The WideCom Group Inc. Consolidated Financial Statements (Unaudited) "For the quarters ended December 31, 2002 and 2001" Together with Review Engagement Report TABLE OF CONTENTS Review Engagement Report 3 Consolidated Balance Sheets 4 Consolidated Statements of Operations 5 Consolidated Statements of Cash Flows 6 Notes to Consolidated Financial Statements 7- 9 Page 2 REVIEW ENGAGEMENT REPORT To the Board of Directors and Stockholders of The WideCom Group Inc. "Mississauga, Ontario" Chartered Accountant Page 3 The WideCom Group Inc. Consolidated Balance Sheet (in United States dollars) December 31, 2001 2002 Current Assets Notes Cash and cash equivalents 7,217 19,383 Accounts receivable 330,043 201,346 Inventory 3 410,670 356,320 Prepaid expenses 21,011 34,942 Advances to related parties 204,334 128,304 Deferred financing costs 9,802 - Total Current Assets 983,077 740,295 Capital Assets 4 598,899 553,145 Purchased research and development technology 13,997 - Investment in affiliate - - Total Assets 1,595,973 1,293,440 Liabilities & Stockholders' Equity Current Liabilities Bank indebtedness 7 130,104 112,289 Accounts payable and accrued liabilities 569,128 434,834 Loans from related parties 6 731,117 858,618 Convertible debentures 5 180,085 181,841 Total Current Liabilities 1,610,434 1,587,582 Stockholders' Equity Common shares 5,000,000* shares authorized of no par value 2,633,585* shares issued and outstanding on Dec 31, 2001 2,633,585* shares issued and outstanding on Dec 31, 2002 14,711,179 14,711,179 Contributed surplus 159,825 159,825 Deficit (14,885,465) (15,178,537) (14,461) (307,533) Total Liabilities & Stockholders' Equity 1,595,973 1,280,049 The accompanying notes are an integral part of the consolidated financial statements. Page 4 The WideCom Group Inc. Consolidated Statements of Operations For the nine (in United States dollars) For the three months ended months ended December 31, December 31, December 31, 2001 2002 2002 (Unaudited) (Unaudited) (Unaudited) Revenue Product sales 115,514 100,111 100,111 Research and development grants - - - Interest income 90 86 86 Total Revenue 115,604 100,197 100,197 Expenses Cost of product sales 27,756 26,109 26,109 Research and development 181,691 39,163 39,163 Selling, general and administrative 121,518 77,163 77,163 Interest and bank charges 594 1,075 1,075 Management fees and salaries 53,770 19,631 19,631 Amortization 20,251 13,391 13,391 Financing fees - - - Obsolete Inventory w/off - 26,709 26,709 Foreign exchange loss (gain) 239 4,852 4,852 Total Expenses 405,819 208,093 208,093 Operating loss (290,215) (107,896) (107,896) Legal settlement costs - - - Equity in loss of affiliate (84,650) - - Net loss for the period (374,865) (107,896) (107,896) Loss per common share, basic and diluted (0.14) (0.04) (0.04) Weighted average number of shares outstanding* 2,633,585 2,633,585 2,633,585 The accompanying notes are an integral part of the consolidated financial statements. Page 5 The WideCom Group Inc. Consolidated Statements of Cash Flows (in United States dollars) For the nine months ended December 31, December 31, 2001 2002 (Unaudited) (Unaudited) Cash provided by (used in) Operating Activities Loss for the year (707,397) (107,896) (Add (deduct) items not requiring a cash outlay) Amortization 75,688 13,391 Foreign exchange loss (gain) 2,731 4,852 Equity in loss of affiliate 159,193 - Net changes in non-cash Working capital balances related to operations: Decrease (increase) in receivables 113,754 31,108 Decrease in research and development grants receivable Decrease (increase) in inventory 332,889 177,722 Increase (decrease) in accounts payable and accrued liabilities (193,509) (46,118) Increase (decrease) in prepaid expenses/other 1,201 (13,453) (215,450) 59,606 Investing Activities Disposal (purchase) of capital assets - - Advances to related parties 92,736 108,954 92,736 108,954 Financing Activities Deferred financing costs Increase (decrease) in bank indebtedness (40,194) 12,554 Shares and warrants issued, net of issue costs - - Loan from related parties 85,632 54,807 Issuance of convertible debentures - - 45,438 67,361 Effect of exchange rate change on cash 14,917 (12,034) Net increase (decrease) in cash during the period (62,359) 223,887 Cash and cash equivalents, beginning of the period 69,576 #REF! Cash and cash equivalents, end of the period 7,217 19,383 The accompanying notes are an integral part of the consolidated financial statements. Page 6 The WideCom Group Inc. Notes to Consolidated Financial Statements (Unaudited) (in United States dollars) December 31, 2002 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 December 31, 2002, and the results of operations for the three months ended december 31, 2002 and 2001 and cash flows for the nine months ended December 31, 2002. Interim results are not necessarily indicative of of results for full year. The condensed consolidated financial statements and notes are presented as permitted by Form 10QSB and do not contain certain information included in Widecom's audited consolidated financial statements and notes for the fiscal year ended March 31, 2002. 2. Financial Statements The consolidated financial statements include the accounts of Widecom and its wholly "owned subsidiary. All significant intercompany balances, transactions and stockholdings" have been eliminated. 3. Inventory December 31 December 31 Inventories are summarized as follows: 2001 2002 Raw material 361,806 235,538 Work-in-progress 20,181 19,267 Finished goods 28,683 48,574 R & D Inventory - 52,941 410,670 356,320 4. Capital Assets Capital assets consist of: December 31, 2001 December 31, 2002 Accumulated Accumulated Cost Amortization Cost Amortization Machinery, plant & computer equipment 1,646,001 1,489,951 1,648,168 1,528,777 Furniture and fixtures 91,395 78,433 91,395 80,480 Prototypes and jigs 239,494 154,198 239,494 161,682 Land 45,806 - 45,806 - Building under construction 298,785 - 299,221 - 2,321,481 1,722,582 2,324,084 1,770,939 Net book value 598,899 553,145 5. Convertible Debentures During 1999, the Company conducted a private placement of ten specific investment units, each comprising 10,000 common shares and a three-year 12% convertible subor- dinated 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 Page 7 The WideCom Group Inc. Notes to Consolidated Financial Statements (in United States dollars) December 31, 2002 5. Convertible Debentures (cont'd) amount is convertible following 360 days after the initial closing. During the fiscal year ended March 31, 2000, the Company issued the remaining one-half unit comprising of 5,000 common shares ( see Note 10(b)(x)) and a three-year 12% convertible subordinated note in the amount of $10,000. The Company is presently in default on the interest payments on the 12% convertible debentures. The consequences of this default has not been determined. 6. Loans from Related Parties The loans from related parties are non-interest bearing, due on demand and were advanced to the Company in order to assist in certain working capital requirements. 7. Bank indebtedness (a) The Company has an operating line of credit available for approximately $100,000 which bears interest at prime rate plus 0.75%, is due on demand, and is secured by a general security agreement over all Company assets except real property. (b) In February 2002, the Royal Bank of Canada (RBC) served through its attorneys a notice upon the Company demanding immediate repayment of the outstanding debt. A few weeks later RBC accepted a settlement offer made by the Company's management. In April 2002, however, RBC reneged, and WideCom threatened legal action against RBC for breach of contract. In response, RBC agreed to consider WideCom revised offer (a) to make an initial payment of $20,000 CAN followed by a monthly payment of #5,000 CDN until the entire amount has been settled, and (b) a personal guarantee of $20,000 CDN by one of the executives of the Company. As of the date of the accountant's review report, the matter has remained unresolved, pending a firm response from RBC. In the event of a non-acceptance by RBC of the Company's revised offer, management may have to resort to legal action against the bank, the outcome whereof, at the present time (i.e. the date of the accountant's review report) is extremely hard to predict. 8. Contingent Liabilities (a) The Company has been served with a claim, with respect to a breach of contract In the prior years the Company had been served with a claim with respect to an alleged 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 claimed damages for breach of contract along with copyright and trademark infringement. The claim sought a total of $15.85 million in damages and was in progress in the Province of Ontario. During the previous quarter to the quarter being reported on, the claim has been settled for $CDN 5,000 in cash and 100,000 shares in the Company. These shares have not yet been issued and are not reflected in these financial statements or in these accompanying notes elsewhere. Several other claims against the Company are in various stages of litigation. In management's opinion, these claims are not material and accordingly no provision has been made in the consolidated financial statements. Loss, if any, on the above claims will be recorded when settlement is probable and the amount of the settlement is estimable. (b) The Company's wholly owned subsidiary, Indo WideCom International Ltd., in India, has not met export obligations for the fiscal year which may result in additional customs duty levied by the authorities in India. As at year end, this amount was not determinable. Page 8 Page 8 The WideCom Group Inc. Notes to Consolidated Financial Statements (in United States dollars) December 31, 2002 8. Investment in Affiliate December 31, 2001 2002 3294340 Canada Inc. Nil Nil 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 approx. $1,875,000. The investee carries on research and development activities in order to develop improvements, modifications, additions or alteration to the intellectual property and to develop new products. In connection with the transaction, the Company also entered into a Stock Exchange Agreement with Societe Innovatech du Grand Montreal (""Innovatech""), an economic development agency of the government of the Province of Quebec, pursuant to which Innovatech would be permitted, under certain circumstances, to exchange its 45% interest for up to 63,250* common shares of the Company. During the fiscal year ended March 31, 2000, Innovatech had made a request to convert 80% of its shares in 329430 Canada Inc. into the Company's common stock. During the fiscal year ended March 31, 2001, the Company issued 50,600 shares to Innovatech. As a result of another transaction with M.S. Judge Systems, and with the other shareholders of 329430 Canada Inc., the Company had no further stake in the affiliate. At the end of September 2001, the asset value of the Company's investment in its affiliate became nil, and the Company divested itself of its stake in 329430 Canada Inc.
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10-Q Filing
Widecom (WIDEE) Inactive 10-Q2003 Q3 Quarterly report
Filed: 3 Mar 03, 12:00am