The WideCom Group Inc.
Consolidated Financial Statements (Unaudited)
For the quarters ended December 31, 2001 and 2000
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 7,8
To the Board of Directors and
Shareholders of The WideCom Group Inc.
I have reviewed the balance sheet of The WideCom Group as at
December 31, 2001 and the statement of income the three months
then ended together with the statement of cash flows for the nine
months then ended. This review was made in accordance with
standards established by the American Institute of Certified Public
Accountants. Accordingly our review procedures consisted principally
of obtaining an understanding, by inquiries, of internal control over
financial reporting used in the preparation of interim financial information,
applying analytical procedures to pertinent financial information, reading
minutes, and making inquiries of certain officials of the Company
who have responsibility for financial and accounting matters.
A review does not constitute an audit and consequently I do not express
an audit opinion on these financial statements. Based on my review,
nothing has come to my attention that causes me to believe that these
financial statements are not, in all material respects, in accordance with
generally accepted accounting principles.
Mississauga, Ontario. CHARTERED ACCOUNTANT
28-Mar-02
The WideCom Group Inc.
Consolidated Balance Sheet
(in United States dollars)
December 31,
2000 2001
Current Assets Notes
Cash and cash equivalents 55,373.00 7,217.00
Accounts receivable 669,614.00 330,043.00
Inventory 3 794,296.00 410,670.00
Prepaid expenses 4,933.00 21,011.00
Advances to related parties 341,780.00 204,334.00
Deferred financing costs 19,799.00 9,802.00
Total Current Assets 1,885,795.00 983,077.00
Capital Assets 4 1,046,281.00 598,899.00
Purchased research and
development technology 25,217.00 13,998.00
Investment in affiliate 134,652.00 -
Total Assets 3,091,945.00 1,595,974.00
Liabilities & Stockholders' Equity
Current Liabilities
Bank indebtedness 206,525.00 130,105.00
Accounts payable & accrued liabilities 523,075.00 569,128.00
Loans from related parties 569,393.00 731,117.00
Convertible debentures 5 193,318.00 180,085.00
Total Current Liabilities 1,492,311.00 1,610,435.00
Stockholders' Equity
Common shares
5,000,000* shares authorized of no par value
2,443,730* shares issued and outstanding on
March 31, 2000
2,633,585* shares issued and outstanding on
June 30, 2001 14,703,589.00 14,711,179.00
Contributed surplus 159,825.00 159,825.00
Deficit -13,263,780.00 -14,885,465.00
1,599,634.00 -14,461.00
Total Liabilities &
Stockholders' Equity 3,091,945.00 1,595,974.00
* Adjusted for reverse split of Company's stock (1:4) on January 29, 1999.
The accompanying notes are an integral part of the consolidated financial
statements.
Page 4
The WideCom Group Inc.
Consolidated Statements of Operations
(in United States dollars) For the 3 months ended For the 9 months ended.
Dec-31 Dec-31 Dec-31 Dec-31
2000 2001 2000 2001
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenue
Product sales 499,903 115,514.00 1,392,269.00 349,145.00
Interest income 1,004 90.00 2,133.00 312.00
Total Revenue 500,907 115,604.00 1,394,402.00 349,457.00
Expenses
Cost of product sales 119,273 27,756.00 315,110.00 86,133.00
Research & development 7,980 181,691.00 55,635.00 277,278.00
Selling,genral & administrative 224,650 121,518.00 764,650.00 343,156.00
Interest & bank charges 9,239 594.00 29,988.00 6,947.00
Management fees & salaries 84,325 53,770.00 187,493.00 105,728.00
Amortization 63,488 20,251.00 188,263.00 75,688.00
Financing fees 5,050 - 17,575.00 -
Foreign exch. loss(gain) 52,988 239.00 -75,819.00 2,731.00
Total Expenses 461,017 405,819.00 1,482,895.00 897,661.00
Operating (loss) income 39,890 -290,215.00 -88,493.00 -548,204.00
Legal settlement costs - - - -
Equity in loss of affiliate -190,334 -159,193.00
Net loss for the period 39,890 -290,215.00 -278,827.00 -707,397.00
Loss per common share, basic
and diluted 0.02 -0.11 -0.11 -0.27
Weighted average number of shares
outstanding* 2,443,730 2,633,585.00 2,633,585.00 2,633,585.00
* Adjusted for reverse split of Company's stock (1:4) on Jan. 29, 1999
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
Dec-31 Dec-31
2000 2001
(Unaudited) (Unaudited)
Cash provided by (used in)
Operating Activities
Loss for the period -278,826.00 -707,397.00
(Add (deduct) items not requiring a cash outlay)
Amortization 188,263.00 75,688.00
Foreign exchange loss (gain) - 75,819.00 2,731.00
Share issued to settle lawsuits and corporate
indebtedness - -
Equity in loss of affiliate 190,334.00 159,193.00
Net changes in non-cash
Working capital balances related to operations:
Decrease (increase) in receivables -104,893.00 113,754.00
Decrease (increase) in inventory 85,095.00 332,889.00
Increase (decrease) in accounts payable and accrued
liabilities -257,026.00 -193,509.00
Increase (decrease) in prepaid expenses 13,932.00 1,201.00
-238,940.00 -215,450.00
Investing Activities
Disposal (purchase) of capital assets 843.00 -
Advances to related parties -105,324.00 92,736.00
-104,481.00 92,736.00
Financing Activities
Deferred financing costs
Increase (decrease) in bank indebtedness 33,134.00 -40,194.00
Shares and warrants issued, net of issue costs - -
Loan from related parties 199,947.00 85,632.00
Issuance of convertible debentures - - 233,081.00 45,438.00
Effect of exchange rate change on cash 154,400.00 14,917.00
Net increase (decrease) in cash during the period 44,060.00 -62,359.00
Cash and cash equivalents, beginning of the period 11,314.00 69,576.00
Cash and cash equivalents, end of the period 55,374.00 7,217.00
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)
31-Dec-01
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, 2001,
and the results of operations for the three months ended
December 31, 2001 and 2000 and cash flows for the nine
months ended December 31, 2001. Interim results are not
necessarily indicative of results for full year.
The condensed consolidated financial statements and notes
are presented as permitted by Form 10QSB and do not contain
certain information included in Widecom's audited consolidated
financial statements and notes for the fiscal year ended
March 31, 2001.
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: 2000 2001
Raw material 555,142.00 361,806.00
Work-in-progress 44,900.00 20,181.00
Finished goods 194,254.00 28,683.00
794,296.00 410,670.00
4. Capital Assets
Capital assets consist of: 31-Dec-00 31-Dec-01
Accumulated Accumulated
Cost Amortization Cost Amortization
Machinery,plant&computer equipment 1,926,865 1,430,542 1,646,001 1,489,951
Furniture and fixtures 102,020 87,156 91,395 78,433
Prototypes& jigs 291,156 175,906 239,494 154,198
Land 56,608 - 45,806 -
Building under construction 363,236 - 298,785 -
2,739,885 1,693,604 2,321,481 1,722,582
Net book value 1,046,281 598,899
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 subordinated 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)
31-Dec-01
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 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. Contingent Liabilities
(a) The Company has been served with a claim, with respect
to a breach of contract regarding the Company's rights under
two specific joint venture and development agreements to use
and distribute various iterations of software components allegedly
the sole property of the claimant. The action claims damages for
breach of contract along with copyright and trademark infringement.
The claim seeks a total of $15.85 million in damages and is in
progress in the Province of Ontario. Management considers that the
prospects of a successful resolution are likely.
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 of the reporting date, this amount was not determinable.
Page 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Since inception, we have generated limited revenues from operations and
have not yet achieved significant profitability. Our revenues are primarily
derived from product sales that are recognized when products are shipped.
We have limited revenue from operations, significant losses and have a
significant deficit. Due to limited cash resources, we have often relied on
cash infusions from management to meet ongoing obligations. There is no
certainly that such access to funds will be available to us in the future. In
order to reduce our losses, we have significantly reduced Selling, General and
Administrative costs. We expect this to have a reduction on sales.
While we received government grants in the past, we do not meet the
required pre-qualification for such grants subsequent to conducting our
public offering. In consideration of this fact, we shifted our research and
development to an affiliated joint venture based in Montreal, Canada.
In February 2000, we established a majority-owned subsidiary,
Posternetwork.COM Inc., to engage in the business line of offering an
online printing service. Posternetwork is currently engaged in
organizational and financing activities.
Results of Operations
Quarter Ended December 31, 2001 Compared to Quarter Ended
December 31,2000 Sales for the quarter ended December 31, 2001
were $115,514 a decrease of $384,389 as compared to $499,903 for
the quarter ended December 31,2000. Net Revenue for the quarter
ended December 31, 2001 were $87,848, a decrease of $293,786
as compared to $381,634 for the quarter ended December 31,2000.
The decline in revenue was attributed to a decrease in selling activities.
Operating expenses for the quarter ended December 31, 2001 were
$378,064 an increase of $36320, as compared to $341,744 for the quarter
ended December 31,2000. This is mainly due to the increased in Research
and Development Expenses. Selling, general and administrative expenses
for the quarter ended December 31, 2001 were $121,518, decreased by
$103,132, versus the same period in the previous fiscal year. This
reduction in selling, general and administrative expenses is a result
of our efforts to preserve our cash resources. Research and
development cost has been increased by $173,711 in comparison
to the previous fiscal period.
Liquidity and Capital Resources
Our primary cash requirements have been to fund inventories and to
meeting operations expenses incurred in connection with the
commercialization of our products. We meet 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.
Our cash requirements in connection with manufacturing and marketing
will continue to be significant. We do not have any material commitments
for capital expenditures. We believe, based on our current plans and
assumptions relating to our operations, projected cash flow from
operations may not be sufficient to satisfy our contemplated cash
requirements for the foreseeable future. We have relied on
investments from management to cover our short falls in the last
fiscal year, such investment may not be available to us in the future.
In the event that our plans or assumptions change, or prove to be
incorrect, or if the projected cash flows otherwise prove to be
insufficient to fund operations (due to unanticipated expenses,
delays, problems or otherwise), we could be required to seek
additional financing sooner than currently anticipated. There
can be no assurance that this additional financing will be available
to us when needed, on commercially reasonable terms, or at all.
Nasdaq
The Company's Common Stock was delisted from the Nasdaq Small Cap
Market effective the close of business April 10, 2001 for failure to meet
certain minimum net tangible asset requirements. The stock continues to
trade on the OTC Bulletin Board.
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 28, 2001 /s/Suneet S. Tuli
------------------ ----------------------
Date Suneet S. Tuli,
Executive Vice President