The WideCom Group Inc.
Consolidated Financial Statements (Unaudited)
For the quarters ended June 30, 2002 and 2001
Together with Review Engagement Report
TABLE OF CONTENTS
Accountant's Review Report 3
Consolidated Balance Sheets 4
Consolidated Statements of Operations 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7 & 8
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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 June
30, 2002, and the related consolidated statements of operations and
cash flows for the three-month 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 June 30,2002, 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
August 19, 2002 Chartered Accountant
Page 3
The WideCom Group Inc.
Consolidated Balance Sheet
(in United States dollars)
June 30,
2001 2002
Current Assets Notes
Cash and cash equivalents 27749 40451
Accounts receivable 438001 241534
Inventory 3 708399 477751
Prepaid expenses 19817 35182
Advances to related parties 295658 190082
Deferred financing costs 14811
Total Current Assets 1504435 985000
Capital Assets 4 641024 567058
Purchased research and
development technology 14811 0
Investment in affiliate 84650 0
Total Assets 2244920 1552058
Liabilities & Stockholders' Equity
Current Liabilities
Bank indebtedness 168494 144815
Accounts payable & accrued liabilities 732251 436729
Loans from related parties 658481 841468
Convertible debentures 5 180085 181841
Total Current Liabilities 1739311 1604853
Stockholders' Equity
Common shares
5,000,000 shares authorized of no par value
2,633,585 shares issued and outstanding on
June 30, 2001
2,633,585 shares issued and outstanding on
June 30, 2002 14711179 14711179
Contributed surplus 159825 159825
Deficit -14365395 -14923799
505609 -52795
Total Liabilities & Stockholders' Equity 2244920 1552058
The accompanying notes are an integral part of the financial statements.
Page 4
The WideCom Group Inc.
Consolidated Statements of Operations
(in United States dollars) For the three months ended
June 30, June 30,
2001 2002
(Unaudited) (Unaudited)
Revenue
Product sales 85752 139560
Research and development grants 0
Interest income 91 140
Total Revenue 85843 139700
Expenses
Cost of product sales 22166 37118
Research and development 11792 69937
Selling, general & administrative 100532 109378
Interest and bank charges 3368 3545
Management fees & salaries 39500 13823
Amortization 23627 16342
Financing fees 0
Foreign exchange loss (gain) -2358 2704
Total Expenses 198627 252847
Operating loss -112784 -113147
Legal settlement costs 0
Equity in loss of affiliate -74543
Net loss for the period -187327 -113147
Loss per common share, basic
and diluted -0.07 -0.04
Weighted average number of shares outstanding* 2633585 2633585
The accompanying notes are an integral part of the financial statements.
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The WideCom Group Inc.
Consolidated Statements of Cash Flows
(in United States dollars) For the three months ended
June 30, June 30,
2001 2002
(Unaudited) (Unaudited)
Cash provided by (used in)
Operating Activities
Loss for the year -187327 -113147
(Add (deduct) items not requiring a cash outlay)
Amortization 23626 16342
Foreign exchange loss (gain) -2358 2704
Share issued to settle lawsuits and corporate
indebtedness 0 0
Equity in loss of affiliate 74543 0
Net changes in non-cash
Working capital balances related to operations:
Decrease (increase) in accounts receivable 10908 -9080
Decrease in research and development grants receivable 0 0
Decrease (increase) in inventory 35160 56291
Increase (decrease) in accounts payable and accrued
liabilities -1805 -44223
Increase (decrease) in prepaid expenses -245 -13693
-47497 -104806
Investing Activities
Disposal (purchase) of capital assets 0 0
Advances (to) related parties 1412 47176
1412 47176
Financing Activities
Deferred financing costs incurred 0 0
Increase (decrease) in bank indebtedness -1805 45080
Shares and warrants issued, net of issue costs 0
Loan from related parties 12996 37657
Issuance of convertible debentures 0
11191 82737
Effect of exchange rate change on cash -6933 -12405
Net increase (decrease) in cash during the period -41827 12702
Cash and cash equivalents, beginning of the period 69576 27749
Cash and cash equivalents, end of the period 27749 40451
The accompanying notes are an integral part of the financial statements.
Page 6
The WideCom Group Inc.
Notes to Consolidated Financial Statements (Unaudited)
(in United States dollars)
30-Jun-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 June 30, 2002, and the results of operations for the
three months ended June 30, 2002 and 2001 and cash flows for the
three months ended June 30, 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
June 30, June 30,
Inventories are summarized as follows: 2001 2002
Raw material 577802 297974
Work-in-progress 7659 20600
Finished goods 122938 106629
R & D Inventory 0 52548
708399 477751
4. Capital Assets
Capital assets consist of: 30-Jun-01 30-Jun-02
Accumulated Accumulated
Cost Amortization Cost Amortization
"Machinery, plant & computer equipment 1646001 1463619 1648168 1519097
Furniture and fixtures 91395 77033 91395 79906
Prototypes and jigs 239494 139805 239494 157587
Land 45806 0 45806 0
Building under construction 298785 0 298785 0
2321481 1680457 2323648 1756590
Net book value 641024 567058
5. Convertible Debentures
During 1999, the Company conducted a private placement of ten specific
investment units, each comprising 10,000 common shares ( see Note 10(b)(x))
and a three-year 12% convertible subordinated note in the amount of $20,000.
Interest payments are payable quarterly and conversion is available at an
exercise price of $1.00 per share. One-half of the principal amount of the
note is exercisable during the 30 day period commencing 180 days from the
initial closing on February 19, 1999. The remaining principal amount
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The WideCom Group Inc.
Notes to Consolidated Financial Statements
(in United States dollars)
30-Jun-01
5. Convertible Debentures (cont'd)
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. As at June 30, 2002 approximately $99,925 was utilized.
(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's revised offer (a) to make an initial payment of
$20,000 CDN 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
quarter currently 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 the balance sheet 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 June 30, 2002 Compared to Quarter Ended June 30,
2001 Sales for the quarter ended June 30, 2002 were $ 139,560
an increase of $53,808 as compared to $85,752 for the quarter ended
June 30,2001. Net Revenue for the quarter ended June 30, 2002 were
$139,700, an increase of $53,857 as compared to $85,843 for the
quarter ended June 30, 2001.
The increase in revenue was attributed to increase in selling activities.
Operating expenses for the quarter ended June 30, 2002 were $252,847
an increase of $54,220, as compared to $198,627 for the quarter
ended June 30, 2001. This is mainly due to the increased in Research
and Development Expenses. Selling, general and administrative expenses.
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.
August 19, 2002 /s/Suneet S. Tuli
------------------ ----------------------
Date Suneet S. Tuli,
Executive Vice President