FINANCIALS FOR THE QARTER ENDED SEPTEMBER 30, 2002
THE WIDECOM GROUP INC.
Consolidated Financial Statements (Unaudited)
For the quarters ended September 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 to 10
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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 September
30, 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 September 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
November 14, 2002 Chartered Accountant.
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The WideCom Group Inc.
Consolidated Balance Sheet
(in United States dollars)
Sep-30
2001 2002
Current Assets Notes
Cash and cash equivalents 7,771 25,118
Accounts receivable 423,194 229,153
Inventory 3 528,457 421,093
Prepaid expenses 21,263 35,182
Advances to related parties 295,658 125,350
Deferred financing costs 9,802 -
Total Current Assets 1,286,145 835,896
Capital Assets 4 620,963 553,145
Purchased research and
development technology 5 13,997 -
Investment in affiliate 6 - -
Total Assets 1,921,105 1,389,041
Liabilities & Stockholders' Equity
Current Liabilities
Bank indebtedness 120,609 111,387
Accounts payable and accrued liabilities 606,675 417,127
Loans from related parties 737,981 878,323
Convertible debentures 5 180,085 181,841
Total Current Liabilities 1,645,350 1,588,678
Stockholders' Equity
Common shares
5,000,000* shares authorized of no par value
2,633,585* shares issued and outstanding on
Sept 30, 2001
2,633,585* shares issued and outstanding on
Sept 30, 2002 14,711,179 14,711,179
Contributed surplus 159,825 159,825
Deficit -14,595,249 -15,070,641
275,755 -199,637
Total Liabilities & Stockholders' Equity 1,921,105 1,389,041
Accompanying notes are integral part of consolidated financial statements.
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The WideCom Group Inc.
Consolidated Statements of Operations
(in United States dollars) For the three months ended For the six
Sep-30 Sep-30 months ended
2001 2002 Sept. 30, 2002
(Unaudited) (Unaudited) (Unaudited)
Revenue
Product sales 147,879 204,033 343,593
Research and development grants - - -
Interest income 131 78 218
Total Revenue 148,010 204,111 343,811
Expenses
Cost of product sales 36,211 51,746 88,864
Research and development 83,795 77,127 147,064
Selling, general and administrative 121,106 131,848 241,226
Interest and bank charges 2,985 3,367 6,912
Management fees and salaries 12,458 13,906 27,729
Amortization 31,810 14,350 30,692
Financing fees - - -
Obsolete Inventory w/off - 54,568 54,568
Foreign exchange loss (gain) 4,850 4,041 6,745
Total Expenses 293,215 350,953 603,800
Operating loss -145,205 -146,842 -259,989
Legal settlement costs - - -
Equity in loss of affiliate -84,650 - -
Net loss for the period -229,855 -146,842 -259,989
Loss per common share, basic
and diluted -0.09 -0.06 -0.1
Weighted average number of shares outstanding*
2,633,585 2,633,585 2,633,585
Accompanying notes are integral part of consolidated financial statements.
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The WideCom Group Inc.
Consolidated Statements of Cash Flows
(in United States dollars) For the six months ended
Sep-30 Sep-30
2001 2002
(Unaudited) (Unaudited)
Cash provided by (used in)
Operating Activities
Loss for the year -417,182 -259,989
(Add (deduct) items not requiring a cash outlay)
Amortization 55,437 30,692
Foreign exchange loss (gain) 2,492 6,745
Equity in loss of affiliate 159,193 -
Net changes in non-cash
Working capital balances related to operations:
Decrease (increase) in receivables 30,724 3,301
Decrease in research and development grants receivable - -
Decrease (increase) in inventory 215,102 112,949
Increase (decrease) in accounts payable and accrued
liabilities -155,962 -63,825
Increase (decrease) in prepaid expenses 1,201 -13,693
-108,995 -183,820
Investing Activities
Disposal (purchase) of capital assets - -436
Advances to related parties 1,412 111,908
1,412 111,472
Financing Activities
Deferred financing costs
Increase (decrease) in bank indebtedness -49,690 11,652
Shares and warrants issued, net of issue costs - -
Loan from related parties 92,496 74,512
Issuance of convertible debentures - -
42,806 86,164
Effect of exchange rate change on cash 2,972 -6,746
Net increase (decrease) in cash during the period -61,805 7,070
Cash and cash equivalents, beginning of the period 69,576 18,048
Cash and cash equivalents, end of the period 7,771 25,118
Accompanying notes are integral part of consolidated financial statements.
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The WideCom Group Inc.
Notes to Consolidated Financial Statements (Unaudited)
(in United States dollars)
30-Sep-02
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, 2002, and the results of operations for the three
months ended September 30, 2002 and 2001 and cash flows for the six months
ended September 30, 2002. 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, 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
Sep-30 Sep-30
Inventories are summarized as follows: 2001 2002
Raw material 442,987 228,805
Work-in-progress 28,218 18,713
Finished goods 57,252 105,634
R & D Inventory - 52,941
528,457 406,093
4. Capital Assets
Capital assets consist of: 30-Sep-01 30-Sep-02
Accumulated Accumulated
Cost Amortization Cost Amortization
Machinery, plant & computer 1,646,001 1,476,163 1,648,168 1,528,777
Furniture and fixtures 91,395 77,692 91,395 80,480
Prototypes and jigs 239,494 146,663 239,494 161,682
Land 45,806 - 45,806 -
Building under construction 298,785 - 299,221 -
2,321,481 1,700,518 2,324,084 1,770,939
Net book value 620,963 553,145
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 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
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The WideCom Group Inc.
Notes to Consolidated Financial Statements
(in United States dollars)
30-Sep-02
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. As at Sept 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
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.
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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 for accounting
purposes 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 its
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 Sept 30, 2002 Compared to Quarter Ended Sept 30, 2001
Sales for the quarter ended Sept 30, 2002 were $204,033, an increase of
$56,154 as compared to $147,879 for the quarter ended Spet 30, 2001. Net
Revenues for the quarter ended Spet 30, 2002 were $152,365, an increase of
$40,566 as compared to $111,799 for the quarter ended Sept 30, 2001. The
company is making efforts to increase the sales by exploring the market
in other countries.
Operating expenses for the quarter ended Spet 30, 2002 were $299,207
an increase of $42,203, as compared to $257,004 for the quarter
ended Sept 30, 2001. Selling, general and administrative expenses for the
quarter ended Sept 30, 2002 were $131,848, increased by $10,742, or 9%
versus the same period in the previous fiscal year. This increase in
selling, general and administrative expenses is due to higher marketing and
other related expeses for penetrating the products in overseas markets.
Due to best efforts, the company could maintain losses to $146,842 for
the quarter ended Sept 30, 2002 as compared to $145,205 of Sept 30, 2001.
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.
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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.
November 15, 2002 /s/ Suneet S. Tuli
- - ------------------ ----------------------
Date Suneet S. Tuli,
Executive Vice President
November 15, 2002 /s/Raja S. Tuli
- - ------------------ ----------------------
Date President, C.E.O
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