10KSB/A 1 secfinal1.txt REVISED FINANCIALS FOR MARCH 31, 2002 The WideCom Group Inc. Consolidated Financial Statements For the years ended March 31, 2001 and 2002 Together with Report of Independent Auditors TABLE OF CONTENTS Report of Independent Auditors 3 Consolidated Balance Sheets 4 Consolidated Statements of Operations 5 Consolidated Statements of Stockholders' Equity 6 Consolidated Statements of Cash Flows 7 Notes to Consolidated Financial Statements 8 to 20 Page 2 Zafar Husain Siddiqui Chartered Accountant 2 Robert Speck Pkwy, Suite 750 Mississauga, Ontario L4Z 1H8 Phone: (905) 677-7777 Fax: (905) 272-5333 REPORT OF INDEPENDENT AUDITOR To the Board of Directors and Shareholders of The WideCom Group Inc. I have audited the accompanying consolidated balance sheets of the The WideCom Group Inc. (incorporated in Ontario, Canada) as of March 31, 2001 and 2002 and the related consolidated statements of operations, cash flows and changes in stockholders' equity for the years ended March 31, 2001 and 2002. These consolidated financial statements are the responsibility of the management of The Widecom Group Inc. My responsibility is to express an opinion on these consolidated financial statements based on my audit. Except as discussed in the following paragraphs, I conducted my audit in accordance with generally accepted auditing standards in the United States of America. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audit provides a reasonable basis for my opinion. Substantial doubts existed as at March 31, 2002 as well as on the date of this audit 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 amount of 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. I was unable to obtain sufficient appropriate audit evidence as to the willingness and ability of the above-mentioned individuals to provide continued financial and personal support to the Company.. 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. In my opinion, except for the amendments to the contents of this audit report and/or adjustments to the financial statements or notes thereto, as might have been determined to be necessary had I been able to examine evidence regarding (a) the ability and willingness of the individuals referred to above to provide continued personal and financial support to the company for a reasonable amount of period of time, and (b) the present or future intended course of action of the secured creditor referred to above, the consolidated financial statements referred to above present fairly, in all material respects, the financial positions of The WideCom Group Inc. as of March 31, 2001 and 2002 and the results of its operations and its cash flows for the years ended March 31, 2001 and 2002, in conformity with generally accepted accounting principles in the United States of America. Since the accompanying consolidated financial statements have not been prepared and audited in accordance with generally accepted accounting principles and standards in Canada, they may not satisfy the reporting requirements of Canadian statutes and regulations. Mississauga, Ontario July 9, 2002 s/d CHARTERED ACCOUNTANT Page 3 The WideCom Group Inc Consolidated Balance Sheets (in United States dollars) March, 31 2001 2002 Current Assets Notes Cash and cash equivalents 69,576 18,048 Accounts receivable 1 443,797 232,454 Inventory 2 743,559 534,042 Prepaid expenses 20,062 21,489 Advances to related parties 3,6(b) 297,070 237,258 Deferred financing costs 19,923 961 Total Current Assets 1,593,987 1,044,252 Capital Assets 4 664,651 582,439 Purchased research and development technology 5 15,625 - Investment in affiliate 6 159,193 - Total Assets 2,433,456 1,626,691 Liabilities & Stockholders' Equity Current Liabilities Bank indebtedness 7 170,299 99,735 Accounts payable & accrued liabilities 8 762,637 480,952 Loans from related parties 3 645,485 803,811 Convertible debentures 9 183,899 181,841 Total Current Liabilities 1,762,320 1,566,339 Stockholders' Equity 10 Common shares 5,000,000 shares authorized of no par value 2,633,585 shares issued and outstanding on March 31, 2001 2,633,585 shares issued and outstanding on March 31, 2002 14,711,179 14,711,179 Contributed surplus 159,825 159,825 Deficit (13,435,588) (14,028,334) Cumulative other comprehensive loss 11 (764,280) (782,318) 671,136 60,352 Total Liabilities & Stockholders' Equity 2,433,456 1,626,691 The accompanying notes are integral part of consolidated financial statements. Signed and Approved on behalf of the Board Director Page 4 The WideCom Group Inc. Consolidated Statements of Operations (in United States dollars) For the years ended March 31 2000 2001 2002 Revenue Product sales 2,562,275 1,581,791 610,429 Interest income 10,436 2,597 405 Total Revenue 2,572,711 1,584,388 610,834 Expenses Cost of product sales 718,353 522,876 122,568 Research and development 231,532 130,719 280,670 Selling, general & administrative 2,249,796 1,284,242 461,972 Interest and bank charges 69,217 58,547 11,176 Management fees & salaries 351,430 258,090 107,285 Amortization 296,147 215,603 118,966 Financing fees 17,981 - - Foreign exchange loss (gain) (89,119) - (58,250) Total Expenses 3,845,337 2,470,077 1,044,387 Operating loss (1,272,626) (885,689) (433,553) Legal settlement costs 15(a) - - - Equity in loss of affiliate (228,214) (156,725) (159,193) Net loss for the year (1,500,840) (1,042,414) (592,746) Loss per common share, basic and diluted 10(f) (0.61) (0.40) (0.23) Weighted averageno:of shares outstanding* 2,443,730 2,591,418 2,591,418 The accompanying notes are an integral part of consolidated financial statements Signe and Approved on behalf of the Board Director Page 5 The WideCom Group Inc Consolidated Statements of Stockholders' Equity (in United States dollars) For the years ended March 31, 1999, 2000, 2001 and 2002 Other Total Common Contributed Comp Stockholders Shares Surplus Deficit Loss Equity Balance, March 31, 1998 12,982,715 159,825 (8,647,983) (257,613) 4,236,944 Warrant exercise costs reversal 97,907 - - - 97,907 Shares issued for corporate indebtedness (294,117) 200,000 - - - 200,000 Shares issued for investment in affiliate (125,000) 93,750 - - - 93,750 Class action settlement (54,752) 83,457 - - - 83,457 Conversion of convertible debentures (17,213) 50,000 - - - 50,000 Shares issued on private placement (95,000) 95,000 - - - 95,000 Share issuance costs (24,988) - - - (24,988) Net loss for year - - (2,244,351) - (2,244,351) Foreign currency translation adjustment - - - (280,396) (280,396) Balance, March 31, 1999 13,577,841 159,825 (10,892,334) (538,009) 2,307,323 Class action settlement (54,719) 75,239 - - - 75,239 Shares issued on private placement (5,000) 5,000 - - - 5,000 Share issuance for corporate indebtedness (61,618) 123,236 - - - 123,236 Class action settlement (18,748) 65,618 - - - 65,618 Shares issued on private placement (337,500) - net of issuance costs 630,000 - - - 630,000 Conversion of convertible debentures (21,310) 203,777 - - - 203,777 Shares issued for legal fees (13,500) 20,250 - - - 20,250 Warrant exercise (2,190) 2,628 - - - 2,628 Net loss for the year - - (1,500,840) - (1,500,840) Foreign currency translation adjustment - - - (65,480) (65,480) Balance, March 31, 2000 14,703,589 159,825 (12,393,174) (603,489) 1,866,751 Shares issued to Societe Innovatech du Grand Montreal (50,600) 7,590 - - - 7,590 Net loss for the year - - (1,042,414) - (1,042,414) Foreign currency translation adjustment - - - (160,791) (160,791) Balance, March 31, 2001 14,711,179 159,825 (13,435,588) (764,280) 671,136 Net loss for the year - - (592,746) - (592,746) Foreign currency translation adjustment - - - (18,038) (18,038) Balance, March 31, 2002 14,711,179 159,825 (14,028,334) (782,318) 60,352 The accompanying notes are an integral part of consolidated financial statements Page 6 The WideCom Group Inc. Consolidated Statements of Cash Flows (in United States dollars) For the years ended March 31 2000 2001 2002 Cash provided by (used in) Operating Activities Loss for the year (1,500,840) (1,042,414) (592,746) (Add (deduct) items not requiring a cash outlay) Amortization 296,147 215,603 118,966 Foreign exchange loss (gain) (89,119) - (58,250) Share issued to settle lawsuits and corporate indebtedness 284,343 - - Equity in loss of affiliate 228,214 156,725 159,193 Net changes in non-cash Working capital balances related to operations: Decrease (increase) in accounts receivable (8,839) 140,697 211,343 Decrease (increase) in inventory 308,947 166,024 209,517 Increase (decrease) in accounts payable and accrued liabilities (538,059) (43,809) (281,685) Increase in prepaid expenses 22,772 577 (1,427) (996,434) (406,597) (235,089) Investing Activities Disposal (purchase) of capital assets 2,989 254,580 (2,167) Advances to related parties (10,091) (52,187) 59,812 (7,102) 202,393 57,645 Financing Activities Deferred financing costs incurred (2,882) - - Increase (decrease) in bank indebtedness (93,942) (9,166) (70,564) Shares and warrants issued, net of issue costs 637,628 7,590 - Loan from related parties 310,422 262,786 158,326 Issuance of convertible debentures 10,000 - - 861,226 261,210 87,762 Effect of exchange rate change on cash (2,569) 1,256 38,154 Net increase (decrease) in cash during the year (144,879) 58,262 (51,528) Cash and cash equivalents, beginning of year 156,193 11,314 69,576 Cash and cash equivalents, end of year 11,314 69,576 18,048 Note: See note 16 for supplementary information. The accompanying notes are an integral part of consolidated financial statements Page 7 The WideCom Group Inc. Notes to Consolidated Financial Statements (in United States dollars) March 31, 2001 and 2002 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Business The WideCom Group Inc. (the Company) was incorporated under the laws of Ontario, Canada on June 15, 1990. The Company designs, assembles and sells high speed, high performance document systems which transmit, receive, print, copy and/or archive wide format documents. Basis of Financial Statements The accompanying consolidated financial statements are stated in United States dollars, the reporting currency. The transac- tions of the Company have been recorded during the year in Canadian dollars, the functional currency. The translation of Canadian dollars into United States dollars amounts have been made at the year end exchange rates for revenues, expenses, gains and losses. Translation adjustments to reporting currency are included in equity as cumulative other comprehensive loss (see Note 11). These consolidated financial statements have been prepared by management in accordance with generally accepted accounting principles in the United States of America. Principles of Consolidation These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant inter-company transactions and accounts have been eliminated. Investment in Affiliate The investment in affiliate is accounted for on the equity basis. Accounting Estimates The preparation of financial statements, in conformity with generally accepted accounting principles, requires manage- ment to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimated. Inventory Inventory is valued at the lower of cost, determined on a first-in first-out basis, and market value. Market value for raw material is defined as the replacement cost and for finished goods as the net realizable value. Long-lived Assets Management reviews long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, and, if deemed impaired, measure- ment and recording of an impairment loss is based on the fair value of the asset. Page 8 The WideCom Group Inc Notes to Consolidated Financial Statements (in United States dollars) March 31, 2001 and 2002 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES cont'd Capital Assets Capital assets are recorded at cost. Amortization is provided annually at rates calculated to amortize the assets over their estimated useful lives as follows: Machinery, plant & computer equipment 30% declining balance Furniture and fixtures 20% declining balance Prototypes and jigs 20% declining balance Earning or Loss Per Share The Company adopted Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share during fiscal 1998. As a result of this adoption, the Company has restated all periods presented in these financial statements to reflect basic and diluted earning (loss) per share. Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding plus common stock equivalents (if dilutive) related to stock options and warrants for each period. Cash and Cash Equivalents Cash and cash equivalents include all highly liquid investments with original maturities of three months or less. Revenue Recognition Product sales are recognized as revenue upon shipment of the product . Advance sales revenue is deferred until shipment of the product. Stock Based Compensation SFAS No. 123, Accounting for Stock-Based Compensation encourages, but does not require, companies to record compensation costs for stock-based employee compensation plans at fair value. The Company chose to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25. Accounting for Stock Issued to Employees, and related interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the measurement date over the amount an employee must pay to acquire the stock. See Note 10 (d) for a summary of the pro forma net loss per share determined as if the Company had applied SFAS No. 123 Deferred Financing Charges Deferred financing charges are amortized on a straight-line basis over three years Foreign Currency Translation Balances of the Company denominated in foreign currencies and the accounts of the foreign subsidiary are translated into the functional currency as follows: (i) all assets and liabilities expect for capital at year end rates; (ii) capital at historic rates; Page 9 The WideCom Group Inc. Notes to Consolidated Financial Statements (in United States dollars) March 31, 2001 and 2002 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES cont'd Foreign Currency Translation cont'd (iii) revenue and expense transactions at the average rate of exchange prevailing during the year; and (iv) changes in cash flows at the average rate of exchange prevailing during the year. Exchange gains or losses arising on these translations are reflected in other comprehensive loss for the year. Income Taxes The Company accounts for income taxes under the asset and liability method as required by SFAS No. 109, Accounting for Income Taxes Under the asset and liability method, deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted tax rates applicable to future year differences between the financial statements carrying amounts and the tax basis of existing assets and liabilities. When tax credits are available, they are recognized as reductions of the current year's tax expense. Concentrations of Credit Risk and Business Concentration The Company's receivables are unsecured and are generally due in 30 days. Currently the Company's customers are primarily local, national and international users of wide format document management systems. The Company's receivables do not represent significant concentrations of credit risk as at March 31, 2002 due to the wide variety of customers, markets and geographic areas to which the Company's products are sold. Fair Value of Financial Instruments The carrying amounts of financial instruments of the Company, including cash and cash equivalents, accounts receivable, bank indebtedness, accounts payable, and convertible debentures approximate fair value because of their short maturity. The fair value of advances to related parties cannot be readily determined because of the nature of their terms. The Company realizes a significant portion of its sales and purchases in a foreign currency. Consequently some liabilities and expenses are exposed to foreign exchange fluctuations. Research and Development All research and development costs except for purchased research and development technology are expensed as research and development expenses. Purchased research and development technology is amortized over its estimated useful life (see Note 5). Page 10 The WideCom Group Inc. Notes to Consolidated Financial Statements (in United States dollars) March 31, 2001 and 2002 1. Accounts Receivable Accounts receivable consists of 2,001 2,002 Trade receivables 693,533 482,190 Less: Allowance for doubtful accounts 249,736 249,736 443,797 232,454 2. Inventory Inventory consists of: 2,001 2,002 Raw material 577,802 319,831 Work-in-progress 40,930 22,347 Product under Development* - 52,392 Finished goods 124,827 139,472 743,559 534,042 *see note 15. 3. Advances to/Loans from Related Parties (a) Advances to related parties are non-interest bearing and will be repaid as follows: 2,001 2,002 3294340 Canada Inc. (I) 297,070 237,258 297,070 237,258 (I) Advances were made to a company to facilitate research and development activities. There is no fixed term of repayment and the balance is due on demand. (b) Non-interest bearing advances to the Company as short-term loans in order to assist in certain working capital requirements. 2001 2002 Directors and officers 645,485 803,811 (c) Transactions with companies by, and fees paid to, executive officers, the principal stockholders and directors during the year were as follows: 2001 2002 Management fees and salaries expense 258,000 107,285 Page 11 The WideCom Group Inc. Notes to Consolidated Financial Statements (in United States dollars) March 31, 2001 and 2002 4. Capital Assets Capital assets consist of 2001 2002 Accumulated Accumulated Cost Amortization Cost Amortization Machinery, plant & computer equipment 1,646,001 1,448,831 1,648,168 1,508,632 Furniture and fixtures 91,395 76,277 91,395 79,301 Prototypes and jigs 239,494 131,722 239,494 153,276 Land 45,806 - 45,806 - Building under construction 298,785 - 298,785 - 2,321,481 1,656,830 2,323,648 1,741,209 Net book value 664,651 582,439 5. Purchased Research and Development Technology During 1999, the Company acquired at a cost of $93,750, the rights to photo-printer technology, which is in the process of being developed by its President and Chief Executive Officer. A patent application is currently pending. The development of this technology will continue through a wholly-owned subsidiary, Diprin Inc. (Diprin), which was previously owned by the President and Chief Executive Officer. In consideration for the ownership of this technology, the Company issued 125,000 common shares to its President and Chief Executive Officer . The design of the portable photo-printer is still in the final stages of completion but due to shortage of funds, it could not be further developed The cost of the technology was being amortized on a straight-line basis over 3 years commencing from Sept 30/98. As at Mar 31, 2002 the unamortized balance amounted to NIL. 6. Investment in Affiliate 2001 2002 3294340 Canada Inc. 159,193 - 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. Page 12 The WideCom Group Inc. Notes to Consolidated Financial Statements (in United States dollars) March 31, 2001 and 2002 6. Investment in Affiliate cont'd (a)The Company has a commitment to pay a royalty fee based on net revenue (see Note 13(b)). The assets, liabilities, revenue and expenses of 3294340 Canada Inc for the year ended March 31, 2001 and 2002 are as follows: 2001 2002 Current assets 390,865 401,771 Capital assets 373,759 326,632 764,624 728,403 Current liabilities 428,495 749,028 Net assets 336,129 (20,625) Revenue Miscellaneous income (loss) (3,020) 92,969 Research and development 429,922 385,124 426,902 478,093 Expenses 775,181 837,443 Net loss for the period (348,279) (359,350) The Company's portion of the net loss is $159,193 ($156,725 in 2001). During the fiscal year 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, as at the year end the company still had a 45% stake in 329430 Canada Inc. (b) During the year ended March 31, 2002 the company's share of the accumulated lossess of 3294340 Canada inc. had reached a point where there were in excess of the company's investment. The company continues to carry the amount of advances given to the above mention 3294340 Canada inc. at cost 7. Bank Indebtedness The Company has an operating line of credit available for approximately $100,000 which bears interest at prime plus 0.75%, is due on demand, and is secured by a general security agreement over all Company assets except real property. As at March 31, 2002 approximately $99,735 ($93,891 in 2001) was utilized. 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. Subsequent to the balance sheet date, 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 CAD20,000 followed by a monthly payment of CAD5,000 until the entire amount has been settled, and (b) a personal guarantee of CAD20,000 by one of the executives of the Company. As of the date of the audit report, the matter remains unresolved pending a response from RBC. In the event of 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 this present time (the date of the audit report) is hard to predict. 8. Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities consist of 2,001 2,002 Trade accounts payable 444,258 239,229 Wages and employee deductions payable 49,343 44,876 Accrued liabilities 174,761 102,572 Accrued litigation costs 94,275 94,275 762,637 480,952 A key executive employee, related to two directors of the Company, has registered, in the Province of Ontario, Canada, a floating security on the company's non- real estate property. Page 13 The WideCom Group Inc. Notes to Consolidated Financial Statements (in United States dollars) March 31, 2001 and 2002 9. Convertible Debentures 2,001 2,002 12% Convertible debentures 183,899 181,841 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 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 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-year12% 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. 10. Share Capital (a) Authorized 5 Million common shares pursuant to shareholder approval of a 1:4 reverse split of the common shares of the Company effective January 29, 1999. Of the 2,582,985 shares outstanding as of March 31, 2000, 3,444 shares have not been registered by the Company's stock transfer agent. (b) Changes to Issued Share Capital In January, 2001 the Company issued 50,600 common shares to Societe Innovatech du Grand Montreal in exchange for Innovatech's 45% stake in 329430 Canada Inc Page 14 The WideCom Group Inc. Notes to Consolidated Financial Statements (in United States dollars) March 31, 2001 and 2002 10. Share Capital cont'd (c) Warrants As at March 31, 2001, the Company had 929,762 issued and outstanding warrants. The warrants are exercisable at prices ranging from $1.20 to $34.00 with expiry dates between 1999 and 2009 (d) Employee Stock Option Plan The Company has elected to follow Accounting Principles Board ( APB ) Opinion No. 25, Accounting for Stock Issued to Employees , and related interpretations in accounting for its employee stock options. Under APB No. 25, compensation expense is not recognized if the exercise price equals or exceeds the market price on the date of grant The exercise price of the employees' stock options equals the market price of the underlying stock on the date of grant, therefore no compensation expense is recognized In July 1996, the board of directors approved an employee stock option plan covering options to purchase 75,000* common shares that was increased in January 1997 to 125,000*. As of March 31, 1998, 115,625* employee stock options granted to management employees were outstanding with an exercise price of $8.50. These options expire 10 years after the grant date. In fiscal 1999, 8,625* employee stock options were granted with exercise prices ranging from $3.28 to $4.00. On April 11, 2000, 9,250 employee stock options were cancelled and no new issuances occurred. Pro-froma information regarding net income and earnings per share is required by SFAS No. 123, and has been determined as if the Company had accounted for the employee stock options under fair value method of that statement. The fair value of these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions: risk-free interest rate of approximately 5% to 6%; dividend yield of 0.0%; volatility factors of the expected market price of the Company's common stock of approximately 21% ( 122% in 1999 and 21% in 2000 ) and weighted- average expected life of the option of 10 to 13 years. The Company's pro-forma information is as follows: year ended year ended year ended 31-Mar 31-Mar 31-Mar 2000 2001 2002 Net loss As reported (1,500,840) (1,042,414) (592,746) Pro-forma (1,571,758 (1,248,253) (642,330) Net loss per share As reported (0.61) (0.40) (0.23) Pro-forma (0.64) (0.42) (0.25) Page 15 The WideCom Group Inc Notes to Consolidated Financial Statements (in United States dollars) March 31, 2001 and 2002 10. Share Capital cont'd (e) The Activity of the Company's Stock Option Plan is as follows: Option Outstanding Option Exercisable Weighted Weighted Average price Option Average price Options Per Share Outstanding Per Share Exercisable (dollars) (dollars) Balance, March 31, 2000 8.15 116,500 8.15 95,750 Cancelled 8.15 (9,250) Balance, March 31, 2001 8.15 107,250 8.15 95,750 Granted/Cancelled - - - - Balance, March 31, 2002 8.15 107,250 8.15 95,750 Effective June 27, 2000, the Company's Board of Directors approved a repricing of the exercise under the plan of the options to $4.00 per share. At March 31, 2001, there were 8,500 options available for future grants. As at March 31, 2001, the options have a weighted average contractual life of 7.5 years. At March 31, 2002, there were 8,500 options available for future grants. As at March 31, 2002, the options have a weighted average contractual life of 6.5 years. (f) Loss per Common Share The computation of loss per common share and common equivalent share is based on the weighted average number of common shares outstanding during the year except as noted below plus ( in years which they have a dilutive effect ) the effect of common shares contingently issuable pursuant to outstanding warrants and options. On March 31, 2002 there were 929,762 warrants and 116,500 options outstanding that were not considered because they are anti-dilutive. The weighted average number of common shares used in calculating earnings per common share (after retroactive application of the reverse stock split in 1999) is as follows: 2,000 2,001 2,002 Shares outstanding at year end 2,582,985 2,633,585 2,633,585 Weighted average shares outstanding* 2,443,730 2,591,418 2,591,418 11. Cumulative Other Comprehensive Loss The Company has adopted SFAS No. 130, Reporting comprehensive income as of January 1, 1998 which requires new standards for reporting and display of comprehen- sive income and its components in the consolidated financial statements. However, it does not affect net income or total stockholder's equity Page 16 The WideCom Group Inc Notes to Consolidated Financial Statements (in United States dollars) March 31, 2001 and 2002 11. Cumulative Other Comprehensive Loss cont'd The components of comprehensive loss are as follows 2000 2001 2002 Net loss (1,500,840) (1,042,414) (592,746) Other comprehensive loss & foreign currency translation adjustments (65,480) (160,791) (18,038) Comprehensive loss (1,566,320) (1,203,205) (610,784) The components of accumulated other comprehensive loss are as follows: Accumulated other translation loss March 31, 2000 (603,489) Foreign currency translation adjustment for the year ended March 31, 2001 (160,791) Accumulated other translation loss March 31, 2001 (764,280) Foreign currency translation adjustment for the year ended March 31, 2002 (18,038) Accumulated other translation loss March 31, 2002 (782,318) 12. Income Taxes (a) The reconciliation of income taxes calculated at an approximate statutory rate of 45% to the total tax provision is as follows: 2,000 2,001 2,002 Income taxes recovery (670,000) 583,000 403,000 Items not subject to income taxes 274,000 228,000 214,000 Benefit of tax losses not recognized 396,000 248,000 189,000 - - - Income tax provision and recovery is related solely to domestic operations. Foreign operations are not subject to taxes. (b) The Company has net operating loss carryforwards to reduce federal taxable income of approximately $8,557,781 which expire in 2004 through 2009. The Company has net operating loss carryforwards available to reduce Ontario taxable income of approx- imately $10,079,248 which expire during the years 2001 through 2009. The potential tax benefits of these losses have not been recognized in these consolidated financial statements The Company has share issue costs amounting to $2,800,000, which are deductible against taxable income. When realized, the benefits will be recorded as a capital transaction. Page 17 The WideCom Group Inc Notes to Consolidated Financial Statements (in United States dollars) March 31, 2001 and 2002 13. Commitments (a) The Company leases premises, office equipment and motor vehicles under operating leases expiring in 2004. The approximate annual rental commitments during the lease terms are as follows: Year ended March 31, 2003 14,000 Year ended March 31, 2004 900 Approximate rental expense incurred under operating leases is as follows: Year ended March 31, 1999 177,000 Year ended March 31, 2000 178,000 Year ended March 31, 2001 179,500 Year ended March 31, 2002 74,683 (b) The Company is committed to its affiliate, 3294340 Canada Inc., to pay a 0.5% royalty fee on net revenue, licensing revenue and net sales to sub-licensees on scanner and plotter technology created by the affiliate on behalf of the Company ( see Note 6 ). 14. Segmented Information The Company has adopted SFAS No. 131, Disclosures about segments of an enterprise which establishes standards for reporting operating segments in annual financial statements. Description of type of product : The Company operates through one segment, wide format document management systems, comprising of two major products- wide format scanners and plotters. Measurement of Segment profit and loss : As the products ( noted above ) are regarded as one segment, the total Consolidated Statements of Operations and Consolidated Balance Sheets and deemed by management to be wholly attributable to that segment. (a) The Company operated in one industry segment. The Company's operations and identifiable assets by geographic region are as follows: Page 18 The WideCom Group Inc. Notes to Consolidated Financial Statements (in United States dollars) March 31, 2001 and 2002 14. Segmented Information cont'd Canada India Intercompany Total Year ended March 31, 2000 Revenue 2,540,161 769,102 (736,552) 2,572,711 Net loss (1,232,624) (391,398) 123,182 (1,500,840) Identifiable assets 3,650,014 1,779,172 (1,993,825) 3,435,361 Year ended March 31, 2001 Revenue 1,465,283 395,342 (276,237) 1,584,388 Net loss (1,093,988) (174,278) 225,852 (1,042,414) Identifiable assets 3,014,456 1,270,768 (1,851,768) 2,433,456 Year ended March 31, 2002 Revenue 469,964 411,788 (270,918) 610,834 Net loss (232,995) (396,883) 37,132 (592,746) Identifiable assets 2,534,909 1,002,024 (1,910,242) 1,626,691 (b) The breakdown of sales by geographic region is as follows: 2,000 2,001 2,002 Canada 267,559 152,630 58,464 United States 1,535,204 722,943 295,702 Middle East 117,733 173,587 60,954 Asia 286,394 364,700 117,248 Europe 355,385 167,931 78,061 2,562,275 1,581,791 610,429 (c) In 2000, approximately 27.7% of the Company's product sales were made through five distributors, with the largest representing approximately 14.3%. For the year ended March 31, 2001, approximately 26% of the Company's product sales were made through five distributors, with the largest representing approximately 15%. During the year ended March 31, 2002 approximatly 32% of the company's product sales were made through 5 distributors with the largest representing approximately 18%. (d) Information with respect to revenues earned by country or by product are not readily available. Management reviews only the information set out in (a) above. 15 (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 sought a total of $15.85 million in damages and is was in progress in the Province of Ontario. Subsequent to the Balancesheet date, the claim has been settled for CAD 5,000 in cash and 100,000 shares in the company. These shares are yet to be issued 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. During the financial year ended March 31, 2002 subsidiary expended a sustatntial amount of funds on research and development activities of which an amount equellant to $52,392 has been recorded under inventories as Product under Development. (see note 2) Page 19 The WideCom Group Inc. Notes to Consolidated Financial Statements (in United States dollars) March 31, 2001 and 2002 16. Supplimental Disclosure of Cash Flow Information 2000 2001 2002 Cash paid during the year Interest 16,863 16,863 10,085 Non monitery transactions during the year Shares issued for conversion of debentures 203,777 - - Shares issued to Innovatech(as explained earlier) - 4,815 - 17. Subsidiaries During the year 2001 the Company sold it's proprierory Wide-Format Printing Techonology and related patents to it's wholly owned subsidiary PosterNetwork.com Inc (Posternetwork) in exchange of 12million shares of PosterNetwork. The Indian subsidiary decided not to recognize any gain or loss on foreign currency transilation during the year. Page 20