UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarter ended 30 June 2003
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________________ to _________________
Commission file number 0-28002
WideBand Corporation
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(Exact name of small business issuer as specified in its charter)
Nevada 87-0363656
-------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
401 West Grand, Gallatin, MO 64640
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(Address of principal executive offices)
(660) 663-3000
---------------------------
(Issuer's telephone number)
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
As of 31 July 2003 WideBand Corporation had 13,488,595 shares of Common
Stock outstanding.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . . 3
Item 3. Controls and Procedures. . . . . . . . . . . . . . . . . . . . 5
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . 5
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 6
2
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
See the Company's financial statements attached to this 10-QSB report.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
THE FOLLOWING DISCUSSION OF THE COMPANY'S FINANCIAL CONDITION AND RESULTS OF
OPERATIONS INCLUDES CERTAIN FORWARD-LOOKING STATEMENTS. WHEN USED IN THIS FORM
10-Q, THE WORDS "ESTIMATE," "PROJECTION," "INTEND," "ANTICIPATES" AND SIMILAR
TERMS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS THAT RELATE TO THE
COMPANY'S FUTURE PERFORMANCE. SUCH STATEMENTS ARE SUBJECT TO SUBSTANTIAL
UNCERTAINTY. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THE FORWARD-
LOOKING STATEMENTS SET FORTH BELOW. THE COMPANY UNDERTAKES NO OBLIGATION TO
PUBLICLY UPDATE OR REVISE ANY OF THE FORWARD-LOOKING STATEMENTS CONTAINED
HEREIN.
OVERVIEW
WideBand Corporation is a technology development company, which
manufactures tier-one computer networking products. The Company's Professional
Series NICs (Network Interface Cards) and Switches are designed and built in
the USA. This gives WideBand the ability to integrate the high-performance
features the market desires into its products and to implement very strict
standards of quality control in the manufacturing process.
WideBand Corporation faces competition from a number of established
companies in the tier-one industry segment. It is WideBand's philosophy to
enter the market with superior products that offer features and benefits that
will attract users without the need to overly discount pricing. The Company's
Professional Series Gigabit NICs and Switches are designed to work over
Category 5 - and even Category 3 - cabling. This eliminates the need for
rewiring in most installations, thereby greatly reducing the cost of upgrading
to Gigabit Ethernet.
WideBand's Professional Series products include Gigabit Ethernet NICs for
servers and high-performance workstations. The Company also manufactures three
models of Gigabit Ethernet switches: 8-port and 16-port versions that have the
capability of operating over standard Category 5 cabling, and an "8 + 8"
switch, with eight gigabit ports for Cat 5 and eight mini-GBIC slots for
gigabit fiber modules. All three models utilize auto-configuration and have
the ability to be upgraded in the field to operate as managed devices.
WideBand currently offers Layer 2 management, which is designed for small
networks of less than 1,000 computers, on its Professional Series switches.
The Company plans to begin offering Layer 3 management (designed for use at the
heart of very large networks) on several of its Professional Series switches
within the next few months.
3
WideBand Corporation also markets a line of high-performance servers,
which utilize the fsix Operating System. These servers are unique in that the
hardware is sold with the software already installed. This greatly simplifies
the installation and set-up for the end user. Also, the software is optimized
for the specific hardware used, resulting in substantial performance
improvements. The servers are manufactured by fsix Corporation, which is
controlled by the President of WideBand Corporation, Dr. Roger Billings. fsix
purchases Professional Series gigabit NICs from WideBand Corporation for use
inside its server products. WideBand purchases servers from fsix Corporation
and markets them through its Dealer organization.
WideBand has an organization of over 100 independent dealers and plans to
continue increasing that number throughout the year.
WideBand's wholly-owned subsidiary, eGig Corporation, sells computer
networking products to the small office and home office (SOHO) market. This
market requires high-performance networking products, but at a limited price.
Because of the price requirements, the SOHO market needs a different kind of
product and a different marketing focus than that of the tier-one market. In
order to meet this price requirement, eGig Corporation has many of its products
manufactured offshore.
WideBand stock is traded on the OTC.BB Market (ZWBC), and on the Frankfurt
Exchange (Stock symbol WBD; German Security No. WKN-764536).
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2003 TO THE THREE MONTHS ENDED
JUNE 30, 2002, AND THE NINE MONTHS ENDED JUNE 30, 2003 TO THE NINE MONTHS
ENDED JUNE 30, 2002.
Sales for the quarter ended June 30, 2003 and 2002 were $152,549 and
$55,784, respectively. Sales for the nine months ended June 30, 2003 and 2002
were $392,398 and $107,627, respectively.
WideBand's strategy is to manufacture products in the US with tighter
quality control, to provide technical features found in no other brands, and to
provide the level of support required by top-end customers. In April, WideBand
increased pricing on the Professional Series switches and fsix servers, to
bring them in line with comparable products offered by top-end vendors. The
Company expects that any decrease in the number of sales resulting from the
price increase will be compensated for by the increase in margins. In
addition, the larger margins will allow the Company to invest more on
advertising, which will help establish the WideBand brand and result in more
sales. Cost of goods sold for the quarter ended June 30, 2003 and 2002 were
49.2% and 74.8% of Sales, respectively. Cost of goods sold for the nine months
ended June 30, 2003 and 2002 were 72.6% and 72.7% of Sales, respectively.
LIQUIDITY AND CAPITAL RESOURCES.
The Company generates cash through the sale of its networking products and
its securities.
4
Cash decreased as of June 30, 2003 compared to September 30, 2002 in part
due to the expenses related to WideBand's presence at several industry trade
shows. Cash was also used by operations to manufacture goods for sale.
Included in these costs are the purchase of raw materials inventory and the
maintenance of manufacturing and testing equipment.
The Company has no financing through borrowings and as such has no long-
term debt or associated interest expense.
The Company requires funds for continuing research and development. This
requirement will continue as WideBand Corporation is committed to the research
and development of new products to keep the Company vital.
Item 3. Controls and Procedures.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.
Based on their evaluation of the Company's disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of
1934 (the "Exchange Act")), the Company's principal executive officer and
principal financial officer have concluded that as of the end of the period
covered by this Quarterly Report of Form 10-QSB such disclosure controls and
procedures are effective to ensure that information required to be disclosed by
the Company in reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in Securities and Exchange Commission rules and forms.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING.
During the quarter under report, there was no change in the Company's
internal control over financial reporting that has materially affected, or is
reasonably likely to materially affect, the Company's internal control over
financial reporting.
PART II -- OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
WideBand Corporation held its Annual Shareholders Meeting on April 24,
2003 in which it elected the following members of the Board of Directors:
Dr. Roger E. Billings, Chairman of the Board; Donald N. Fenn, Director;
Dr. Maria Sanchez, Director; Jean Kaiser, Director; and Joseph R. Billings,
Director.
Shareholders also voted to ratify the appointment of Hansen, Barnett,
and Maxwell of Salt Lake City, Utah, to continue as independent auditors for
WideBand Corporation. There was no other business conducted at the meeting.
5
All voting was in the affirmative, for each director as well as for the
ratification of the appointment of the independent auditors, as follows:
Total votes cast in person or by proxy. . . . . . . . 11,989,934
Votes approving each director . . . . . . . . . . . . 11,987,934
Votes disapproving each director. . . . . . . . . . . 0
Abstentions . . . . . . . . . . . . . . . . . . . . . 2,000
Votes approving ratification of auditors. . . . . . . 11,987,934
Votes disapproving ratification . . . . . . . . . . . 0
Abstentions . . . . . . . . . . . . . . . . . . . . . 2,000
Item 6. Exhibits and Reports on Form 8-K.
(b) Reports on Form 8-K.
There were no Form 8-K reports filed this quarter.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
By: _____/s/ Roger E. Billings_____________________ Date: August 13, 2003
Dr. Roger E. Billings, President, CEO, Director
By: _____/s/ Julie Williams_______________________ Date: August 13, 2003
Julie Williams, CFO
6
Exhibit [99.1]
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of WideBand Corporation (the "Company")
on Form 10-QSB for the nine months ending June 30, 2003, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I,
Dr. Roger E. Billings, Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
_/s/ Roger E. Billings______________
Dr. Roger E. Billings
Chief Executive Officer
August 13, 2003
A signed original of this written statement required by Section 906, or
other document authenticating, acknowledging, or otherwise adopting the
signature that appears in typed form within the electronic version of this
written statement has been provided to the Company and will be retained by the
Company and furnished to the Securities and Exchange Commission or its staff
upon request.
Exhibit [99.1]
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of WideBand Corporation (the "Company")
on Form 10-QSB for the nine months ending June 30, 2003, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Julie
Williams, Chief Financial Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that, to the best of my knowledge and belief:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
_/s/ Julie Williams_________________
Julie WIlliams
Chief Financial Officer
August 13, 2003
A signed original of this written statement required by Section 906, or
other document authenticating, acknowledging, or otherwise adopting the
signature that appears in typed form within the electronic version of this
written statement has been provided to the Company and will be retained by the
Company and furnished to the Securities and Exchange Commission or its staff
upon request.
Exhibit [99.2]
CERTIFICATION
I, Dr. Roger E. Billings, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of WideBand
Corporation;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the small business issuer as of, and for, the periods presented in
this report;
4. The small business issuer's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
for the small business issuer and have:
(a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
small business issuer, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this report is being
prepared;
(b) (reserved)
(c) evaluated the effectiveness of the small business issuer's
disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) disclosed in this report any change in the small business
issuer's internal control over financial reporting that occurred
during the small business issuer's most recent fiscal quarter
(the small business issuer's fourth fiscal quarter in the case
of an annual report) that has materially affected, or is
reasonably likely to materially affect, the small business
issuer's internal control over financial reporting; and
1
5. The small business issuer's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control
over financial reporting, to the small business issuer's auditors and
the audit committee of the small business issuer's board of directors
(or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the small
business issuer's ability to record, process, summarize and
report financial information; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the small
business issuer's internal control over financial reporting.
_/s/ Roger E. Billings______________
Dr. Roger E. Billings
Chief Executive Officer
Date: August 13, 2003
2
Exhibit [99.2]
CERTIFICATION
I, Julie WIlliams, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of WideBand
Corporation;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the small business issuer as of, and for, the periods presented in
this report;
4. The small business issuer's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
for the small business issuer and have:
(a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
small business issuer, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this report is being
prepared;
(b) (reserved)
(c) evaluated the effectiveness of the small business issuer's
disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) disclosed in this report any change in the small business
issuer's internal control over financial reporting that occurred
during the small business issuer's most recent fiscal quarter
(the small business issuer's fourth fiscal quarter in the case
of an annual report) that has materially affected, or is
reasonably likely to materially affect, the small business
issuer's internal control over financial reporting; and
1
5. The small business issuer's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control
over financial reporting, to the small business issuer's auditors and
the audit committee of the small business issuer's board of directors
(or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the small
business issuer's ability to record, process, summarize and
report financial information; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the small
business issuer's internal control over financial reporting.
_/s/ Julie Williams__________________
Julie Williams
Chief Financial Officer
Date: August 13, 2003
2
WIDEBAND CORPORATION
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
Condensed Consolidated Balance Sheets - June 30, 2003 and
September 30, 2002 (Unaudited). . . . . . . . . . . . . . . . . . . . . F-1
Condensed Consolidated Statements of Operations and
Comprehensive Income (Loss) for the Three and Nine Months
Ended June 30, 2003 and 2002 (Unaudited) . . . . . . . . . . . . . . . . F-2
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended June 30, 2003 and 2002 (Unaudited) . . . . . . . . . . F-3
Notes to Condensed Consolidated Financial Statements (Unaudited). . . . . F-4
WIDEBAND CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, September 30,
2003 2002
----------- ------------
<s> <c> <c>
ASSETS
Current Assets
Cash and cash equivalents. . . . . . . . . . . . $ 101,406 $ 273,838
Investment in securities available-for-sale. . . 21,257 -
Trade accounts receivables . . . . . . . . . . . 25,970 18,295
Inventory. . . . . . . . . . . . . . . . . . . . 255,580 262,548
Prepaid expenses . . . . . . . . . . . . . . . . 2,762 721
----------- ------------
Total Current Assets. . . . . . . . . . . . 406,975 555,402
----------- ------------
Property and Equipment. . . . . . . . . . . . . . . . 591,191 591,191
Less: accumulated depreciation . . . . . . . . . (100,104) (80,068)
----------- ------------
Net Property and Equipment. . . . . . . . . 491,087 511,123
----------- ------------
Patents, net of amortization of
$36,729 and $9,531, respectively . . . . . . . . . . 41,315 68,513
----------- ------------
Total Assets. . . . . . . . . . . . . . . . . . . . . $ 939,377 $ 1,135,038
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade accounts payable . . . . . . . . . . . . . $ 7,013 $ 48,573
Accrued liabilities. . . . . . . . . . . . . . . 11,718 8,795
----------- ------------
Total Current Liabilities . . . . . . . . . 18,731 57,368
----------- ------------
Stockholders' Equity
Common Stock - $0.01 par value;
20,000,000 shares authorized;
13,488,595 shares outstanding. . . . . . . . . 134,886 134,886
Additional paid-in capital . . . . . . . . . . . 5,035,601 5,035,601
Accumulated deficit. . . . . . . . . . . . . . . (4,271,098) (4,092,817)
Unrealized gain on investment in securities. . . 21,257 -
----------- ------------
Total Stockholders' Equity. . . . . . . . . 920,646 1,077,670
----------- ------------
Total Liabilities and Stockholders' Equity. . . . . . $ 939,377 $ 1,135,038
=========== ============
See the accompanying notes to condensed consolidated financial statements.
F-1
WIDEBAND CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
For the Three Months For the Nine Months
Ended June 30, Ended June 30,
--------------------------- ---------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
<s> <c> <c> <c> <c>
Sales . . . . . . . . . . . . . . . . . . . $ 152,549 $ 55,784 $ 392,398 $ 107,627
Cost of Sales . . . . . . . . . . . . . . . 75,008 41,730 284,784 78,279
----------- ----------- ----------- -----------
Gross Profit . . . . . . . . . . . . . 77,541 14,054 107,614 29,348
----------- ----------- ----------- -----------
Expenses
Research and development. . . . . . . . . 30,384 36,999 107,136 110,288
Stock for services. . . . . . . . . . . . - - - 240,000
Selling, general and administrative. . 40,643 83,024 179,964 258,707
----------- ----------- ----------- -----------
Total Expenses . . . . . . . . . . . . 71,027 120,023 287,100 608,995
----------- ----------- ----------- -----------
Income (Loss) From Operations . . . . . . . 6,514 (105,969) (179,486) (579,647)
Interest Income . . . . . . . . . . . . . . 355 1,196 1,205 4,455
----------- ----------- ----------- -----------
Net Income (Loss) . . . . . . . . . . . . . $ 6,869 $ (104,773) $ (178,281) $ (575,192)
=========== =========== =========== ===========
Basic and Diluted Income (Loss) Per Share . $ 0.00 $ (0.01) $ (0.01) $ (0.04)
=========== =========== =========== ===========
Basic and Diluted Weighted-Average
Common Shares Outstanding . . . . . . . . 13,488,595 13,326,507 13,488,595 13,213,229
=========== =========== =========== ===========
Comprehensive Income (Loss)
Net Income (Loss). . . . . . . . . . . $ 6,869 $ (104,773) $ (178,281) $ (575,192)
Unrealized gain on investments in
securities available-for-sale . . . . 21,257 - 21,257 -
----------- ----------- ----------- -----------
Comprehensive Income (Loss). . . . . . $ 28,126 $ (104,773) $ (157,024) $ (575,192)
=========== =========== =========== ===========
See the accompanying notes to condensed consolidated financial statements.
F-2
WIDEBAND CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Nine Months Ended
June 30,
----------------------------
2003 2002
------------- -------------
<s> <c> <c>
Cash Flows From Operating Activities
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . $ (178,281) $ (575,192)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization . . . . . . . . . . . 47,234 24,511
Common stock issued for services. . . . . . . . . . - 240,000
Changes in operating assets and liabilities:
Trade receivables . . . . . . . . . . . . . . . . . (7,675) (7,567)
Prepaid expenses. . . . . . . . . . . . . . . . . . (2,041) (1,484)
Inventory . . . . . . . . . . . . . . . . . . . . . 6,968 (158,309)
Accounts payable. . . . . . . . . . . . . . . . . . (41,560) 1,239
Accrued liabilities . . . . . . . . . . . . . . . . 2,923 -
----------- -----------
Net Cash and Cash Equivalents Used in
Operating Activities . . . . . . . . . . . . . . . (172,432) (476,802)
----------- -----------
Cash Flows From Investing Activities
Payments for patents . . . . . . . . . . . . . . . . . . - (1,153)
Purchase of equipment. . . . . . . . . . . . . . . . . . - (34,440)
----------- -----------
Net Cash and Cash Equivalents Used in
Investing Activities . . . . . . . . . . . . . . . - (35,593)
----------- -----------
Cash Flows From Financing Activities
Common stock issued. . . . . . . . . . . . . . . . . . . - 400,000
----------- -----------
Cash and Cash Equivalents Provided by
Financing Activities . . . . . . . . . . . . . . . - 400,000
----------- -----------
Net Decrease in Cash. . . . . . . . . . . . . . . . . . . . . (172,432) (112,395)
Cash and Cash Equivalents At Beginning of Period. . . . . . . 273,838 502,359
----------- -----------
Cash and Cash Equivalents At End of Period. . . . . . . . . . $ 101,406 $ 389,964
=========== ===========
See the accompanying notes to condensed consolidated financial statements.
F-3
WIDEBAND CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1- INTERIM FINANCIAL STATEMENTS
The accompanying financial statements have been prepared by WideBand
Corporation (the Company) and are unaudited. In the opinion of management, the
accompanying unaudited financial statements contain all necessary adjustments
for fair presentation, consisting of normal recurring adjustments except as
disclosed herein.
The accompanying unaudited interim financial statements have been
condensed pursuant to the rules and regulations of the Securities and Exchange
Commission; therefore, certain information and disclosures generally included
in financial statements have been condensed or omitted. These financial
statements should be read in connection with the Company's annual financial
statements included in the Company's annual report on Form 10-KSB as of
September 30, 2002. The financial position and results of operations of the
interim periods presented are not necessarily indicative of the results to be
expected for the year ended September 30, 2003.
Business Condition- The accompanying financial statements have been
prepared on a going concern basis, which contemplates the realization of assets
and the satisfaction of liabilities in the ordinary course of business. As
shown in the financial statements, the Company has sustained net losses of
$178,281 and $575,192 during the nine months ended June 30, 2003 and 2002,
respectively. In addition, operating activities have used cash of $172,432 and
$476,802 during the nine months ended June 30, 2003 and 2002, respectively.
The Company's ability to continue as a going concern is dependent upon its
ability to generate sufficient cash flows to meet its obligations on a timely
basis, to obtain additional financing as may be required, and ultimately to
attain profitable operations.
Recoverability of Long-Lived Assets- SFAS No. 144, "Accounting for
Impairment or Disposal of Long-Lived Assets," requires the Company to test its
long-lived assets for recoverability whenever events or changes in
circumstances indicate that their carrying amount may not be recoverable. Such
events include a current-period operating or cash flow loss combined with a
history of operating or cash flow losses. As a result, the Company assessed the
recoverability of the carrying value of its property, equipment and patents at
March 31, 2003 and, based on estimated undiscounted net future cash flows,
management has determined that the long-lived assets of the Company continue to
be recoverable.
Basic and Diluted Income (Loss) Per Share - Basic income (loss) per common
share is computed by dividing net income (loss) by the weighted average number
of common shares outstanding during the period. Diluted income (loss) per
share is computed by dividing net income (loss) attributable to common
shareholders by the weighted average number of common shares and the dilutive
potential common share equivalents then outstanding. No dilutive potential
common shares were outstanding as of June 30, 2003 or 2002; therefore basic and
diluted income (loss) per share are the same.
F-4
NOTE 2- PATENTS
The Company adopted the provisions of SFAS No. 142 on October 1, 2002. As
of June 30, 2003 and September 30, 2002, the gross carrying amount of the
patents was $78,044 with accumulated amortization of $36,729 and $9,531,
respectively. Patents are amortized on a straight-line basis over their
estimated useful lives. At September 30, 2002, the Company reassessed the
useful lives of its patents and estimated the useful lives to be from one month
to three years based on the expected life of the Company's products that use
each patent. Prior to this assessment, the patents were amortized over a
fifteen-year period. Patent amortization expense was $27,198 and $2,650 during
the nine months ended June 30, 2003 and 2002, respectively and $3,965 and
$2,576 during the years ended September 30, 2002 and 2001, respectively.
As of October 1, 2002 and June 30, 2003, the weighted-average estimated
remaining amortization period for the patents was 1.3 years and 1.7 years,
respectively. Management estimates that the patents will not have any
significant residual value at the end of their estimated useful lives. As of
June 30, 2003, estimated future amortization expense for patents for each of
the following three periods is as follows:
For the Periods Ending September 30:
<s> <c>
2003 $ 5,092
2004 18,677
2005 17,547
The carrying values of the Company's patents are reviewed for impairment
whenever events or changes in circumstances indicate that they may not be
recoverable. If such an event were to occur, the Company would project
undiscounted cash flows to be generated from the use of the patents and their
eventual disposition over the remaining life of the asset. If projections were
to indicate that the carrying value of the long-lived asset would not be
recoverable, the carrying value of the patents would be reduced by the
estimated excess of the carrying value over the projected discounted cash
flows. The Company's assessment of the recoverability of the carrying value of
the patents at June 30, 2003 concluded that there is no requirement to
recognize impairment on the patents. However, should the Company's marketing
and sales plans not materialize, the realization of the Company's patents could
be severely and negatively impacted.
F-5
The effects on net loss and basic and diluted loss per common share of the
change in the estimated useful lives of the patents for the nine months ended
June 30, 2003 and 2002 and for the years ended September 30, 2002 and 2001 are
as follows:
For the Nine Months Ended For the Years Ended
June 30, September 30,
---------------------------- ----------------------------
2003 2002 2002 2001
------------- ------------- ------------- -------------
<s> <c> <c> <c> <c>
Net loss, as reported . . . . . $ (178,281) $ (575,192) $ (859,525) $ (375,517)
Adjust patent amortization. . . - (5,815) (8,944) (5,466)
----------- ----------- ----------- -----------
Net loss, as adjusted . . . . . $ (178,281) $ (581,007) $ (868,469) $ (380,983)
=========== =========== =========== ===========
Basic and diluted loss per share:
Net loss, as reported $ (0.01) $ (0.04) $ (0.06) $ (0.03)
Net loss, as adjusted $ (0.01) $ (0.04) $ (0.06) $ (0.03)
NOTE 3- INVESTMENT IN SECURITIES AVAILABLE-FOR-SALE
Investment in Securities- Investments in equity and debt securities are
stated at fair value, based on quoted market prices, and are classified as
available-for-sale. Unrealized gains and losses are reported in stockholders'
equity, net of related deferred income taxes. Gains and losses on
disposition are based on the net proceeds less the cost basis of the security
sold, using the specific identification method.
During the period ended June 30, 2003, the Company learned that securities
owned by the Company, which had previously been written off, now had an
estimated fair market value. The estimated fair market value of $21,257, as of
June 30, 2003, was recorded and an unrealized gain was recorded and included in
comprehensive income. Subsequent to June 30, 2003, the securities were
sold for $21,257.
F-6