 24% and 76%, respectively.
Our selling, general and administration infrastructure was set up to
service our full product line of monochrome and color scanners, monochrome
and color printers and monochrome and color copiers. Neither our color
printer nor color copier has yet been commercialized and the latest
monochrome printers and copiers had only a small material impact on
revenues. Although we anticipate a return to profitability upon the
introduction of our full extended product line, there is no assurance that
we will be able to successfully develop and commercialize these products.
Year 2000 Compliance
We are aware of the potential year 2000 or "Y2K" problem. We have
reviewed our computer software and hardware, which are critical to the our
operations and preparation of our financial statements, and have made plans
for action, as required, prior to the year 2000, to avoid significant
errors in our accounting records and any adverse effects on business
operations.
We are in the process of surveying our critical vendors for Year 2000
compliance. However, we do not believe there would be significant
difficulties finding alternate suppliers should the need arise. Achieving
Year 2000 compliance is dependent on many factors, some of which are not
completely within our control. If our internal systems or those of
significant vendors or suppliers fail to achieve Year 2000 compliance, our
business and results of operations might be adversely affected.
Government Sponsored Programs
During 1997, a change in Canadian Tax legislation substantially
reduced the amount of subsidy available on research and development
performed by publicly traded companies. Subsidies of this nature have
represented a substantial portion of our revenue in the past. Our research
and development is conducted by Technologies NovImage, which entitles us to
receive grants in excess of 40% of qualified research expenditures.
NovImage was formed on October 2nd, 1996, when we entered into an agreement
with an economic development agency of the Province of Quebec. All of our
primary research and development activities are now conducted through
NovImage, which activities are expected to qualify for partial funding from
governmental agencies. Products derived from the research are then licensed
back to us at a nominal royalty of 0.5% of sales of those products. The
formation of NovImage allows us to obtain a substantial increase in the
amount of research that can be performed.
Impact of Currency Exchange Rates
We conduct a substantial portion of our business in foreign currency,
primarily the Canadian dollar and, to a lesser extent, the Indian rupee. To
date, fluctuation in foreign currency exchange rates have not had a
significant impact on our results of operations. Fluctuations in the
exchange rates between the United States dollar and the Canadian dollar or
Indian rupee, however, could have an adverse effect on our operating
results in the future. We may seek to limit our exposure to the risk of
currency fluctuations by engaging in foreign currency transactions. These
transactions, however, could expose us to substantial risk of loss. We have
limited experience in managing international transactions and have not yet
formulated a strategy to protect us against currency fluctuations. There
can be no assurance that fluctuations in foreign currency exchange rates
will not have a significant impact on our future operating results.
Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income, which establishes standards for reporting and display
of comprehensive income, its components and accumulate balances.
Comprehensive income is defined to include all changes in equity except
those resulting from investments by owners and distributions to owners.
Among other disclosures, SFAS 130 requires that all items that are required
to be recognized under current accounting standards be reported in a
financial statement that is displayed with the same prominence as other
financial statements.
SFAS 130 is effective for financial statements for periods beginning
after December 15, 1997 and requires comparative information for earlier
years to be initiated. We adopted this standard in connection with the
preparation of our financial statements for the year ended March 31, 1999.
Results of operations and financial position, however, will be unaffected
by implementation of this standard.
In June 1997, the Financial Accounting Standards Board issued SFAS
No. 131, Disclosures about segments of an Enterprise and Related
Information which supersedes SFAS No. 14, Financial Reporting for Segments
of a Business Enterprise. SFAS 131 establishes standards for the way that
public companies report information about operating segments in annual
financial statements. SFAS 131 also requires reporting of selected
information about reporting segments in interim financial statements issued
to the public. It also establishes standards for disclosures regarding
products and services, geographic areas and major customers. SFAS 131
defines operating segments as components of a company about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in
assessing performance.
SFAS 131 is effective for financial statements for periods beginning
after December 15, 1997 and requires comparative information for earlier
years to be restated. We adopted this standard in connection with the
preparation of our financial statements for the year ended March 31, 1999.
Results of operations and financial position, however, will be unaffected
by implementation of this standard.
Results of Operations
Safe Harbor for Forward-Looking Statements
------------------------------------------
Various statements contained herein constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform
Act of 1995. We desire to avail ourself of certain safe harbor provisions
of the 1995 Reform Act and therefore include this special note to enable us
to do so. Forward-looking statements included in this prospectus involve
known and unknown risks, uncertainties, and other factors which could cause
our actual results, financial and operating performance or achievements to
differ from the future results, financial or operating performance or
achievements expressed or implied by those forward looking statements.
These future results are based upon management's best estimates based upon
current conditions and the most recent results of operations. These risks
include, but are not limited to, risks associated with the our recent
losses, our ability to develop and market our product line, the commercial
acceptance of our products, the need for additional capital, the effects of
competition and technological changes and dependence upon key personnel.
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. Total research and development grants for
this period was $479,821. This increase was due to the transfer of the
majority of our research and development functions to NovImage.
Operating expenses for the year ended March 31, 1999 were $4,708,600,
a decrease of $779,226, or 14.2%, as compared to $5,487,862 for the year
ended March 31, 1998. Operating expenses also decreased as a percentage of
revenues from 179.7% for the year ended March 31, 1998 to 153.1% for the
year ended March 31, 1999. The decrease in operating expenses, both in
absolute dollars and as a percentage of revenues, is primarily attributable
to decreases in research and development expenditures and selling, general
and administrative costs. In this period, we incurred expenses of $134,248
for research and development activities. Of the $1,005,819 loss incurred by
NovImage, we incurred 45% of that amount, or $452,619.
The decrease to our research and development expenses was due to our
transfer of these costs to NovImage. The decrease in selling, general and
administrative costs were primarily due to our ability to streamline our
operations to improve efficiency and profitability and to take advantage of
economies of scale with respect to our purchasing, supply, retail and
manufacturing operations as we continued expansion of our distribution
channel in the United States.
Year Ended March 31, 1998 Compared
to Year Ended March 31, 1997
Revenues for the year ended March 31, 1998 were $3,053,804, an
increase of $1,233,091, or 67.7%, as compared to $1,820,713.for the year
ended March 31, 1997. This increase was attributable to an increase in
product sales of $1,211,510 and additional research and development grants
of $24,566, which were partially offset by a decrease in interest income of
$2,986. Total product sales for this period was $2,890,443. Total research
and development grants for this period was $24,567.
The introduction of the Small Computer System Interface-based SLC836
scanner in late March 1998 overcame compatibility problems that had been
experienced from January to March, 1998 with the previously proprietary
computer interface and with Intel Pentium II processors. This compatibility
problem with the SLC 436 series scanners delayed sales in the last quarter
of our fiscal year.
Operating expenses for the year ended March 31, 1998 were $5,487,826.
This represents a decrease of $185,846, or 3.2%, from the year ended March
31, 1997. Operating expenses for the year ended March 31, 1997 were
$5,673,672.
Operating expenses also decreased as a percentage of revenues from
311.6% for the year ended March 31, 1997 to 179.7% for the year ended March
31, 1998. The decrease in operating expenses, both in absolute dollars and
as a percentage of revenues, is primarily attributable to decreases in
research and development expenditures and selling, general and
administrative costs.
The decrease in research and development expenses was due to the
formation of NovImage as we transferred the majority of our research and
development projects to NovImage. Of the $1,316,636 loss incurred by
NovImage, we incurred 45% of that amount, or $592,468.
The decrease in selling, general and administrative costs were
primarily due to a leveling off of expenditures and economies undertaken to
effect savings as we completed the establishment of our distribution
channel in the United States.
The costs of $309,375, incurred in connection with the settlement of
a shareholders' lawsuit were costs that continued from the previous year
related to the settlement of suits arising from our warrant redemption in
February 1997. The increase in the equity loss in the joint venture is
offset by the decrease in research and development costs of $515,397.
Quarter Ended September 30, 1999 Compared
to Quarter Ended September 30, 1998
Revenue for the quarter ended September 30, 1998, was supplemented by
a non-recurring research and development grant of $ 301,285. Product sales
for the quarter ended September 30, 1999 were $ 593,692, a decrease of $
42,263 or 6.6 % as compared to $635,955 for the quarter ended September 30,
1998. The decrease in product sales was a result of delays in deliveries of
copiers and printers as we implemented improvements to the paper and ribbon
loading mechanisms. We were also unable to take advantage of orders in-hand
for our 72" wide color-scanners, for which we started to make deliveries
after the end of the quarter.
Our operating expenses for the quarter ended September 30, 1999 were
$ 644,846, a decrease of $ 317,301, or 33.0 %, as compared to $962,147 for
the quarter ended September, 1998. This decrease was due to our reduction
in selling, general and administrative expenses, which decreased by
$256,118 for this quarter, representing a decrease as a percentage of sales
from 116.8% to 82.0%. The decrease in selling, general and administrative
expenses was primarily due to a leveling off of expenditures and
benefitting from economies of scale as we continued expansion of our
distribution channel in the United States.
We also incurred legal, administration and other related costs
associated with our warrant call and initial public offering.
Our share of the loss incurred by NovImage amounted to $68,246, or
45% of NovImage's loss for this quarter. During the second quarter of
fiscal 2000, We earned $2,734 interest on short-term investments compared
to $3,057 earned in the same period last year.
Quarter Ended September 30, 1998 Compared
to Quarter Ended September 30, 1997
Revenues for the quarter ended September 30,1998 were $940,297, an
increase of $57,862 or 6.55% as compared to $882,435 for the quarter ended
September 30,1997. Sales for the quarter ended September 30,1998 were
$635,955, a decrease of $218,806 as compared to $854,761 for the quarter
ended September 30,1997. This decrease was due to delays in implementing
our new product portfolio and distribution network. We realized increased
revenues during this period mainly due to our receipt of research and
development reimbursements of $301,285 versus $0 for the same quarter of
1997.
Operating expenses for the quarter ended September 30,1998 were
$962,147, a decrease of $115,020, or 10.67%, as compared to $1,077,167 for
the quarter ended September 30,1997. Research and development expenses
decreased from $28,288 for the quarter ended September 30,1997 to $0 for
the quarter ended September 30,1998 since we shifted this function to
NovImage.
Selling, general and administrative expenses for the quarter ended
September 30,1998, decreased by $104,922 and decreased as a percentage of
revenues from 96.09% to 79.02%. This decrease was due to, in part, the
transfer of our research and development functions to NovImage. We continue
to incur legal, administration, and other related costs associated with our
warrant call.
Our share of the loss incurred by NovImage for the quarter ended
September 30,1998, amounted to $67,055 as compared to $67,422 for the
quarter ended September 30,1997.
Liquidity and Capital Resources
Our primary cash requirements have been to fund the purchase of
inventories and to meet operating expenses incurred in connection with the
commercialization of our products. Until our initial public offering, we
had satisfied our working capital requirements principally through the
issuance of debt and equity securities, government sponsored research and
development grants and reimbursement and cash flow from operations. At
March 31, 1999, we had working capital of $229,470, as compared to
$1,429,046 at March 31, 1998.
Our cash requirements in connection with manufacturing and marketing
will continue to be significant. We do not have any material commitments
for capital expenditures. We believe, based on our currently proposed plans
and assumptions relating to our operations, projected cash flow from
operations will be sufficient to satisfy our contemplated cash requirements
for the foreseeable future. In the event that our plans or assumptions
change, or prove to be incorrect, or if the projected cash flows otherwise
prove to be insufficient to fund operations, 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. We intend to fund these
cash requirements during the next twelve months through increased sales of
our products. We believe that our recently introduced scanners and the
trend toward increased product sales will satisfy our cash requirements
over the next twelve month period. In addition, we expect our efforts to
improve our sales and distribution network will result in a greater cash
flow for us over the next twelve months.
With respect to the Noida manufacturing facility, we have already
paid $491,401 for construction and land costs. We initially estimated that
these costs would be $500,000. However, we estimate that additional
construction costs may be incurred of up to $200,000. We intend to pay for
any additional costs out of revenues derived from our operations.
During fiscal 1999, Widecom's shareholders approved the engagement of
Robb Peck McCooey Clearing Corporation, Cantella & Associates and Quantum
Resources, Inc., three related financial services companies, to conduct a
private offering of our securities to raise funds for investment in
Widecom. The securities offered consisted of units, each unit consisting of
10,000 shares of our common stock and a 12% three-year convertible note in
the principal amount of $20,000. 9.5 units were sold during fiscal 1999 and
the closing for an additional 0.5 units occurred after the fiscal year end.
In total, 95,000 shares of common stock were issued through the offering
during fiscal 1999 and an additional 5,000 shares of common stock were
issued in the first quarter of fiscal 2000. We raised $300,000 due to the
sale of the 100,000 shares of our common stock. The sale price per share
was $3.00. All selling agents are entitled to warrants for the purchase of
a total of 50,000 shares of our common stock at an exercise price of $1.20.
Subsequently, we conducted an additional private placement of 325,000
shares of our common stock. Under the terms of the offering, each share was
offered at $2.00 per share. This offering was fully subscribed at the
closing, which took place of July 6, 1999. The selling agent in this
offering received warrants for the purchase of 100,000 shares of our common
stock at an exercise price of $2.00 per share.
DESCRIPTION OF BUSINESS
We design, assemble and market high-speed, high-performance document
systems which transmit, receive, print, copy and/or archive wide format
documents, such as blueprints, schematics, newspaper layouts and other
mechanical and engineering drawings. Our products include a 36" wide format
scanner, a 36" wide format copier and a 36" wide format plotter/printer. We
also market a modular digital multi-function unit which incorporates a
scanner module, a plotter module, optional internal modems and software to
permit the unit to interface with a personal computer and combine scanning,
printing, facsimile and copying functions in one unit.
We design our document management systems in response to perceived
market demand for systems 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 provide 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 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 thoroughput 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 thicknesses ranging
up to 1/2". We anticipate a significant performance and overall document
capacity advantage over similar priced competitor models. We are now able
to address all of the tiers in the large format market including
automotive, aircraft and marine design applications. The SLC972 has
scanning resolutions of up to 900 dpi and is capable of direct interfacing
with assorted application specific software and functions well with most
thermal ink-jet printers/plotters. We expect to begin formal delivery of
the SLC972 model no later than the end of this fiscal year.
Plotter/Printer (WC 936P)
We introduced the WC436P, a plain paper plotter late in fiscal 1998.
This product was designed to print an image at a speed of 2 inches per
second. This was replaced in January 1999 with the WC936P, which offered a
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 WindowsTM and AutoCadTM 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 contact-sensor-array technology and we 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 may include
third party software libraries. We also sell accessories for use in
connection with our complete product line, including various types of paper
and film for the plotter/printers and the copiers. Sales of accessories
have not been material to date and are not expected to be material in the
near future.
Acquisition of Diprin, Inc.
At our annual shareholders meeting on January 27, 1999, our
independent and unrelated shareholders approved the acquisition of Diprin,
Inc., an Ontario corporation wholly owned by Widecom's President and Chief
Executive Officer, Mr. Raja S. Tuli. Diprin was acquired in exchange for
125,000 shares of Widecom's common stock. 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, 1999, 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, 1997, 1998 and
1999, our five largest distributors accounted for approximately 49.9%,
43.1% and 20.3%, respectively, of our overall product sales.
No single distributor represented more than 10% of our sales for our
fiscal year ended March 31, 1999. During the years ended March 31, 1997,
1998 and 1999, sales by distributors accounted for approximately 96.4%,
93.9% and 94.7%, respectively, of our product sales. We support our U.S.
and international distribution channels through four regional sales
managers that are all presently located in the U.S and Canada.
A substantial portion of our sales has been made to foreign markets,
primarily to Europe, the Middle East and Asia. The following table sets
forth 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,
1997 1998 1999
Region Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C>
United States $ 467,766 27.9 $1,246,270 43.0 $1,338,704 52
Middle East 346,595 20.6 312,042 11.0 200,711 8
Asia 266,345 15.9 322,685 11.0 583,077 23
Europe 475,551 28.3 686,478 24.0 241,708 9
Canada 122,676 7.3 322,968 11.0 211,735 8
Total $1,678,933 100.0 $2,890,443 100.0 $2,575,935 100%
</TABLE>
Warranty, Service and Maintenance
We offer a 90-day limited warranty, which can be extended for a term
of up to one-year. This limited warranty covers the workmanship and parts.
During the term of the warranty of products sold directly by us, we will
repair our products and replace parts that become defective due to normal
use. During the term of the warranty of products sold by distributors, we
will replace parts that become defective due to normal use. The distributor
is responsible for servicing the product.
We provide a warranty to distributors for a period expiring on the
earlier of twelve months following the distributor's purchase of the
product and three months following the distributor's sale of the product.
We train our in-house service engineers and certain distributors to enable
them to service and maintain our products.
We also operate a toll-free telephone line during normal business
hours to respond to distributors and user inquiries about the operation,
service and maintenance of our products. We operate and monitor an E-mail
box which distributors and users can access to receive such assistance.
Manufacturing
We subcontract certain manufacturing operations, such as the
production of our proprietary printed circuit boards or machine enclosures,
to outside suppliers. Off-the-shelf items, such as integrated circuits,
modems, rollers, gears and 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:
* Contex Corporation, Vidar Systems Inc., Oce and Anatech
Corporation in the market for wide format scanners;
* Calcomp Corporation, Hewlett Packard Company, Oce and Mutoh
Corporation in the market for wide format plotters; and
* Xerox, Katsuragawa Company and Oce in the wide format printer
and copier market.
We also suspect that other companies that manufacture and sell standard
copiers, scanners and plotters could develop, without significant delay,
wide format document systems directly competitive with our products. Many
of these companies possess substantially greater financial, technical,
marketing and personnel resources than Widecom. In addition, these
companies also have established reputations for success in the development
and marketing of facsimile machines, plotters, scanners and copiers and
have sufficient budgets to permit them to implement extensive advertising
and promotional campaigns to respond to competitors and enter new markets.
In addition, the markets for our products are characterized by
rapidly changing technology and evolving industry standards. This often
results in rapid product obsolescence or shortened product lifecycles. As a
result, our ability to compete may be dependent upon:
* 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.
The combined research and development expenditures for Widecom and
NovImage for the 1998 fiscal year was $691,734 and was $586,867 for the
1999 fiscal year. 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 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.
We have not yet formally filed for copyright protection of our
software and may not pursue such activities in the future. We hold a
registered trademark with the United State Patent and Trademark Office.
Employees
As of March 31, 1999, our North American operations had 15 full-time
employees, including sales staff and administrative personnel. We also
employ 162 people at a manufacturing facility in India and work with our
wholly owned Indian subsidiary. Neither Widecom nor our subsidiary is a
party to any labor agreements and none of our employees are represented by
a labor union. At present, we believe our employee relations to be
satisfactory.
Effect of Government Regulation
Compliance with laws and regulations governing our business can be
complicated, expensive, and time-consuming and may require significant
managerial and legal supervision. Failure to comply with such laws and
regulations could have a materially adverse effect on our business.
Further, any changes in any of these laws and regulations could materially
and adversely affect our business. There is no assurance that we will be
able to secure on a timely basis, or at all, necessary regulatory approvals
in the future.
At present, environmental compliance issues do not have a material
effect on the management and earnings of our business, nor is any change
anticipated.
Enforcement of Civil Liabilities
Our headquarters are located in, and our officers, directors and
auditors are residents of Canada. Further, a substantial portion of our
assets are, or may be, located outside the United States. Accordingly, it
may be difficult for investors to effect service of process within the
United States upon non-resident officers and directors, or to enforce
against them judgments obtained in the United States courts predicated upon
the civil liability provision of the Securities Act of 1933, as amended or
state securities laws. However, there is doubt as to the enforceability in
Canada against us or against any of our directors, controlling persons,
officers or the experts named herein, who are not residents of the United
States, in original actions or in actions for enforcement of judgments of
U.S. courts, of liabilities predicated solely upon U.S. federal securities
laws. Service of process may be effected, however, upon our duly appointed
agent for service of process. If investors have questions with regard to
these issues, they should seek the advice of their individual counsel.
Properties
In February 1996, we purchased property in the Noida Export
Processing Zone, a Free Trade Zone located near New Delhi, India. The
purchase price was approximately $67,500 and we are building a
manufacturing facility of approximately 24,000 square feet with estimated
construction costs of approximately $500,000. Clean-room facilities and
other special infrastructure within the building are estimated to cost an
additional $200,000 by completion. We expect that the project should be
completed in the next fiscal year. 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:
* 3,000 square feet at 72 Devon Road, Unit #17/18, Brampton, Ontario,
Canada, under a two-year lease entered into in 1998, and
* 7,000 square feet in the Free Trade Zone, under a five-year lease
entered into in 1994. The current annual rents are $23,357.64 and
$15,200, respectively.
In addition, we currently lease a sales office at a monthly rent of
$1,000.00 in Santa Rosa, California and a sales and service facility in
Pittsburgh, Pennsylvania, at a monthly rent of $2,300.00. The current
annual rental rates of these facilities are approximately $12,000.00 and
$27,600.00 respectively and $39,600.00 in the aggregate.
Although we believe that our present facilities are adequate for our
current level of operations, we will likely need to increase our
manufacturing capabilities in the event of any increased demand for our
products.
LEGAL PROCEEDINGS
On December 20, 1996, two individuals, John Keenan and Vincent
DiGiulio, filed a lawsuit in the United Stated District Court for the
District of Rhode Island, seeking 60,000 shares and 40,000 warrants. This
action has been formally dismissed. An additional three shareholders have
also commenced related litigation, alleging purchases of our securities
from the previously noted two individuals, who are named as co-defendants.
We have filed and received default judgments on our cross-claims against
the two individual co-defendants. The total number of shares of common
stock claimed under these suits is less than 15,000.
On or about February 27, 1997, plaintiff Brett Whiton commenced an
action on behalf of himself and a class against 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 109,466 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.
In April, 1998, we resolved an assessment proceeding with a former
law firm with respect to disputed bills relating to services rendered prior
to our initial public offering in December 1995. In July, 1998, we also
resolved a lawsuit with a former accounting firm with respect to disputed
invoices relating to services rendered prior to our initial public offering
in December 1995.
In March, 1999, we resolved an outstanding account with an additional
former law firm with respect to disputed bills relating to services
rendered in furtherance of litigation proceedings arising out of our
initial public offering.
We have been served with legal papers claiming breach of contract
under two specific joint venture and development agreements to use and
distribute various iterations of software components, which the claimant
alleges is its sole property. The 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 resolution are
strong and that settlement options remain viable. The action is presently
scheduled for mediation in February, 2000.
We are also involved in a number of small litigation matters relating
to disagreements with certain of our suppliers, which are currently pending
and being handled by our in-house counsel. These matters are neither
significant nor material.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Our directors and executive officers are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ------------------------------------------------------------------------
<S> <C> <C>
Raja S. Tuli 33 President, Chief Executive Officer and
Director
Willem J. Botha 63 Chief Financial Officer and Treasurer
Suneet S. Tuli 31 Executive Vice President, Secretary and
Director
Lt. Colonel K.C. Sharma 58 Director
Dr. Ajit Singh 58 Director
Bruce D. Vallillee 78 Director
</TABLE>
Raja S. Tuli, our founder, has been President, Chief Executive
Officer and a director since Widecom's inception. From June 1990 to August
1993, Mr. Tuli was also our Treasurer. From 1987 to 1990 Mr. Tuli was
President of CaCE Ltd. a family-owned architectural/construction business.
Mr. Tuli received a bachelor of Science degree in Computer Engineering in
1988 from the University of Alberta. Mr. Tuli is a resident Canadian
national. Mr. Tuli is the brother of Suneet S. Tuli.
Willem J. Botha has been our Chief Financial Officer and Treasurer
since September 1993. From 1989 to September 1993, Mr. Botha was an
independent accounting consultant. From 1985 to 1989, Mr. Botha was
employed by Motorola Information Systems, a manufacturer of data
communications equipment, as its Director of Accounting Services. From 1982
to 1985, Mr. Botha was an independent financial consultant. Mr. Botha was
the Secretary and Treasurer and a Director of Alcon Canada Inc., a
pharmaceutical company, from 1980 to 1982. From 1976 to 1980, Mr. Botha was
the Controller and Chief Financial Officer for Bell & Howell Limited, a
manufacturer of electronic photographic products, and from 1969 to 1976 Mr.
Botha was the Controller for Wyeth Ltd., a pharmaceutical company. Mr.
Botha received a Certificate in Theory of Accounting from the University of
South Africa, is a Chartered Accountant and a resident Canadian national.
Suneet S. Tuli has been Executive Vice President of Sales and
Marketing, Secretary since September 1993, one of our director's since
October 1992 and was our Marketing manager from June 1990 to August 1993.
Mr. Tuli received a Bachelor of Science degree in Civil Engineering from
the University of Toronto in April 1990 and is a resident Canadian
national. Mr. Tuli is the brother of Raja S. Tuli.
Lieutenant Colonel Kailash Chander Sharma is one of our independent
directors. Lieutenant Colonel Sharma is a well-respected citizen of India
and possesses a Masters Degree in Political Science from Delhi University.
Lt.Col. Sharma has a lengthy military background occupying several senior
posts with significant levels of responsibility including strategic
planning and public relations. Lt. Col. Sharma is proficient in government
organizational and regulatory matters and since 1992 has run his own
consulting company which provides services to business and government
entities.
Dr. Ajit Singh has been a director of Widecom since October 1992. Dr.
Singh is the Senior Fellow at Queens' College, University of Cambridge in
England, and its Director of Studies in Economics. Since 1987, Dr. Singh
has held the Dr. William M. Scholl Visiting Chair in the Department of
Economics at the University of Notre Dame in the United States. Dr. Singh
has been a senior economic advisor to the governments of Mexico and
Tanzania, and is the author of Takeovers, Their Relevance to the Stock
Market and the "Theory of the Firm." Dr. Singh is the uncle of Raja and
Suneet S. Tuli.
Bruce D. Vallillee has been a director of Widecom since September
1995. Since April 1994, Mr. Vallillee has been President of Vallillee Wide
Format Products, Ltd., a company engaged in wide format document management
and equipment sales. From 1987 to 1994, Mr. Vallillee was the President of
Vallillee Electronics, Ltd., a company engaged in the distribution of
electronic products. From 1976 to 1987, Mr. Vallillee was Vice President -
Sales and Marketing for ITT / Canon Canada, the Canadian joint venture of
ITT Corporation and Canon Electronics Corp. Mr. Vallillee is a resident
Canadian national.
Under Ontario law, a majority of our directors must be resident
Canadians. A resident Canadian is defined, generally, to be an individual
who is
* a Canadian citizen ordinarily resident in Canada,
* a Canadian citizen not ordinarily resident in Canada who is a member
of a prescribed class of persons, or
* a permanent resident within the meaning of the Immigration Act
(Canada), and ordinarily resident in Canada.
All directors hold office until the next annual meeting of
shareholders and the election and qualification of their successors. There
is only one currently standing committee of the Board of Directors, that
being the Audit Committee chaired by our chief financial officer. Officers
are elected annually by the Board of Directors and serve at the discretion
of the Board.
None of our directors received any compensation for services as a
director during our fiscal year ended March 31, 1999. Directors who are
Widecom employees receive no compensation for serving on the Board of
Directors. Non-employee directors are reimbursed for their out-of-pocket
expenses in attending Board meetings and a per diem of $1,000.
EXECUTIVE COMPENSATION
The following table sets forth the compensation we have paid or
accrued for the benefit of those persons earning over $80,000.00 USD and
serving as one of our corporate officers for the year ended March 31, 1999:
1999 Summary Compensation Table
Annual Compensation
<TABLE>
<CAPTION>
Salary And Other Annual All Other
Name Commissions Compensation Compensation
- --------------------------------------------------------------------
<S> <C> <C> <C>
Raja S. Tuli $ 5,849 9,310(1) $84,130(2)
(President & C.E.O.)
Suneet S. Tuli $34,551 7,980(1) $52,440(3)
Secretary, V.P.-
Sales & Marketing)
- -------------------
<FN>
<F1> Amounts paid as consulting fees by Widecom to a consulting company
owned by our respective officers for the year ended March 31, 1999.
<F2> Mr. Raja S. Tuli received shares of Widecom common stock in lieu of
cash compensation valued at $84,130.
<F3> Mr. Suneet S. Tuli received shares of Widecom common stock in lieu of
cash compensation valued at $52,440.
</FN>
</TABLE>
During the fiscal year ended March 31, 1997, we amended our employee
stock option plan that allows issuance of options to purchase up to 125,000
shares of Widecom's stock. The plan is designed to attract, retain and
motivate persons to provide us with services and to increase the alignment
of their interests with those of our stockholders.
The plan allows the board of directors, at its discretion, to grant
options to purchase shares of our common stock at the fair market value of
such shares on the date the option was granted. Options may be granted to
any eligible person, including any of our directors, officers, employees
or those of an affiliate, or any of our consultants or insiders, as defined
in the plan, of any of our affiliates. The board also has the authority
under the plan to determine the number of shares subject to each option,
the expiration date of each option and the extent to which each option is
exercisable from time to time during its term.
The options will expire ten years after the date they are granted, or
at such other date as may be provided for in the plan. Individual option
agreements may allow an optionee who retires or terminates service with the
consent of the board of directors to exercise his or her option within six
months of such retirement or termination. If the optionee is terminated for
cause, the optionee may not exercise the option following such termination.
The present exercise price of those options is US$8.50.
An aggregate of 125,000 shares of common stock, subject to
adjustment, were available under the plan and such shares subject to
options which terminate unexercised will be available for future option
grants. At present, options to purchase 114,583 shares of common stock have
been granted. Options have been previously granted to our principals, as
follows:
* Raja Tuli was granted options to purchase 37,500 shares in 1995 and
options to purchase 6,250 shares in 1997;
* Suneet Tuli was granted options to purchase 12,500 shares in 1995 and
options to purchase 6,250 shares in 1997; and
* Lakhbir Tuli was granted options to purchase 18,750 shares in 1997.
AGGREGATED OPTION/SAR EXERCISES IN LAST
FISCAL YEAR AND FY-END OPTION/SAR VALUES
The following table contains information with respect to the named
executive officers concerning options held as of the year ended March 31,
1999.
OPTION GRANTS IN LAST
FISCAL YEAR
<TABLE>
<CAPTION>
Percent of
Number of Total
Shares Options
Underlying Granted in
Options Fiscal
Name Granted Year Exercise Price ($/Sh) Expiration Date
<S> <C> <C> <C> <C>
Raja S. Tuli 0 -- -- --
Suneet S. Tuli 0 -- -- --
</TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth, as of February 2, 2000, information
as to (a) the common stock beneficially owned by all directors, nominees
and named executive officers, and (b) 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. Except as indicated by footnote, the
persons named in the table have sole voting and investment power with
respect to all shares of common stock shown as beneficially owned by them.
Each beneficial owner's percentage ownership is determined by assuming that
convertible securities, options or warrants that are held by him, but not
those held by any other person, and which are exercisable within 60 days of
the date hereof have been exercised. Unless otherwise indicated, the
business address of each beneficial owner is 72 Devon Road, Unit #17/18,
Brampton, Ontario, Canada, L6T 5B4.
Amount and
<TABLE>
<CAPTION>
Nature of Percentage of
Beneficial Outstanding
Name and Address of Beneficial Owner Ownership Shares Owned
- -------------------------------------------------------------------------
<S> <C> <C>
Raja S. Tuli 493,377(1) 19.13%
Lakhbir S. Tuli 243,915(3) 9.46
Suneet S. Tuli 207,649(2) 8.04
Dr. Ajit Singh --- ---
Bruce Vallillee --- ---
Willem J. Botha --- ---
All executive officers and directors
as a group (six persons) 944,941(1)(2)(3) 36.63%
- -------------------
<FN>
<F1> Includes:
* 43,750 shares of common stock issuable upon exercise of currently
exercisable options at a price of $8.50 per share;
* 12,500 shares issuable upon exercise of currently exercisable
warrant at a price of $8.50 per share;
* 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 according to the terms of a stock
exchange agreement.
<F2> Includes:
* 18,750 shares of common stock issuable upon exercise of currently
exercisable options at a price of $8.50 per share; and
* 12,500 shares issuable upon exercise of currently exercisable
warrant at a price of $8.50 per share.
<F3> Includes 18,750 shares of common stock issuable upon exercise of
currently exercisable options at a price of $8.50 per share.
</FN>
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of January 30, 1997, we announced that we had finalized a joint
venture agreement with Societe Innovatech du Grand Montreal, an
instrumentality of the Province of Quebec, Canada. Each of Widecom and
Innovatech purchased 450 shares of the Class A common stock of NovImage
Inc., a Quebec corporation, for a purchase price of approximately US
$1,875,000 each. The consideration we paid for the stock of NovImage was in
cash and was derived from our working capital. In addition, two other
corporations, 3294412 Canada Inc., a Quebec corporation and 3294421 Canada
Inc., a Quebec corporation, each acquired 50 shares of the Class A common
stock of NovImage in exchange for the transfer to NovImage of certain
patents, patent applications and other technology and intellectual property
rights of those companies. The value of these patents and property rights
were $208,334 for each company. These latter two companies are wholly-owned
by Raja S.Tuli, our President and Chief Executive Officer.
In connection with the transaction, we licensed all of our patents,
software and technology relating to our scanner and plotter manufacturing
to NovImage for research and development purposes in order to develop
improvements, modifications, additions or alterations to the Intellectual
Property and to develop new products.
In exchange for this license and the payment of a 0.5% royalty fee on
net revenue, licensing revenue and net sales to sub-licensees, NovImage
granted us an exclusive perpetual worldwide license, except for the
Province of Quebec, to use such improved scanner and plotter technology and
software to manufacture, distribute, market and sell the improved scanner,
plotter and software, and any new products developed by NovImage. NovImage
retained such rights with respect to the Province of Quebec, Canada.
Because NovImage has not made any sales in Quebec, and we have all
marketing and sales rights outside Quebec, we have not paid any royalty
fees to NovImage.
In the fiscal year ended March 31, 1999, we made loans to NovImage
totaling $196,034.
In connection with the transaction, we entered into a Stock Exchange
Agreement with Innovatech under which Innovatech would be permitted, under
certain circumstances, to exchange its shares of NovImage for up to 63,250
shares of Widecom's common stock. The market value of these shares as of
the date of acquisition was $482,281.25. This amount changes with
fluctuations in the market price of our common stock. The Stock Exchange
Agreement also granted Innovatech demand-registration rights should it
acquire shares of our common stock. This amount represents less than 5% of
our outstanding shares and is accordingly omitted from the table of
beneficial ownership.
During fiscal 1999, Raja S. Tuli Consulting loaned us a total of
$25,333 in order to relieve cash flow pressure for three specific payroll
periods. We have repaid that indebtedness by way of board of directors
approval of a transfer of 11,893 of our common shares.
During fiscal 1999, we made loans to shareholders aggregating $29,384
and loans to affiliates totaling $64,939. All loans are interest free and
have no fixed term. Our loan to NovImage is repayable on demand.
During fiscal 1999, we decided, in consultation with counsel and
investment market entities, to add additional technology assets to our
portfolio. Specifically, we felt that we would benefit from exposure to a
wider spectrum of available computer peripherals outside the wide format
niche. Our management decided that it would be in our best interest to
acquire a small format photo printer technology developed by a corporation
owned by Raja S. Tuli. Management agreed in principle to the acquisition on
September 11, 1998 which was subsequently approved by a vote of the
independent shareholders on January 27, 1999. This acquisition was financed
by the issuance of 125,000 shares of our common stock.
In May, 1999, we accepted the surrender of 4,010 shares of common
stock from Suneet S. Tuli, one of our principals, in satisfaction of
indebtedness owed to us. The value of these shares was capped at $32,500
and the value of the applicable indebtedness was $33,000.
In April, 1999, we issued a total of 61,618 shares of common stock to
two consulting companies run by our affiliates in full satisfaction of
indebtedness owned to those entities. In addition, in fiscal 1999, we
issued 294,117 shares of common stock to three of our principals in full
satisfaction of indebtedness owed to them.
Although we believe that the foregoing transactions were on terms no
less favorable than would have been available from unaffiliated third
parties in arm's length transaction, there can be no assurance that this is
the case. All future transaction and loans between us and our officers,
directors and 5% shareholders will be on terms no less favorable than could
be obtained from independent, third parties and will be approved by a
majority of the independent and disinterested members of the Board of
Directors. There can be no assurance, however, that future transactions or
arrangements between us and our affiliates will be advantageous, that
conflicts of interest will not arise with respect thereto or that if
conflicts do arise, that they will be resolved in our favor.
DESCRIPTION OF SECURITIES
Common Stock
We are authorized to issue 5,000,000 shares of common stock, par
value $.01 per share. The holders of common stock are entitled to one vote
for each share held of record on each matter submitted to a vote of
shareholders and do not have cumulative voting rights. The common stock has
no conversion rights and includes no preemptive rights or other rights to
subscribe for additional securities. The holders of the common stock will
be entitled to receive dividends, if any, as may be declared by the board
of directors out of legally available funds and to share according to their
ownership in any distribution to the shareholders, including any
distribution upon liquidation of Widecom.
Redeemable Warrants
In December 1995 we completed our initial public offering. The public
offering consisted of 1,650,000 shares of common stock and redeemable
warrants to purchase 1,650,000 shares of common stock, not accounting for
the reverse stock split. Accounting for the reverse stock split, four
warrants must be exercised to purchase one share of common stock. There are
929,764 publically issued warrants currently outstanding.
The warrants are exercisable at any time until December 15, 2000,
each with an initial exercise price of $16.00, subject to adjustment in
certain circumstances. Upon notice to the warrant holders, we could extend
the expiration date of the warrants or reduce their exercise price. On July
16, 1999 we decided to reduce the exercise price of the warrants. The
warrants are now exercisable at a price of $5.00 per share for a period of
120 days from the effective date of this registration statement and $10.00
thereafter.
The warrants were redeemable by us, with the consent of the
underwriter in the December 1995 public offering, at any time commencing
December 15, 1996, upon notice of not less than 30 days, at a price of $.l0
per warrant, provided that the closing bid quotation of our common stock on
all 20 trading days ending on the third day prior to the day on which we
give notice has been at least 187.5%. The holders of the warrants shall
have the right to exercise their warrants until the close of business on
the date fixed for redemption. We are a party to an agreement with American
Stock Transfer & Trust Company, as warrant agent governing the terms of the
warrants. The exercise price and number of shares of common stock or other
securities issuable on exercise of the warrant's are subject to adjustment
under certain circumstances, including in the event of a stock dividend,
recapitalization, reorganization, merger or consolidation. The warrants,
however, are not subject to adjustment for issuances of common stock at
prices below the exercise price of the warrants.
The holders of the warrants do not have the rights or privileges of
holders of common stock.
12% Convertible Notes
The following discussion is subject to the terms and conditions of
the note, a copy of which appears as an exhibit to the registration
statement. Investors are referred to the note for more detailed
information.
Maturity Date. The notes are due and payable in full three (3) years
after the date of issuance, subject to earlier redemption or conversion.
Interest. Interest will be payable from the date of issuance at a
rate of twelve percent (12%) per annum, based upon a 360 day year, and is
payable quarterly in cash (US dollars) commencing on March 31, 1999 until
maturity or prior redemption or conversion.
Conversion. During a 30 day period commencing 180 days after the
closing, one-half of the principal amount of each note is convertible into
shares of common stock, at a conversion price of $4.00. The remaining
principal amount of the notes may be converted at any time after 360 days
from the initial closing date.
No fractional shares of common stock will be issued and a cash
adjustment will be made in lieu thereof. No adjustment for interest will be
made on conversion of any note. Accordingly, accrued interest will not be
paid on a note if it is converted between an interest payment date and the
next record date for interest payments. However, any unpaid interest
accruing prior to the interest payment due immediately preceding the
conversion will be paid by us. A holder who converts his note will be
deemed to have waived, as of the date of conversion, any default existing
under the note prior to conversion, except the payment of accrued interest.
In the case of notes called for redemption, conversion rights will expire
at 5:00 P.M. (New York time) on the business day immediately preceding the
date fixed for redemption.
The conversion price is subject to adjustment upon the occurrence of
certain events, including the subdivision of Widecom, split of our common
stock or the issuance of a dividend or distribution on the common stock;
subdivisions and combinations of common stock; reclassifications,
consolidations, mergers and sales of property; the issuance to all holders
of common stock of certain rights; and the distribution to all holders of
common stock of evidence of indebtedness or assets. Except as stated above,
the conversion price will not be adjusted for the issuance of common stock
or any securities convertible into or exchangeable for common stock, or
carrying the right to purchase any of the foregoing, in exchange for cash,
property or services.
Redemption. The Notes are redeemable, in whole or in part, at our
option, provided that:
* the conversion shares are registered for resale under the Act;
* during the 20 consecutive trading days ending within 10 days of the
date of any notice of redemption, the closing bid price of the common
stock is not less than 150% of the conversion price; and
* the trading volume of the common stock is not less than 30,000 shares
per day.
The redemption price shall be equal to the principal amount of the
Note then outstanding plus all accrued and unpaid interest.
No Sinking Fund. We are not required to provide for the retirement or
redemption of the notes through the operation of a sinking fund.
Registration Rights. We have agreed to register for resale under the
Act the conversion shares in a registration statement to be filed 60 days
after the final closing of the offering and to cause the registration
statement to become effective 120 days after the filing of the registration
statement. In the event that we fail either to cause the registration
statement to be filed under the Act 60 days after the final closing, or
cause the registration to become effective 120 days after the filing of the
registration statement, then we shall issue to each holder 1,000 additional
shares of common stock per unit held for each thirty-day period following
the 60 days after the final closing that the registration statement is not
filed and 1,000 additional shares of common stock per unit held for each
thirty-day period following the 120 days after the filing of the
registration statement that the registration is not effective, except where
such failure is due solely to actions of the Commission.
We shall bear all costs and expenses of the registration, except for
commissions and costs and expenses of counsel to the holders. In connection
with filing the registration statement, note holders will be required to
furnish certain information to us and to indemnify us against certain civil
liabilities, including liabilities arising under the Act with respect to
such information.
In connection with the registration process, we are required only to
use our best efforts to cause the conversion shares covered by the
registration statement to be registered or otherwise qualified for sale in
the states designated by the note holders. It may in fact not be
practicable to qualify these securities for sale in every state in which
holders of the conversion shares reside. Accordingly, it is possible that
the substantial restrictions on the transferability of the conversion
shares will continue, even after registration.
Subordination. The notes are subordinated to all senior indebtedness
except to the extent of the collateral. As defined in the notes, senior
indebtedness is all of our indebtedness, liabilities and obligations for
money borrowed from banks, savings and loan associations, the Small
Business Administration and other financial institutions, and their
affiliates. No payment or distribution of any kind or character on account
of principal, premium, if any, or interest on this note shall be permitted
during the continuance of any default in the payment of principal, premium,
if any, or interest on any senior indebtedness.
Security Interest.
To secure the due payment and performance of all indebtedness and
other liabilities and obligations of us to the holders, we assigned to the
holder a first priority lien upon all of the following of our assets:
* accounts receivable, including
* all of our and our subsidiaries' present and future accounts,
contract rights, general intangibles, chattel paper and
instruments, as such terms are defined in the Uniform Commercial
Code;
* all of our and our subsidiaries' right, title and interest, and
all of our and our subsidiaries' rights, remedies, security and
liens, in, to and in respect of any accounts receivable; and
* all of our and our subsidiaries' right, title and interest in,
to and in respect of all goods resulting in accounts receivable;
and
* proceeds, including
* any consideration received from the sale, exchange, lease or
other disposition of any asset or property which constitutes
collateral;
* any value received as a consequence of the possession of any
collateral and any payment received from any insurer or other
person or entity as a result of the destruction, loss, theft or
other involuntary conversion of any asset or property which
constitutes collateral; and
* all cash and negotiable instruments received or held by us and
our subsidiaries according to any lockbox or similar arrangement
relating to the payment of accounts receivable.
LEGAL MATTERS
Certain legal matters relating to our common stock will be passed
upon for us by the law firm of Goldstein & DiGioia, LLP, New York, New
York. Members of the firm of Goldstein & DiGioia, LLP owns Shares of our
common stock registered in this prospectus.
EXPERTS
The financial statements and schedules included in this prospectus
have been audited by Schwartz, Levitsky, Feldman, LLP, independent
chartered accountants, to the extent and for the periods indicated in their
reports with respect thereto. The financial statements included in this
prospectus and in the registration statement have been audited BDO
Dunwoody, LLP, independent auditors, to the extent and for the periods set
forth in their report appearing elsewhere herein and in the registration
statement, and are included in reliance upon such report given upon the
authority of said firm as experts in auditing and accounting.
CHANGES IN ACCOUNTANTS
On 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 auditors. BDO
Dunwoody, LLP, acted as our independent auditors with respect to our
financial statements for the previous two fiscal years ended March 31, 1998
and March 31, 1997.
The replacement was necessitated since BDO Dunwoody, LLP declined to
stand for re-election. The reason BDO Dunwoody, LLP declined to stand for
reelection was not the result of any disagreement between us and 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 Widecom's status as a "going concern."
Effective June 15, 1999, our board of directors determined that it
would be in our best interests to retain the services of Schwartz,
Levitsky, Feldman, LLP to replace BDO Dunwoody, LLP as our independent
accountant and auditors. The firm has audited our financial statements
included our Form 10-KSB for our fiscal year ended March 31, 1999 and filed
with the Securities and Exchange Commission.
We intend to have Schwartz, Levitsky, Feldman, LLP continue to serve
as our accountant and auditors for the fiscal year ending March 31, 2000.
During the last two fiscal years and subsequent periods, Widecom did
not consult with Schwartz, Levitsky, Feldman, LLP regarding accounting
principles, or practices, financial statement disclosure, or auditing scope
or procedure or accounting principles applicable to any specific
transaction.
DISCLOSURE OF COMMISSION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Indemnification may be permitted to directors, officers, employees
and agents of a corporation under certain circumstances and subject to
certain limitations under Part IX of the Ontario Business Corporation Act
and our By-laws.
With respect to indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons
controlling Widecom, under the foregoing provisions, we have been informed
that in the opinion of the Securities and Exchange Commission
indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
Except for the payment by us of expenses incurred or paid by any of
our directors, officers or controlling persons in the successful defense of
any action, suit or proceeding, in the event that a claim for
indemnification against liabilities is asserted by a director, officer or
controlling person in connection with the securities being registered, we
will, unless in the opinion of our counsel the matter is settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether indemnification by us is against public policy as
expressed in the Securities Act and will be governed by final adjudication
of the issue.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock and public warrants are quoted on the Nasdaq
SmallCap Market under the symbols "WIDE" and "WIDWF", respectively, and on
the Boston Stock Exchange under the symbols "WDE" and "WDEW," respectively.
The table below represents the quarterly high and low closing prices for
our common stock and warrants as reported through December 31, 1999. The
prices listed in this table reflect quotations without adjustment for
retail mark-ups, mark-downs, or commissions. We have not paid any cash
dividends since inception, and intend to retain earnings, if any, in the
foreseeable future for use in our continued expansion. The approximate
number of registered holders of record of our common stock and warrants at
March 31, 1999 was 65 and 14. Our advisers firmly believe that the actual
number of beneficial holders of our common stock and warrants is in excess
of 500.
<TABLE>
<CAPTION>
Common Stock Warrants
High Low High Low
<S> <C> <C> <C> <C>
1997
First Quarter (Jan.1-Mar.31/97) 45 1/2 13 28 1
Second Quarter (Apr.1-Jun.30/97) 18 1/2 7 7 2 1/2
Third Quarter (Jul.1-Sept.30/97) 15 1/2 7 4 1 3/4
Fourth Quarter(Oct.1-Dec.31/97) 10 3 1/2 3 3/4 1 1/2
1998
First Quarter (Jan.1-Mar.31/98) 7 2 1/2 1 1/2 1/2
Second Quarter (Apr.1-June 30/98) 4 1/2 2 1/2 1/2 1/2
Third Quarter (July 1-Sept.30/98) 2 1/2
Fourth Quarter (Oct.1-Dec.31/98) 1 7/8 15/16
1999 (1:4 Reverse Split-January 29/99)
First Quarter (Jan.1-Mar.31/99) 2 3/4 1 1/4
Second Quarter (Apr.1-June 30/99) 10 1/2 1 1/4
Third Quarter (July 1 - Sept. 30/99) 10 3/8 6 3/4
Fourth Quarter (Oct. 1 - Dec. 31/99) 13 15/16 5 31/32
</TABLE>
PLAN OF DISTRIBUTION
The shares of common stock, including the shares underlying the
public and private warrants, may be offered and sold from time to time by
the selling shareholders as market conditions permit in the over-the-
counter market, or otherwise, at prices and terms then prevailing or at
prices related to the then-current market price, or in negotiated
transactions.
The shares registered hereby may be sold by one or more of the
following methods, without limitation:
* a block trade in which a broker or dealer so engaged will attempt to
sell the shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction;
* purchases by a broker or dealer as principal and resale by such broker
or dealer for its account through this prospectus;
* ordinary brokerage transactions and transactions in which the broker
solicits purchasers; and
* face-to-face transactions between sellers and purchasers without a
broker-dealer.
In effecting sales, brokers or dealers engaged by the selling
shareholders may arrange for other brokers or dealers to participate.
Brokers or dealers may receive commissions or discounts from the selling
shareholders in amounts to be negotiated immediately prior to the sale.
These brokers and dealers and any other participating brokers or dealers
may be deemed to be underwriters within the meaning of the Securities Act
of 1933, in connection with such sales.
FORWARD LOOKING STATEMENTS
Certain statements in this prospectus constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform
Act of 1995. We desire to avail ourselves of certain safe harbor
provisions of the 1995 Reform Act and are therefore including this special
note to enable us to do so. Forward-looking statements included in this
prospectus or hereafter included in other publicly available documents
filed with the Securities and Exchange Commission, reports to our
stockholders and other publicly available statements issued or released by
us involve known and unknown risks, uncertainties, and other factors which
could cause our actual results, performance, 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,
competition, conflicts of interest, limited operating history, dependence
upon one product line, and other risks detailed in this prospectus and our
Securities and Exchange Commission filings, including our Annual Report on
Form 10-KSB, Form 10-QSB as well as recently filed Reports on Form 8-K, if
any, each of which could adversely affect our business and the accuracy of
the forward looking statements contained herein.
INDEX TO FINANCIAL STATEMENTS
Unaudited Financial Statements
- ------------------------------
Balance Sheets F-2
Statements of Operations F-3
Statements of Cash Flow F-4
Notes to Financial Statements F-5
Audited Financial Statements
- ----------------------------
Reports of Accountants F-8
Balance Sheets F-10
Statements of Operations F-11
Statements of Stockholders' Equity F-12
Statements of Cash Flows F-13
Notes to Financial Statements F-14
THE WIDECOM GROUP INC.
CONSOLIDATED BALANCE SHEET
(in United States dollars)
<TABLE>
<CAPTION>
September 30,
---------------------------
1999 1998
---- ----
(unaudited) (unaudited)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 221,637 $ 392,849
Accounts receivable 604,155 585,571
Deferred financing charges 54,083 -
Prepaid expenses 65,110 89,140
Advance to related parties 201,541 167,767
Inventory (Note 3) 1,407,802 1,730,296
----------------------------
Total current assets 2,554,328 2,965,623
Capital assets (Note 4) 1,428,644 1,506,737
Research and development technology 65,242 -
Investment in affiliates 430,308 790,778
----------------------------
Total assets $ 4,478,522 $ 5,263,138
============================
Liabilities and Shareholders' Equity
Current liabilities
Bank indebtedness 123,280 305,398
Accounts payable and accrued liabilities 894,572 768,554
Loan from related parties 66,766 13,333
Convertible debentures (Note 5) 350,000 150,000
----------------------------
Total current liabilities 1,434,618 1,237,285
----------------------------
Shareholders' equity
Common shares $14,476,808 $13,452,497
Contributed surplus 159,825 159,825
Deficit (11,221,718) (9,377,072)
Cumulative translation adjustment (371,011) (209,397)
3,043,904 4,025,853
----------------------------
Total liabilities and shareholders' equity $ 4,478,522 $ 5,263,138
============================
</TABLE>
See accompanying notes to the consolidated financial statements.
THE WIDECOM GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in United States dollars)
<TABLE>
<CAPTION>
For the three For the three For the six For the six
Months ended Months ended Months ended Months ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Product sales $ 593,692 $ 635,955 $1,378,017 $1,254,050
Cost of product sales 129,603 168,470 300,952 332,323
----------------------------------------------------------
Gross profit 464,089 467,485 1,077,065 921,727
Research and development grants - 301,285 - 405,799
Interest income 2,734 3,057 3,838 13,281
----------------------------------------------------------
Net revenue 466,823 771,827 1,080,903 1,340,807
----------------------------------------------------------
Expenses
Selling, general and administrative 486,915 743,033 961,019 1,458,674
Interest and bank charges 14,893 19,418 33,004 29,058
Management fees and salaries 69,686 81,620 139,372 157,254
Amortization 73,352 89,913 147,798 178,072
Foreign exchange loss - 28,163 - 49,505
----------------------------------------------------------
Total operating expenses 644,846 962,147 1,281,193 1,872,563
----------------------------------------------------------
Operating income (loss) (178,023) (190,320) (200,290) (531,756)
----------------------------------------------------------
Equity in (loss) of affiliate (60,879) (67,055) (129,092) (197,333)
Legal settlement costs - - - -
----------------------------------------------------------
Earnings (loss) before extraordinary
item (238,902) (257,375) (329,382) (729,089)
Extraordinary item, net of tax - - - -
----------------------------------------------------------
Net earnings (loss) for the period $ (238,902) $ (257,375) $ (329,382) $ (729,089)
==========================================================
Loss per common share before
extraordinary item, basic and diluted $ (0.10) $ (0.16) $ (0.14) $ (0.48)
==========================================================
Loss per common share, basic
and diluted $ (0.10) $ (0.16) $ (0.14) $ (0.48)
==========================================================
Weighted average number of shares
outstanding 2,293,790 1,540,683 2,293,790 1,540,683
==========================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
THE WIDECOM GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in United States dollars)
<TABLE>
<CAPTION>
For the six months ended
-----------------------------
September 30, September 30,
1999 1998
------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash provided by (used in)
Operating activities
Loss for the period before
extraordinary item $(329,382) $(729,089)
Add (deduct) items not requiring a cash outlay
Amortization 147,798 178,072
Shares issued to settle lawsuits 197,150 -
Foreign exchange loss - 49,505
Equity in loss of affiliate 129,092 197,333
Net changes in non-cash working capital balances
related to operations
(Increase) in accounts receivable (35,403) (50,297)
(Increase) in inventory (197,997) (381,311)
Increase (decrease) in accounts payable and
accrued liabilities (437,874) 30,529
Increase (decrease) in prepaid expenses 22,844 (6,890)
--------------------------
(503,772) (712,148)
--------------------------
Investing activities
Purchase of capital assets (66,468) (58,835)
(66,468) (58,835)
Financing activities
Increase (decrease) in bank indebtedness (146,971) 122,971
Shares issued for cash 729,289 200,000
Loan from related parties - 13,333
Convertible debentures 15,000 -
--------------------------
597,318 336,304
--------------------------
Effect of exchange rate changes on cash 38,366 134,695
--------------------------
Net increase (decrease) in cash during the period 65,444 (299,984)
Cash and equivalents, beginning of period 156,193 692,833
--------------------------
Cash and equivalents, end of period $ 221,637 $ 392,849
==========================
</TABLE>
See accompanying notes to the consolidated financial statements.
THE WIDECOM GROUP INC.
Item 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Presentation of Interim Information
In the opinion of Management the accompanying unaudited financial statements
include all normal adjustments necessary to present fairly the financial
position at September 30, 1999, and the results of operations for the six
months ended September 30, 1999 and 1998 and cash flows for the six months
ended September 30, 1999. Interim results are not necessarily indicative of
results for full year.
The condensed consolidated financial statements and notes are presented as
permitted by Form 10QSB and do not contain certain information included in
the Company's audited consolidated financial statements and notes for the
fiscal year March 31, 1999.
2. Financial Statements
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary.
All significant intercompany balances, transactions and stockholdings have
been eliminated.
3. Inventories
Inventories are summarized as follows:-
<TABLE>
<CAPTION>
September September
30, 1999 30, 1998
--------- ---------
<S> <C> <C>
Raw materials $ 741,547 $1,055,218
Work in progress 8,572 43,842
Finished goods 657,683 631,236
--------------------------
Total inventories $1,407,802 $1,730,296
==========================
</TABLE>
4. Capital Assets
Capital assets consist of:
<TABLE>
<CAPTION>
September 30, 1999 September 30, 1998
--------------------------- ---------------------------
Accumulated Accumulated
Cost Amortization Cost Amortization
---- ------------ ---- ------------
<S> <C> <C> <C> <C>
Machinery, plant and
Computer equipment $1,972,208 $1,233,151 $1,840,243 $ 929,033
Furniture and fixtures 111,107 61,188 106,477 47,219
Prototype and jigs 297,525 149,458 285,128 111,798
Land 57,846 - 55,436 -
Building under construction 433,755 - 307,503 -
----------------------------------------------------------
$2,872,441 $1,443,797 $2,594,787 $1,088,050
==========================================================
Net book value $1,428,644 $1,506,737
========== ==========
</TABLE>
5. Convertible Debentures
On May 19,1997, the Company completed a private offering of $250,000 of
convertible debentures maturing on May 19, 1998. The convertible debentures
bear interest of 8% per annum. In addition, 12,500* warrants were also
issued in conjunction with these convertible debentures. The holder of the
debentures has the right to convert at a conversion price equal to the lower
of $5 or 80% of the average closing bid price of the Company's shares over
the past 20 trading days. On February 11, 1998, $50,000 principal plus
accrued interest was converted into 14,742* common shares. The warrants are
exercisable over 3 years at an exercise price of $16 per share. The value
attributable to the warrants is not material. Included in accounts payable
is accrued interest on the debentures of $ 31,588.
On April 24, 1998, the debenture holder converted another $50,000 principal
plus interest into 17,213* of common shares. The company is currently in
default for the repayment of its remaining $150,000 convertible debentures
that came due on May 18, 1998.
The company also conducted a private placement of ten specific investment
units, each comprising 10,000 common shares and a three-year 12% convertible
subordinated note in the amount of $20,000. Interest payments are payable
quarterly and conversion is available at an exercise price of $1.00 per
share. One-half of the principal amount of the note is exercisable during
the 30-day period commencing 180 days from the initial closing on February
19, 1999. The remaining principal amount is convertible at anytime following
360 days after the initial closing. Nine and one-half units closed in our
preceding quarter, however, one-half unit closed during the first quarter of
fiscal 2000. Included in accounts payable is accrued interest on the
debentures of $13,990.
* Adjusted to reflect a one-for-four reverse stock split of Widcom's
common shares effective January 29, 1999.
6. Contingent Liabilities
(a) Widecom has been served with an action claiming breach of contract
regarding Widecom's rights under two specific joint venture and development
agreements to use and distribute various iterations of software components
allegedly the sole property of the claimant. The action claims damages for
breach of contract along with copyright and trademark infringement as a
result. The claim, as filed, seeks a total of $15.85 Million in damages and
is in progress in the Superior Court of Justice in the Province of Ontario.
Resolution options remain open and the action is presently scheduled for
mediation in December 1999.
(b) In December 1996, two individuals filed a lawsuit seeking 60,000 shares
and 40,000 warrants. This action has been formally dismissed. An
additional three (3) shareholders have also commenced related litigation,
alleging purchase of our securities from the previously noted two
individuals, who are as co-defendants. We have filed and received default
on our cross-claims against the two individual co-defendants. The total
number of shares of common stock claimed under these suits is less than
15,000.
Loss, if any, on the above claims will be recorded when settlement is
probable and the amount of the settlement is estimable.
Schartz Levitsky Feldman llp
CHARTERED ACCOUNTANTS
TORONTO, MONTREAL, OTTAWA
AUDITORS' REPORT
To the Shareholders of
The WideCom Group Inc.
We have audited the consolidated balance sheet of The WideCom Group Inc. as
at March 31, 1999 and the consolidated statements of operations,
shareholders' equity and cash flows for the year ended March 31, 1999.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the company as at March 31,
1999 and the results of its operations and the changes in its cash flows for
the year ended March 31, 1999 in accordance with generally accepted
accounting principles in the United States.
The consolidated balance sheet of The WideCom Group Inc. as at March 31,
1998 and the consolidated statements of operations, shareholders' equity and
cash flows for the years ended March 31, 1998 and 1997 were audited by
another firm of Chartered Accountants with an unqualified audit report
issued thereon.
Toronto, Ontario
July 5, 1999 Chartered Accountants
1167 Caledonia Road
Toronto, Ontario M6A 2X1
Tel: 416 785 5353
Fax: 416 785 5663
BDO BDO Dunwoody LLP Royal Bank Plaza
Chartered Accountants P.O. Box 32
and Consultants Toronto Ontario Canada M5J 2J8
Telephone: (416) 865-0200
Telefax: (416) 865-0887
- ---------------------------------------------------------------------------
Auditor's Report
- ---------------------------------------------------------------------------
To the Directors of
The WideCom Group Inc.
We have audited the consolidated balance sheet of The WideCom Group Inc. as
as March 31, 1998 and the consolidated statements of operations,
shareholders' equity and cash flows for each of the two years in the period
ended March 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at March 31,
1998 and the results of its operations and the changes in cash flow for each
of the two years ended March 31, 1998 in accordance with generally accepted
accounting principles in the United States.
/s/ BDO Dunwoody LLP
Chartered Accountants
(Internationally BDO International B.V.)
Toronto, Ontario
June 26, 1998
BDO Dunwoody LLP is a Limited Liability Partnership registered in Ontario
The WideCom Group Inc.
Consolidated Balance sheets
(in United States dollars)
<TABLE>
<CAPTION>
March 31 1998 1999
- --------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 692,833 $ 156,193
Accounts receivable (Note 1) 579,060 552,901
Inventory (Note 2) 1,301,522 1,175,112
Prepaid expenses 88,947 40,926
Advances to related parties (Note 3) 180,930 225,418
Deferred financing costs - 49,813
----------------------------
Total current assets 2,843,292 2,200,363
Capital assets (Note 4) 1,749,312 1,453,963
Purchased research and development
technology (Note5) - 78,777
Investment in affiliate (Note 6) 1,058,586 545,113
----------------------------
Total assets $ 5,651,190 $ 4,278,216
----------------------------
Liabilities and Shareholders' Equity
Current Liabilities
Bank indebtedness (Note 7) $ 201,114 $ 264,022
Accounts payable and accrued
liabilities (Note 8) 1,013,132 1,299,454
Loans from related parties (Note 3) - 64,939
Convertible debentures (Note 9) 200,000 342,478
----------------------------
Total current liabilities 1,414,246 1,970,893
----------------------------
Shareholders' equity (Note 10)
Common shares
5,000,000* shares authorized of no par
value
1,477,320* shares issued and outstanding
on March 31,1998
2,068,400* shares issued and outstanding
on March 31, 1999 12,982,715 13,577,841
Contributed surplus 159,825 159,825
Deficit (8,647,983) (10,892,334)
Accumulated other comprehensive loss
(Note 11) (257,613) (538,009)
----------------------------
4,236,944 2,307,323
----------------------------
Total liabilities and shareholders' equity $ 5,651,190 $ 4,278,216
==========================================================================
<FN>
* Adjusted for reverse split of Company's stock (1:4) on January 29,1999.
</FN>
</TABLE>
See accompanying summary of significant accounting policies and notes
to these Consolidated Financial Statements
The WideCom Group Inc.
Consolidated Statements of Operations
(in United States dollars)
<TABLE>
<CAPTION>
For the years ended March 31 1997 1998 1999
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue
Product sales $ 1,678,933 $ 2,890,443 $ 2,575,935
Research and development grants - 24,567 479,821
Interest income 141,780 138,794 19,853
-----------------------------------------
Total revenue 1,820,713 3,053,804 3,075,609
-----------------------------------------
Expenses
Cost of product sales 459,026 809,935 726,909
Research and development 614,663 99,266 134,248
Selling, general and administrative 3,733,016 3,604,538 3,112,056
Interest and bank charges 42,399 49,431 51,504
Management fees and salaries 321,209 398,804 333,743
Amortization 503,359 489,733 362,108
Foreign exchange loss (gain) - 36,119 (11,968)
-----------------------------------------
Total expenses 5,673,672 5,487,826 4,708,600
-----------------------------------------
Operating loss (3,852,959) (2,434,022) (1,632,991)
Legal settlement costs (Note 15(b)) - (309,375) (158,741)
Equity in loss of affiliate (121,971) (592,468) (452,619)
Writedown of goodwill (576,000) - -
-----------------------------------------
Loss before income taxes (4,550,930) (3,335,865) (2,244,351)
Provision for (recovery of) income taxes
(Note 12)
Deferred (63,106) - -
-----------------------------------------
Net loss for the year $(4,487,824) $(3,335,865) $(2,244,351)
=========================================
Loss per common share, basic and
diluted (Note 10(f)) (3.96) (2.36) (1.28)
=========================================
Weighted average number of shares
outstanding * 1,133,396 1,416,047 1,749,386
==========================================================================================
<FN>
* Adjusted for reverse split of company's stock (1:4) on January 29,1999.
</FN>
</TABLE>
See accompanying summary of significant accounting policies and notes
to these Consolidated Financial Statements
The WideCom Group Inc.
Consolidated Statements of Shareholders' Equity
(in United States dollars)
For the years ended March 31, 1998, 1999
<TABLE>
<CAPTION>
Retained Other Total
Common Contributed Earning Comprehensive Shareholders'
Shares Surplus (Deficit) Loss Equity
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, March 31,1997 10,598,884 159,825 (5,312,118) (203,288) 5,243,303
Exercise of warrants (180,981)* 2,170,179 - - - 2,170,179
Warrant exercise costs (120,470) - - - (120,470)
Class action settlement (69,625)* 355,158 - - - 355,158
Conversion of convertible
debentures (14,742)* 50,000 - - - 50,000
Share issuance costs (71,036) - - - (71,036)
Net loss for year - - (3,335,865) - (3,335,865)
Foreign currency
translation adjustment - - - (54,325) (54,325)
--------------------------------------------------------------------------
Balance, March 31,1998 $12,982,715 $159,825 $(8,647,983) $(257,613) $ 4,236,944
Warrant exercise costs reversal 97,907 - - - 97,907
Shares issued for corporate
indebtedness (294,117) 200,000 - - - 200,000
Shares issued for investment
in wholly owned subsidiary (125,000)* 93,750 - - - 93,750
Class action settlement (59,751)* 83,457 - - - 83,457
Conversion of convertible
debentures (17,213)* 50,000 - - - 50,000
Conversion of convertible
debentures (95,000) 95,000 - - - 95,000
Share issuance costs (24,988) - - - (24,988)
Net loss for year - - (2,244,351) - (2,244,351)
Foreign currency translation
adjustment - - - (280,396) (280,396)
--------------------------------------------------------------------------
Balance, March 31,1999 $13,577,841 $159,825 $(10,892,334) $(538,009) $ 2,307,323
===================================================================================================================
<FN>
* Adjusted for reverse slit of Company's Stock (1:4) on January 29,1999.
</FN>
</TABLE>
See accompanying summary of significant accounting policies and notes
to these Consolidated Financial Statements
The WideCom Group Inc.
Consolidated Statements of Cash Flows
(in United States dollars)
<TABLE>
<CAPTION>
For the years ended March 31 1997 1998 1999
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash provided by (used in)
Operating activities
Loss for the year $(4,487,824) $(3,335,865) $(2,244,351)
Add (deduct) item not requiring a cash outlay
Amortization 503,359 489,733 362,108
Foreign exchange loss (gain) - 36,119 (11,968)
Deferred income taxes recovery (63,106) - -
Shares issued to settle lawsuits - 355,158 158,741
Writedown of goodwill 576,000 - -
Equity in loss of affiliate 121,971 592,468 452,619
Net changes in non-cash
working capital balances related to operations
Decrease (increase) in accounts receivable (333,048) 160,122 7,988
Decrease in research
and development grants receivable - 687,307 -
Decrease (increase) in inventory (764,646) (133,663) 49,882
Increase (decrease) in accounts payable
and accrued liabilities 982,544 (308,983) 551,213
(Decrease) increase in prepaid expenses (31,453) 8,969 (42,920)
-------------------------------------------
(3,496,203) (1,448,635) (716,688)
-------------------------------------------
Investing activities
Purchase of capital assets (1,108,068) (540,022) (153,395)
Advances to related parties (32,033) (67,523) (55,330)
Purchases of shares in wholly-owned subsidiary - - (93,750)
Purchase of equity in joint venture (1,805,836) - -
-------------------------------------------
(2,945,937) (607,545) (302,475)
-------------------------------------------
Financing activities
Increase (decrease) in bank indebtedness 203,456 (121,954) 75,005
Shares and warrants issued 1,298,090 1,978,673 200,000
Loans from related parties - - 64,939
Issuance of convertible debentures - 250,000 285,000
-------------------------------------------
1,501,546 2,106,719 624,944
-------------------------------------------
Effect of exchange rate change on cash (71,411) 10,808 (142,421)
-------------------------------------------
Net increase (decrease) in cash during the year (5,012,005) 61,347 (536,640)
Cash and equivalents, beginning of year 5,643,491 631,486 692,833
-------------------------------------------
Cash and equivalents, end of year $ 631,486 $ 692,833 $ 156,193
===================================================================================================
</TABLE>
Note: See note 16 for supplementary information
See accompanying summary of significant accounting policies and notes
to these Consolidated Financial Statements
The WideCom Group Inc.
Summary of Significant Accounting Policies
(in United States dollars)
March 31, 1998, and 1999
- --------------------------------------------------------------------------
Nature of Business The WideCom Group Inc. ("the Company") was
incorporated under the laws of Ontario on June
15, 1990. The Company designs, assembles and sells
high speed, high performance document systems which
transmit, receive, print, copy and/or archive wide
format documents.
Basis of Financial The accompanying consolidated financial statements
Statements are stated in United States dollars, "the reporting
currency". The transactions of the Company have been
recorded during the year in Canadian dollars, "the
functional currency". The translation of Canadian
dollars into United States dollars amounts have been
made at the year end exchange rates for balance
sheet items and the average exchange rate for the
year for revenues, expenses, gains an losses.
Translation adjustments to reporting currency are
included in equity as "accumulated other
comprehensive loss". (See Note 11).
The consolidated financial statements reflect
retroactively a backsplit occurring during 1999
(See Note 10).
These consolidated financial statements have been
prepared by management in accordance with generally
accepted accounting principles in the United States.
Principles of These consolidated financial statements include the
Consolidation accounts of the Company and its wholly-owned
subsidiaries Indo WideCom International Ltd and
Diprin Inc. All significant inter-company
transactions and accounts have been eliminated.
Investment in The investment in affiliate is accounted for on the
Affiliate equity basis.
Accounting Estimates The preparation of consolidated financial
statements, in conformity with generally accepted
accounting principles, requires management to make
estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of
revenues and expenses during the reporting period.
Actual results could differ from those estimated.
Inventory Inventory is valued at the lower of cost, determined
on a first-in, first-out basis, and market value.
Market value for raw materials is defined as
replacement and for finished goods as net realizable
value.
Long-lived Assets Management reviews long-lived assets and certain
identifiable intangibles for impairment whenever
events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable,
and, if deemed impaired, measurement and recording
of an impairment loss is based on the fair value of
the asset.
Capital Assets Capital assets are recorded at cost. Amortization
is provided annually at rates calculated to amortize
the assets over their estimated useful lives as
follows:
Machinery, plant and
computer equipment - 30% declining balance
Furniture and fixtures - 20% declining balance
Prototype and jigs - 20% declining balance
Earning or Loss The Company has adopted SFAS No. 128,
Per Share "Earnings Per Share" which requires that the
consolidated financial statements reflect "basic"
and "diluted" earning (loss) per share. Basic
earning (loss) per share is computed by dividing net
income (loss) by the weighted average number of
common shares outstanding for the period. Diluted
earnings (loss) per share is computed by dividing
net income (loss) by the weighted average number of
common shares outstanding plus common stock
equivalents (if dilutive) related to stock options
and warrants for each period.
Stock Based SFAS No. 123, "Accounting for Stock-Based
Compensation Compensation" encourages, but does not require,
companies to record compensation costs for stock-
based employee compensation plans at fair value.
The Company chose to continue to account for stock-
based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion
No. 25. "Accounting for Stock Issued to Employees",
and related interpretations. Accordingly,
compensation cost for stock options is measured as
the excess, if any, of the quoted market price of
the Company's stock at the measurement date over the
amount an employee must pay to acquire the stock.
See Note 10 (d) for a summary of the pro forma net
loss per share determined as if the Company had
applied SFAS No. 123.
Cash and Equivalents Cash and cash equivalents include all highly liquid
investments with original maturities of three months
or less.
Revenue Recognition Product sales are recognized as revenue upon
shipment of the product. Advance sales revenue is
deferred until shipment of the product
Foreign Currency Balances of the Company denominated in foreign
Translation currencies and the accounts of its foreign
subsidiary are translated into the functional
currency as follow:
(i) monetary assets and liabilities at year end
rates;
(ii) all other assets and liabilities at historical
rates;
(iii) revenue and expense transactions at the
average rate of exchange prevailing during the
year; and
(iv) changes in cash flow at the average rate of
exchange prevailing during the year.
Exchange gains or losses arising on these
translations are reflected in income in the year.
Income Taxes The Company accounts for income taxes under the
asset and liability method as required by SFAS No.
109, Accounting for Income Taxes. Under the asset
and liability method, deferred income taxes are
recognized for the tax consequences of temporary
differences by applying enacted tax rates applicable
to future year to differences between the financial
statements carrying amounts and the tax bases of
existing assets and liabilities. When tax credits
are available, they are recognized as reductions of
current year's tax expense.
Concentrations of The Company's receivables are unsecured and are
Credit Risk and generally due in 30 days. Currently the Company's
Business customers are primarily local, national and
Concentration international users of wide format document
management systems. The company's receivables do
not represent significant concentrations of credit
risk as at March 31 1999 due to the wide variety of
customers, markets and geographic areas to which the
Company's products are sold.
Fair Value of The carrying amounts of financial instruments of the
Financial Instruments Company, including cash and cash equivalents,
accounts receivable, bank indebtedness, accounts
payable, and convertible debentures approximate fair
value because of their short maturity. The fair
value of advances to and loans from related parties
cannot be readily determined because of the nature
of their terms.
The WideCom Group Inc.
Notes to Consolidated Financial Statements
(in United States dollars)
March 31, 1998, and 1999
- --------------------------------------------------------------------------
1. Accounts Receivable
Accounts receivable consist of:
<TABLE>
<CAPTION>
1998 1999
----------------------
<S> <C> <C>
Trade Receivable $612,946 $637,097
Less: Allowance for doubtful accounts 33,886 84,196
----------------------
$579,060 $552,901
======================
</TABLE>
- --------------------------------------------------------------------------
2. Inventory
Inventory consists of:
<TABLE>
<CAPTION>
1998 1999
--------------------------
<S> <C> <C>
Raw Materials $ 967,723 $ 689,155
Work-in-progress 56,644 13,587
Finished goods 277,155 472,370
--------------------------
$1,301,522 $1,175,112
==========================
</TABLE>
- --------------------------------------------------------------------------
3. Advances to/loans from related parties
(a) Advances to related parties are non-interest bearing and are
expected to be repaid in the next fiscal year as follows:
<TABLE>
<CAPTION>
1998 1999
----------------------
<S> <C> <C>
3294340 Canada Inc. (i) $149,696 $196,034
Shareholders 31,234 29,384
----------------------
$180,930 $225,418
======================
</TABLE>
i) 3294340 Canada Inc.
Advances were made to a company as referred to in Note 6 to
facilitate research and development activities. There is no fixed
term of repayment and the balance is due on demand.
(b) During the year, the following non-interest bearing advances
were made to the company as short-term loans in order to assist
in certain working capital requirements:
<TABLE>
<S> <C>
Director and officer $29,655
Shareholder owning more than 5% of
the outstanding shares 35,284
-------
$64,939
=======
</TABLE>
(c) Transactions with companies controlled by, and fees paid to,
executive officers, the principal shareholders and directors
during the year were as follows:
<TABLE>
<CAPTION>
1998 1999
------------------------
<S> <C> <C>
Sales $ 127,043 $ 8,790
Management fees and salaries (398,804) (333,743)
</TABLE>
The management fees are paid on a month to month basis to executives
who comprise senior management of the Company (See also Note 13((c)).
Included in accounts receivable are $24,913 for the 1999 fiscal year
(1998-$33,948) due from a company controlled by one of the Directors
of the WideCom Group, Inc.
- --------------------------------------------------------------------------
4. Capital Assets
Capital assets consist of:
<TABLE>
<CAPTION>
1998 1999
----------------------- ------------------------
Accumulated Accumulated
Cost Amortization Cost Amortization
---------------------------------------------------
<S> <C> <C> <C> <C>
Machinery, plant and
computer equipment $1,941,521 $ 842,076 $1,913,903 $1,088,694
Furniture and fixtures 114,832 44,061 108,065 54,411
Prototype and jigs 307,500 101,569 289,380 131,563
Land 59,785 - 56,262 -
Building under construction 313,380 - 361,021 -
----------------------------------------------------
$2,737,018 $ 987,706 $2,728,631 $1,274,668
----------------------------------------------------
Net book value $1,749,312 $1,453,963
----------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------
5. Purchased research and development technology
During the year, the company acquired the rights to a photo-printer
technology, which is in the process of being developed by its
President and Chief Executive Officer. A patent application is
currently pending.
The development of this technology will continue through a wholly-
owned subsidiary; Diprin Inc. ("Diprin") that was previously owned by
the President and Chief Executive Officer.
In consideration for the ownership of this technology, the company
issued 125,000* common shares to its President and Chief Executive
Officer [See note 10(b)(vii)].
The design of the portable photo-printer is in the latest stages of
completion and management estimates that prototyping will commence in
the fiscal year ending March 31, 2000. The cost of the technology is
being amortized on a straight-line basis over 3 years from September
30,1998. As at March 31, 1999, the unamortized balance amounted to
$78,777.
- --------------------------------------------------------------------------
6. Investment in Affiliate
<TABLE>
<CAPTION>
1998 1999
------------------------
<S> <C> <C>
3294340 Canada Inc $1,058,586 $545,113
------------------------
</TABLE>
In October 1996, the Company entered into a joint venture agreement
which resulted in the purchase of a 45% stake in 3294340 Canada Inc.,
a Quebec based company, for approximately $1,875,000. The investee
carries on research and development activities in order to develop
improvements, modifications, additions or alteration to the
intellectual property and to develop new products. In connection with
the transaction, the Company also entered into a Stock Exchange
Agreement with Societe Innovatech du Grand Montreal, an economic
development agency of the government of the Province of Quebec,
pursuant to which Societe Innovatech du Grand Montreal would be
permitted, under certain circumstances, to exchange its 45% interest
for up to 63,250* common shares of the Company. The Company has a
commitment to pay a royalty fee based on net revenue ((See also note
13(b)). The assets, liabilities, revenue and expenses of 3294340
Canada Inc. for the years ended 1998, 1999, are as follows:
<TABLE>
<CAPTION>
1998 1999
----------------------------
<S> <C> <C>
Current assets $ 2,012,857 $ 1,014,554
Capital and other assets 650,534 549,339
----------------------------
2,663,391 1,563,893
Current Liabilities 310,977 370,954
----------------------------
Net assets $ 2,352,414 $ 1,192,939
----------------------------
Revenue
Miscellaneous income $ 139,171 $ 66,287
Research and development 545,613 669,857
----------------------------
684,784 736,144
Expenses 2,001,420 1,741,963
----------------------------
Net loss for the year $(1,316,636) $(1,005,819)
----------------------------
<FN>
* Adjusted for reverse split of Company stock (1:4) on January
29,1999.
</FN>
</TABLE>
- --------------------------------------------------------------------------
7. Bank Indebtedness
During 1999 the Company renewed an operating line of credit available
for approximately $250,000 (1998-$218,000) which bears interest at
prime plus 0.75%, is due on demand, and is secured by a general
security agreement over all company assets except real property. At
March 31, 1999, approximately $249,000 (1998-$112,000) was utilized.
The Company's 1999 and 1998 bank indebtedness is the result of a bank
overdraft in the Company's subsidiary as well as a revolving operating
loan in the Company. The indebtedness of the subsidiary is secured by
a pledge of fixed deposits with the local bank.
- --------------------------------------------------------------------------
8. Accounts Payable and accrued liabilities
Accounts payable and accrued liabilities consist of:
<TABLE>
<CAPTION>
1998 1999
-------------------------
<S> <C> <C>
Trade accounts payable $ 300,268 $ 546,586
Wages and employee deduction payable 73,338 191,382
Accrued liabilities 423,418 371,921
Accrued litigation costs (Note 10(b)) 121,871 189,565
Accrued warrant exercise costs 94,237 -
-------------------------
$1,013,132 $1,299,454
-------------------------
</TABLE>
- --------------------------------------------------------------------------
9. Convertible Debentures
On May 19,1997, the Company completed a private offering of $250,000
of convertible debentures maturing on May 19, 1998. The convertible
debentures bear interest of 8% per annum. In addition, 12,500*
warrants were also issued in conjunction with these convertible
debentures. The holder of the debentures has the right to convert at
a conversion price equal to the lower of $5 or 80% of the average
closing bid price of the Company's shares over the past 20 trading
days. On February 11, 1998, $50,000 principal plus accrued interest
was converted into 14,742* common shares. The warrants are
exercisable over 3 years at an exercise price of $16 per share. The
value attributable to the warrants is not material. Included in
accounts payable is accrued interest on the debentures of $25,658.
On April 24, 1998, the debenture holder converted another $50,000
principal plus interest into 17,213* of common shares.
The company is currently in default for the repayment of its remaining
$150,000 convertible debentures that came due on May 18, 1998.
The company also conducted a private placement of ten specific
investment units, each comprising 10,000 common shares (see Note
10(b)(x)) and a three-year 12% convertible subordinated note in the
amount of $20,000. Interest payments are payable quarterly and
conversion is available at an exercise price of $1.00 per share. One-
half of the principal amount of the note is exercisable during the 30
day period commencing 180 days from the initial closing on February
19, 1999. The remaining principal amount is convertible at anytime
following 360 days after the initial closing.
- --------------------------------------------------------------------------
10. Share Capital
(a) Authorized
5,000,000 common shares pursuant to shareholder approval of a
1:4 reverse split of the common shares of the Company
effective January 29, 1999.
Of the 2,068,400* shares outstanding as of March 31, 1999,
128,463* shares have not been registered by the Company's stock
transfer agent.
(b) Changes to Issued Share Capital
(i) During 1998, 180,981* warrants were exercised in exchange
for 180,981* common shares. The proceeds of this issue,
net of related expenses of $120,470, was $2,049,709. This
amount includes warrants exercised under the Company's
warrant call.
* Adjusted for reverse split of Company's common stock (1:4) on January 29,
1999.
(ii) During 1998, 69,625* shares were issued for the full
settlement and legal costs of a class action lawsuit
filed in the State of New York and a partial settlement
of another class action lawsuit filed in the State of
California. Both lawsuits were in connection with
potential losses that would be suffered on the warrant
call. The Company is required to issue an additional
18,750* shares in connection with the State of California
suit and accordingly the Company has accrued
approximately $122,000 for the cost of these shares
representing the fair value of the shares on February 2,
1998. The Company has also agreed to issue 96,927*
replacement warrants for each warrant held by warrant
holders on February 10, 1997 and sold by such holders
prior to March 5, 1997.
(iii) During 1998, $50,000 of convertible debentures (see Note
9) were converted into 14,742* common shares. The
debentures were converted based on a conversion price of
$0.8479 that represents the average of the closing bid
share price of 20 days prior to the conversion. The
Company also incurred $10,000 of issuance cost relating
to the conversion of the debentures.
(iv) In April, 1998, an additional $50,000 of convertible
debentures (see Note 9) were converted into 17,213*
common shares. The debentures were converted based on a
conversion price of $0.7262 that represents the average
of the closing bid share price for the twenty days
preceding the conversion. The Company incurred $15,000
in further issuance costs related to this conversion of
the debenture.
(v) In fall 1998, the Company issued an aggregate of 294,117*
common shares (73,529, 110,294* and 110,294*) to three
principals of the Company in full satisfaction of
corporate indebtedness to those parties as approved by
the Board of Directors.
(vi) Effective January 29, 1999, the Company's shareholders
approved a 1: 4 reverse stock split resulting in
1,788,649* common shares outstanding as of that date.
(vii) During the fourth quarter of fiscal, 1999, the Company's
shareholders also approved the acquisition of Diprin
Inc., a corporate entity wholly owned by a principal of
the Company in exchange for the issuance of 125,000*
common shares. (see Note 5)
(viii) During the fourth quarter of fiscal 1999, the Company and
its legal counsel approved an amendment to a legal
resolution (see note (ii) above). The amendment converted
the warrant entitlements under the settlement into common
shares that were subject to the 1:4 reverse stock split.
An aggregate of 109,466* common shares were issued
pursuant to two separate issuances effected pursuant to
Company instructions dated February 17, 1999 and May 21,
1999 (54,751* and 54,715* respectively).
(ix) During the fourth quarter of fiscal 1999, the Company and
its legal counsel approved a legal resolution of a
lawsuit in the state of Rhode Island between the Company
and three individual litigants. The resolution approved
by the Board of Directors of the Corporation comprised a
transfer of 5,000* of the Company's common shares.
(x) During fiscal 1999, the Company engaged the services of
Robb Peck McGooey Clearing Corporation, Cantella &
Associates and Quantum Resources Inc., three related
financial services companies to conduct a private
offering to raise funds for investment in the Company.
The units in the offering granted 10,000 shares to each
purchaser. In total, ten units were sold with 1/20.5 unit
closing after the Company's year end. 95,000* shares
were issued pursuant to the placement between February,
1999 and year-end on March 31, 1999. The remaining
5,000* shares were issued in the first quarter of fiscal
2000. The three companies are also entitled to a grant
of 50,000* warrants to purchase 50,000 common shares at
an exercise price of $1.20.
(xi) On March 15, 1999, the Company approved a transfer of
8,000* shares by a principal of the corporation to
satisfy an outstanding account with a professional
service provider. The Company has yet to finalize the
terms of repayment, if any, with respect to this equity
transfer.
(xii) In April, 1999, the Company issued an aggregate of
61,618* common shares (40,810* and 20,808*) to two
consulting companies independently run by an individual
principal of the Company in full satisfaction of
corporate indebtedness to those parties as approved by
the Board of Directors.
(xiii) In May, 1999, the Company approved a surrender of 4,010*
shares from a principal of the Company in full
satisfaction of an indebtedness to the company pursuant
to an indemnification agreement as approved by the Board
of Directors.
(xiv) On May 26, 1999, the Company and its legal counsel, with
the approval of the Board of Directors, issued an
additional aggregate of 19,748* common shares as the
final stage of a settlement agreement with the Company
((see note 10(b)(ii) above)).
(c) Warrants
As at March 31, 1999, the Company had 556,911* issued and
outstanding warrants. The warrants are exercisable at prices
ranging from $1.20 to $34.00 with expiry dates between 1999 and
2009.
(d) Employee Stock Option Plan
The Company has elected to follow Accounting Principles Board
(APB) Opinion No. 25, "Accounting for Stock Issued to
Employees", and related interpretations in accounting for its
employee stock options. Under APB 25, compensation expense is
not recognized if the exercise price equals or exceeds the
market price on the date of grant. The exercise price of the
Company's employees stock option equals the market price of the
underlying stock on the date of grant, therefore no compensation
expense is recognized.
In July 1996, the board of directors approved an employee stock
option plan covering options to purchase 75,000* common shares
that was increased in January 1997 to 125,000*.
As of March 31, 1998, 115,625* employee stock options granted to
management and employees were outstanding with an exercise price
of $8.50. Only 16,683 of these options remain unvested but will
vest before the fourth quarter of fiscal 2000. These options
expire 10 years after the grant date.
In fiscal 1999, 8,625* employee stock options were granted with
exercise prices ranging from $3.28 to $4.00.
Pro forma information regarding net income and earning per share
is required by SFAS No. 123, and has been determined as if the
company had accounted for its employee stock options under the
fair value method of that statement. The fair value of these
options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average
assumptions: risk-free interest rate of approximately 5.5%;
dividend yield of 0.0%; volatility factors of the expected
market price of the Company's common stock of approximately 122%
(1998 - 200%) and weighted-average expected life of the option
of 8.5 years.
The Company's pro forma information follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
March 31, March 31, March 31,
1997 1998 1999
------------------------------------------
<S> <C> <C> <C>
Net loss
As reported $(4,487,824) $(3,335,865) $(2,244,351)
Pro forma (5,177,824) (3,840,790) (2,350,607)
Net loss per share
As reported (3.96) (2.36) (1.28)
Pro forma (4.56) (2.72) (1.34)
</TABLE>
(e) The activity of the Company's stock option plan is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------- ----------------------------
Weighted Weighted
Average Price Options Average Price Options
Per Share Outstanding Per Share Exercisable
------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, March 31,1997 $24.64 75,000 24.64 75,000
Granted 8.50 115,625
Cancelled 34.00 (25,000)
Cancelled 20.00 (50,000)
-------
Balance, March 31, 1998 8.50 115,625 8.50 98,942
Granted 4.00 7,500
Granted 3.28 1,125
Cancelled 8.50 (9,667)
-------
Balance, March 31, 1999 8.15 114,583 8.15 104,958
</TABLE>
(f) At March 31, 1999, there were 10,417 options available for
future grants. As at March 31, 1999, the options
have a weighted average contractual life of 8.5 years.
The weighted average number of common shares used in calculating
earnings per common share (after retroactive application of the
back split in 1999) is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
-----------------------------------
<S> <C> <C> <C>
Shares outstanding at year-end 1,212,105 1,477,320 2,068,400
-----------------------------------
Weighted average shares outstanding 1,133,396 1,416,047 1,749,386
-----------------------------------
<FN>
* Adjusted for reverse split of Company's common stock (1:4) on January 29,
1999.
</FN>
</TABLE>
- --------------------------------------------------------------------------
11. Accumulated other comprehensive loss
The Company has adopted SFAS No.130 "Reporting comprehensive income"
which requires new standards for reporting and display of
comprehensive income and its components in the consolidated financial
statements. However it does not affect net income or total
shareholders' equity. The components of comprehensive loss are as
follows:
<TABLE>
<CAPTION>
1997 1998 1999
-----------------------------------------------
<S> <C> <C> <C>
Net loss $(4,487,824) $(3,335,865) $(2,244,351)
Other comprehensive income loss
Foreign currency translation adjustments (195,569) (54,325) (280,396)
-----------------------------------------------
Comprehensive loss $(4,683,393) $(3,390,190) $(2,524,747)
-----------------------------------------------
</TABLE>
The components of accumulated other comprehensive loss are as follows:
<TABLE>
<S> <C>
Accumulated other comprehensive loss, March 31, 1996 $ (7,719)
Foreign currency translation adjustment for the year
ended March 31, 1997 (195,569)
---------
Accumulated other comprehensive loss, March 31, 1997 (203,288)
Foreign currency translation adjustment for the year
ended March 31, 1998 (54,325)
---------
Accumulated other comprehensive loss, March 31, 1998 (257,613)
Foreign currency translation adjustment for the year
ended March 31, 1999 (280,396)
---------
Accumulated other comprehensive loss, March 31, 1999 $(538,009)
=========
</TABLE>
- --------------------------------------------------------------------------
12. Income Taxes
a) The components of the provision for income taxes on earning
before income taxes are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
-------------------------------
<S> <C> <C> <C>
Deferred recovery $(63,106) $ - $ -
===============================
</TABLE>
b) The reconciliation of income taxes calculated at the statutory
rate of 44.6% to the total tax provision is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
-----------------------------------------------
<S> <C> <C> <C>
Income taxes recovery $(2,030,000) $(1,488,000) $(1,001,000)
Items not subject to income tax 210,000 309,000 406,000
Permanent difference resulting from the
Ontario research and development incentive
deduction (21,000) - -
Adjustment to valuation adjustment 1,777,800 1,179,000 595,000
-----------------------------------------------
$ (63,200) $ - $ -
===============================================
</TABLE>
Income tax provision and recovery is related solely to domestic
operations. Foreign operations are not subject to taxes (see
Note 14).
(c) Deferred Taxes
Deferred tax assets have been recorded at current rates as
follows:
<TABLE>
<CAPTION>
1997 1998 1999
---------------------------------------------
<S> <C> <C> <C>
Assets:
Financing costs $ 44,000 $ 28,000 $ 44,000
Balance of pool of Scientific Research &
Development available to reduce taxable
income for future years 615,000 582,000 582,000
Tax losses available to reduce taxable
income of future years 1,364,000 2,440,000 2,989,000
Share issue costs 686,000 743,000 743,000
Excess of amortization on capital assets for
accounting purposes over amortization
recorded for tax purposes 197,000 259,000 289,000
---------------------------------------------
2,906,000 4,052,000 4,647,000
---------------------------------------------
Less Deferred tax asset valuation allowance (2,906,000) (4,052,000) (4,647,000)
---------------------------------------------
$ - $ - $ -
=============================================
</TABLE>
The Company has net operating loss carryforwards to reduce
federal taxable income of approximately $7,565,000 which expire
from 2004 to 2006. The Company has net operating loss
carryforwards available to reduce Ontario taxable income of
approximately $8,912,000 which expire during the years 2000
through 2006.
The Company has share issue costs amounting to $2,800,000, which
gives rise to a tax benefit of $743,000 ($743,000 - 1998). A
portion of these costs are included in the net operating losses
carryforwards disclosed above. When realized, the benefit will
be recorded as a capital transaction.
13. Commitments
(a) The Company leases premises, office equipment and motor vehicles
under operating leases expiring in 2003. The approximate annual
rental commitments during the lease terms are as follows:
Year ended March 31 2000 106,000
Year ended March 31, 2001 51,000
Year ended March 31, 2002 16,000
Year ended March 31 2003 1,000
Approximate rental expense incurred under operating leases is as
follows:
Year ended March 31 1997 176,000
Year ended March 31, 1998 169,000
Year ended March 31, 1999 177,243
(b) The Company is committed to its affiliate, 3294340 Canada Inc.,
to pay a 0.5% royalty fee on net revenue, licensing revenue and
net sales to sub-licensees on scanner and plotter technology
created by the affiliate on behalf of the Company (See also Note
6).
(c) The company has entered into employment contracts with two
members of management for a total of up to $190,000 in base
salary per annum plus up to 50% bonus of base salary provided
certain performance objectives are met. Amounts paid in 1999
were approximately $194,000 ($239,000 in 1998).
- --------------------------------------------------------------------------
14. Segmented Information
The Company has adopted SFAS No. 131 " Disclosures about segments of a
enterprise" which establishes standards for reporting operating
segments in annual consolidated financial statements.
Description of type of product
The Company operates through one segment, which is, wide format
document management systems, comprising two major products - wide
format scanners and plotters.
Measurement of Segment profit and loss
As the products (noted above) are regarded as one segment the
statements of operations and balance sheets are deemed by management
to be wholly attributable to that segment.
(a) The Company operated in Canada and India in one industry
segment. The Company's operations and identifiable assets by
geographic region are as follows:
<TABLE>
<CAPTION>
Canada India Intercompany Total
---------------------------------------------------------------
<S> <C> <C> <C> <C>
For the year ended March 31,1997
Revenue $ 1,329,446 $ 1,357,171 $ (865,904) $ 1,820,713
Net loss (4,364,854) (628,877) 505,907 (4,487,824)
Identifiable assets 6,719,782 2,872,586 (2,667,181) 6,925,187
For the year ended March 31, 1998
Revenue $ 2,913,259 $ 1,556,141 $(1,415,596) $ 3,053,804
Net loss (3,321,531) (244,027) 229,693 (3,335,865)
Identifiable assets 6,677,495 2,442,435 (3,468,740) 5,651,190
For the year ended March 31, 1999
Revenue $ 2,726,807 $ 1,694,131 $(1,345,329) $ 3,075,609
Net loss (2,357,707) (111,715) 225,071 (2,244,351)
Identifiable assets 4,547,514 2,066,306 (2,335,604) 4,278,216
</TABLE>
(b) The breakdown of product sales by geographic area is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
------------------------------------------
<S> <C> <C> <C>
Canada $ 122,676 $ 322,968 $ 211,735
United States 467,766 1,246,270 1,338,704
Middle East 346,595 312,042 200,711
Asia 266,345 322,685 583,077
Europe 475,551 686,478 241,708
------------------------------------------
$1,678,933 $2,890,443 $2,575,935
==========================================
</TABLE>
(c) In the years ended March 31, 1999, 1998 and 1997 no end user
accounted for more than 5% of the Company's product sales. In
1999, approximately 20.3% of the company's product sales were
made through five distributors, with the largest representing
approximately 8 %. For the year ended March 31, 1998,
approximately 43% of the Company's product sales were made
through five distributors, with the largest representing
approximately 23.7%. For the year ended March 31, 1997, sales
to one major distributor amounted to approximately 27.5% of
total product sales.
- --------------------------------------------------------------------------
15. Contingent Liabilities
(a) The Company has been served with an action claiming breach of
contract regarding the Company's rights under two specific joint
venture and development agreements to use and distribute various
iterations of software components allegedly the sole property of
the claimant. The action claims damages for breach of contract
along with copyright and trademark infringement as a result.
The claim, as filed, seeks a total of $15.85 Million in damages
and is in progress in the Province of Ontario. Resolution
options remain open and the action is presently scheduled for
mediation in the fall of 1999.
Loss, if any, on the above claim will be recorded when
settlement is probable and the amount of the settlement is
estimable.
(b) During the year, the company settled claims which resulted in
additional expenses of $158,741 ($309,375 in 1998).
(c) In December, 1996, two individuals filed a lawsuit seeking
60,000 shares and 40,000 warrants. This action has been
formally dismissed. An additional three (3) shareholders have
also commenced related litigation, alleging purchase of our
securities from the previously noted two individuals, who are
named as co-defendants. We have filed and received default
judgments on our cross-claims against the two individual co-
defendants. The total number of shares of common stock claimed
under these suits is less than 15,000.
- --------------------------------------------------------------------------
16. Supplemental Disclosure of Cash Flow Information
Cash Paid during the year:
<TABLE>
<CAPTION>
1998 1999
----------------------
<S> <C> <C>
Interest $ 41,488 $ 42,711
----------------------
Non monetary transactions during the year:
Shares issued for investment in subsidiary $ - $ 93,750
Shares issued to settle lawsuits 355,158 83,457
Shares issued for conversion of debentures 50,000 50,000
----------------------
$405,158 $227,207
======================
</TABLE>
- --------------------------------------------------------------------------
17. Subsequent Event
The company is in the process of closing a private placement approved
by the Company's board of directors wherein 325,000 common shares of
the Company were offered at $2.00 per share. The offering was fully
subscribed with duly executed subscription documentation provided by
accredited investors.
- --------------------------------------------------------------------------
18. Uncertainty Due to the Year 2000 Issue
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems
may recognize the year 2000 as 1900 or some other date, resulting in
errors when information using year 2000 dates is processed. In
addition, similar problems may arise in some systems which use certain
dates in 1999 to represent something other than a date. The effects
of the Year 2000 Issue may be experienced before, on, or after January
1, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure
which could affect a company's ability to conduct normal business
operations. It is not possible to be certain that all aspects of the
Year 2000 Issue affecting the company, including those related to the
efforts of customers, suppliers, or other third parties, will be fully
resolved.
See accompanying summary of significant accounting policies and notes
to these Consolidated Financial Statements
1,314,441 SHARES
THE WIDECOM GROUP, INC.
COMMON STOCK
PROSPECTUS
, 2000
-------------------
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Article 6 of our By-Laws limits the personal liability of directors
and officers to us or our shareholders for monetary damages arising from a
breach of their fiduciary duty in certain circumstances. Article 6 of our
By-Laws also provides that we may indemnify our officers and directors to
the fullest extent permitted by the Ontario Business Corporations Act from
any liability and all costs, charges and expenses that such officer or
director sustains in respect to any action, suit or proceeding that is
proposed or commenced against him or her for or in respect the execution of
the duties of his or her office. Part IX of the Ontario Business
Corporations Act authorizes a corporation to indemnify directors and
officers unless such party has been adjudicated in any proceeding not to
have acted in good faith in the reasonable belief that his action was in
the best interests of the corporation. The effect of these provisions is to
permit such indemnification by us for liabilities arising under the
Securities Act.
Item 25. Other Expenses of Issuance and Distribution
We will bear all expenses in connection with the issuance and
distribution of the shares, including those set forth below. None of these
expenses will be borne by the selling shareholders.
<TABLE>
<CAPTION>
Items Amounts
- ---------------------------------------------------------------
<S> <C>
Securities and Exchange Commission
Registration Fee $ 1,751.85
Printing and Engraving Expenses $ 5,000.00*
Accounting Fees and Expenses $ 1,000.00*
Legal Fees and Expenses $35,000.00*
Blue Sky Fees and Expenses $15,000.00*
Transfer Agent and Registrar Fees $ 2,000.00*
Miscellaneous Fees and Expenses $ 0.00*
Total $59,751.85*
===========
<FN>
<F*> Estimated
</FN>
</TABLE>
Item 26. Recent Sales of Unregistered Securities
During fiscal 1999, our shareholders approved the engagement of Robb
Peck McCooey Clearing Corporation, Cantella & Associates and Quantum
Resources, Inc., three related financial services companies, to conduct a
private offering of our securities to raise funds for investment in
Widecom. The total amount of the offering price was $1,500,000. The
securities offered consisted of units, each unit consisting of 10,000
shares of our common stock, sold at $1.00 per share, and a 12% three-year
convertible note in the principal amount of $20,000. Each unit was sold at
the offering price of $30,000. A total of 9.5 units were sold during fiscal
1999 and the closing for an additional 0.5 units occurred after the fiscal
year end. In total, 95,000 shares of common stock were issued through the
offering during fiscal 1999 and an additional 5,000 shares of common stock
were issued in the first quarter of fiscal 2000. All placement agents were
granted warrants to purchase a total of 50,000 shares of our common stock
at an exercise price of $1.20. The offering was conducted under Rule 506 of
Regulation D, promulgated under the Securities Act.
Subsequently, we conducted an additional private placement of 325,000
shares of our common stock. Under the terms of the offering, each share was
offered at $2.00 per share and the total offering price was $650,000. This
offering was fully subscribed at the closing, which took place of July 6,
1999. The selling agent in this offering received warrants for the purchase
of 100,000 shares of our common stock at an exercise price of $2.00 per
share. The offering was conducted under Rule 506 of Regulation D,
promulgated under the Securities Act.
In the 1999 fiscal year we issued 13,500 shares of our common stock
to Goldstein & DiGioia, LLP, our counsel. These shares were issued as
compensation for services rendered, valued at $15,000. The value of the
shares on the date of issuance, April 12, 1999, was $1.50 per share, or
$20,250 in the aggregate. The amount was discounted due to the fact that
Goldstein & DiGioia received restricted securities.
During fiscal 1999, Raja S. Tuli Consulting loaned us a total of
$25,333 in order to relieve cash flow pressure for three specific payroll
periods. We have repaid that indebtedness by way of board of directors
approval of a transfer of 11,893 of our common shares.
In May, 1997, we completed a private offering under Regulation D
promulgated under the Securities Act, wherein we raised $250,000 in gross
proceeds in connection with the sale to a single investor of five units of
our securities. Each unit was comprised of the following: (1) one $50,000
principal amount convertible debenture and (2) a common stock purchase
warrant to purchase 2,500 shares. Under the debentures, the investor has
the right, at any time prior to the payment in full of the debentures, to
convert all or part of the unpaid balance of the debentures into shares of
our common stock. The conversion price is the lower of $20 or 80% of the
average closing bid price of Widecom's common stock as quoted on Nasdaq
system over the twenty trading days immediately preceding the date of the
our receipt of notice requesting conversion. In February, 1998, $50,000 of
the outstanding debentures were converted into 14,742 shares of common
stock. In April, 1998, an additional $50,000 of the debentures were
converted into 17,213 shares of common stock. On December 22, 1999, the
remaining $150,000 was converted into 21,310 shares of common stock. We
previously registered the shares of common stock underlying the debentures
and warrants in a registration statement which was declared effective by the
SEC in March, 1998.
On September 9, 1998, Raja S. Tuli, President and Chief Executive
Officer, Suneet S. Tuli, our Executive Vice President and Secretary, and
Lakhbir S.Tuli, an independent consultant for us and the father of Raja and
Suneet Tuli, purchased an aggregate of 294,117 shares of our common stock
at $.68 cents per share in a private transaction in full satisfaction of
indebtedness owed to them and to provide us with funds for working capital.
These issuances were exempt from registration pursuant to Section 4(2) of
the Securities Act of 1933, as amended and/or Regulation S, promulgated
thereunder.
Item 27. Exhibits.
The following exhibits are filed herewith.
* indicates that the exhibit is submitted as part of this filing
Exhibit
No. Description
- ----------------------
3.1 Articles of Incorporation (Exhibit 3.1 to Form F-1 Registration
Number 33-78004,filed May 6, 1994)
3.2 Bylaws (Exhibit 3.1 to Form F-1 Registration Number 33-
78004,filed May 6, 1994)
4. 1 Form of Common Stock Certificate (Exhibit 4.1 to Form F-1
Registration Number 33-78004, filed November 21, 1994)
4.2 Form of Warrant Issued in Widecom's Initial Public Offering
(Exhibit to Form F-1 Registration Number 33-78004, filed
November 21, 1994)
4.3 Form of Warrant Issued to Selling Shareholders (Exhibit 4.3 to
Form SB-2, Registration Number 333-89109, filed on October 15,
1999)
4.4 Form of Convertible Notes issued in 1999 private placement of
Units (Exhibit 4.4 to Form SB-2, Registration Number 333-89109,
filed on October 15, 1999)
5. Opinion of Goldstein & DiGioia, LLP., re: legality of shares (to
be filed upon further amendment)
10.1 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 on October 15, 1999)
10.2 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 on October 15, 1999)
10.3 Agreement, dated September 9,1998, by and between The Widecom
Group, Inc. and Cantella & Co.
10.4 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)
16.1 Letter from BDO Dunwoody, LLP on change in Certifying Accountant
(Exhibit 16.1 to Form 8-K, filed June 21, 1999)
22. Subsidiaries of Registrant (Exhibit 22.1 to Form F-1
Registration Number 33-78004, filed April 21, 1994)
23.1 Consent of Schwartz Levitsky Feldman, LLP, independent
accountants.*
23.2 Consent of Goldstein & DiGioia, LLP, contained in Exhibit 5.
23.3 Consent of BDO Dunwoody, LLP, independent auditors.*
Item 28. Undertakings
(a) We hereby undertake:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration
statement;
(i) To include any prospectus required by Section 10 (a) (3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement
(or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a
fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would
not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum
offering range may be reflected in the form of a
prospectus filed with the Commission under Rule 424(b)
if, in the aggregate, the changes in volume and price
represent no more than a twenty percent change in the
maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
SIGNATURES
According to the requirements of the Securities Act of 1933, we
certify that we have reasonable grounds to believe that we meet all of the
requirements for filing on Form SB-2 and have duly caused this first
amendment to our registration statement to be signed on our behalf by the
undersigned, thereunto duly authorized, in the City of Montreal, Quebec,
Canada, on January 31, 2000.
THE WIDECOM GROUP INC.
By: /s/ RAJA S. TULI
----------------
Raja S. Tuli
Chief Executive Officer and
President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below substitutes and appoints Raja S. Tuli his true and lawful
attorney-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and
thing requisite and necessary to be don in and about the premises, as fully
to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or his
substitute, may lawfully do or cause to be done by virtue hereof.
According to the requirements of the Securities Exchange Act of 1933,
this registration statement has been signed below by the following persons
on our behalf and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
- -------------------------------------------------------------------------------------------
<S> <C> <C>
/s/ RAJA S. TULI President, Chief Executive Officer and
Raja S. Tuli Director (Principal Executive Officer) January 31, 2000
/s/ WILLEM J. BOTHA Treasurer and Chief Financial Officer January 31, 2000
Willem J. Botha (Principal Financial and AccountingOfficer)
/s/ SUNEET S. TULI Executive Vice President of Sales and January 31, 2000
Suneet S. Tuli Marketing, Secretary and Director
/s/ BRUCE D. VALLILLEE Director January 31, 2000
Bruce D. Vallillee
/s/ AJIT SINGH Director January 31, 2000
Ajit Singh
/s/ Lt. Col. K.C. SHARMA Director January 31, 2000
Lt. Col. K.C. Sharma
</TABLE>
Schwartz Levitsky Feldman llp
CHARTERED ACCOUNTANTS
TORONTO, MONTREAL, OTTAWA
CONSENT OF SCHWARTZ LEVITSKY FELDMAN LLP
The undersigned, Schwartz Levitsky Feldman llp, Chartered Accountants
hereby consent to the use of our name and the use of our opinion dated July
5, 1999 on the consolidated financial statements of The WideCom Group Inc.
("the Company") included in the Second Amendment to Registration Statement-
Form SB-2/A(-1) being filed by the Company.
Toronto, Ontario /s/ Schwartz Levitsky Feldman llp
January 25, 2000 Chartered Accountants
1167 Caledonia Road
Toronto, Ontario M6A 2X1
Tel: 416 785 5353
Fax: 416 785 5663
BDO BDO Dunwoody LLP Royal Bank Plaza
Chartered Accountants P.O. Box 32
and Consultants Toronto Ontario Canada M5J 2J8
Telephone: (416) 865-0200
CONSENT OF
INDEPENDENT AUDITORS
The WideCom Group Inc.
Brampton, Ontario, Canada
We hereby consent to the use in the Registration Statement on Form SB-2 of
our report dated June 26, 1998 relating to the consolidated financial
statements of The WideCom Group, Inc., for the year ended March 31, 1998
and 1997.
We also consent to the reference to us under the caption "Experts" in the
Registration Statement.
Toronto, Ontario /s/ BDO Dunwoody LLP
January 27, 2000 CHARTERED ACCOUNTANTS
BDO Dunwoody LLP is a Limited Liability Partnership registered in Ontario
