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
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Z A F A R H U S A I N S I D D I Q U I
C H A R T E R E D A C C O U N T A N T
2 Robert Speck Pkwy, Suite 750
Mississauga, Ontario L4Z 1H8
Phone: (905) 677-7777
Fax: (905) 272-5333
INDEPENDENT ACCOUNTANT'S REVIEW REPORT
To the Board of Directors of
The WideCom Group Inc.
I have reviewed the accompanying consolidated Balance Sheet of The
WideCom Group Inc. (incorporated in Ontario, Canada) as of December
31, 2002, and the related consolidated statements of operations and
cash flows for the period then ended. These consolidated
financial statements are the responsibility of the company's management.
I conducted my review in accordance with the standards established
by the American Institute of Certified Public Accountants. A review
of interim financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope than
an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion regarding
the financial statements taken as a whole. Accordingly, we do not express
such an opinion.
Substantial doubts existed, especially in view of a negative net equity
as at December 31,2002, as well as on the date of this report, as to the
Company's ability to continue to meet its obligations and commitments
and also with regards to its ability to continue to generate sufficient
amounts of cash flows from its operations to maintain its solvency
for a reasonable period of time without continued, substantial financial
support from the personal resources of two of its directors and one key
employee who is very closely related to those two directors.
Information from management does not provide definitive confirmation
of the related willingness and ability of the above mentioned individuals.
As more fully explained in Note 7(b), the Company's ability to
continue as a going concern may also be jeopardized by a decision
by a secured creditor (a financial institution) to enforce its demand for
an immediate, full repayment by the company of its indebtedness even
though such an action might be considered by management to be unlikely,
extreme, unscrupulous, or unwarranted.
As mentioned in Note 8(a), the Company is committed to issuing 100,000
common shares to a claimant of alleged infringement of software and
trademark ownership rights as part of an out-of-court settlement. As of the
date of this report, those shares are yet to be issued. The effects of those
to-be-issued shares on the financial statements have not been included.
Except for the matters discussed above, based on my review, I am not
aware of any material modifications that should be made to the accompanying
financial statements for them to be in conformity with generally accepted
accounting principles.
Mississauga, Ontario
March 03, 2003 Chartered Accountant.
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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 4 598,899 539,754
Purchased research and
development technology 13,997 -
Investment in affiliate - -
Total Assets 1,595,973 1,280,049
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.
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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 115,514 100,111 443,704
Research and developmentgrants - - -
Interest income 90 86 304
Total Revenue 115,604 100,197 444,008
Expenses
Cost of product sales 27,756 26,109 114,973
Research and development 181,691 39,163 186,227
Selling,generalandadministrative121,518 77,163 318,389
Interest and bank charges 594 1,075 7987
Management fees and salaries 53,770 19,631 47,360
Amortization 20,251 13,391 44,083
Financing fees - - -
Obsolete Inventory w/off - 26,709 81,277
Foreign exchange loss (gain) 239 4,852 11,597
Total Expenses 405,819 208,093 811,893
Operating loss (290,215) (107,896) (367,885)
Legal settlement costs - - -
Equity in loss of affiliate(84,650) - -
Net loss for the period (374,865) (107,896) (367,885)
Loss per common share, basic
and diluted (0.14) (0.04) (0.14)
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.
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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) (367,885)
(Add (deduct) items not requiring a cash outlay)
Amortization 75,688 44,083
Foreign exchange loss (gain) 2,731 11,597
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) (162,946)
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) 1,335
Cash and cash equivalents,
beginning of the period 69,576 18,048
Cash and cash equivalents,
end of the period 7,217 19,383
The accompanying notes are an integral part of the consolidated financial statements.
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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 1,537,731
Furniture and fixtures 91,395 78,433 91,395 81,026
Prototypes and jigs 239,494 154,198 239,494 165,573
Land 45,806 - 45,806 -
Building under
construction 298,785 - 299,221 -
2,321,481 1,722,582 2,324,084 1,784,330
Net book value 598,899 539,754
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
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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) 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.
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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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PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
-See Contingent Liabilities.
ITEM 2. CHANGES IN SECURITIES.
No material change.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. REPORTS ON FORM 8-K and EXHIBITS
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE WIDECOM GROUP INC.
March 03, 2003 /s/ Suneet S. Tuli
- - - ------------------ ----------------------
Date Suneet S. Tuli,
Executive Vice President
March 03, 2003 /s/Raja S. Tuli
- - - ------------------ ----------------------
Date President, C.E.O
