01 Communique Laboratory Inc. Second quarter financial report. for the period ending April 30,2002. (Unaudited) TSX : ONE

Transcription

1 Second quarter financial report for the period ending April 30,2002 (Unaudited) TSX : ONE

2 Dear Shareholders, Progress has been made during the quarter towards establishing 01 Communique as a leader in the remote access and messaging market. Revenue for the second quarter was $289,046 with a net loss of $860,863 or $0.03 per share compared to revenue of $1,853,862 with a net loss of $2,587,277 or $0.09 per share for the same period in fiscal Revenue year to date for the six-month period ending April 30, 2002 was $599,010 with a net loss of $2,070,807 or $0.07 per share compared to revenue of $5,398,857 with a net loss of $3,919,792 for the same period in fiscal The Company finished the quarter with $4,759,007 of cash and short term investments. We have aggressively cut our operating expenses over the past year as a result of de-emphasizing our retail business in areas where we felt we could not be profitable. Our operating expenses for the second quarter of fiscal 2002, which were in line with our expectations, were $1,136,724 which represents a 74% reduction over the same period in fiscal 2001 and a 24% reduction over the first quarter of fiscal We have our expenses under control and will continue to monitor them very closely. Going forward for the remainder of fiscal 2002 we expect our expenses to continue at approximately $1 million per quarter. We are pleased with our success in reducing expenses by such a significant amount while at the same time being able to bring our I m InTouch service to the market and sign key strategic agreements with five partners. With operating expenses running at approximately $1 million per quarter and $4.7 million of cash and short term investments on hand, we have sufficient cash resources to fund over 1 year of operations without taking into account additional cash generated from revenues. We believe there is an excellent market opportunity for our remote access and messaging service, I m InTouch, in North America and abroad. We are very encouraged with the developments to date and we will continue to work hard at building revenues from our existing partners and at the same time aggressively pursuing new strategic partners. Highlights: Our partnership with Hitachi Business Solution The first step to offer I m InTouch outside of North America was the signing of a master licencing agreement with Hitachi Business Solution of Japan, who will market a Japanese version of I m Intouch dubbed DoMobile to indicate compatibility with NTT DoCoMo s successful imode. The Japanese localization of the service has now been completed and DoMobile is scheduled to be ready for release to the market by Hitachi Business Solution in June. Powered by the I m InTouch technology, DoMobile targets Small to Medium Businesses offering several key benefits that are unique to this service. These unique benefits are: 1. By utilizing I m InTouch s unique Peer-to-Peer patent pending technology DoMobile offers an extremely low cost of implementation for Hitachi and their partners. 2. DoMobile overcomes the difficulties and inconvenience of having to set up a new address, which is a significant benefit for the mobile user. 3. The need for synchronizing messages, contacts and calendaring with the user s office PC is eliminated. At a recent press conference held by 01 and Hitachi Business Solution the following trends in the Japanese market that Hitachi feels will fuel demand for the DoMobile service were noted: 1. Japanese corporate culture is changing as time spent as a family is becoming increasingly more important. Work from home is on the rise. 2. Business people face a long commute every day to work.

3 3. The Japanese consumer has already adopted Internet-by-phone. They are considered to be the world leader in this area, leading Europe, and North America by several years. According to figures from Eurotechnology Japan K.K., in 2000, more than 80% of the worldwide mobile Internet users were from Japan, compared with less than 1% in the U.S. Japan's telecommunications association indicates that there are about 50 million mobile Internet users accessing the Internet wirelessly through NTT DoCoMo's imode, KDDI's EZWeb or J-Phone's J- Sky. 4. is the most widely used application on Japan s wireless Internet. Additions to our Board of Directors Mr. Bob Ferchat and Mr. Wayne Brennan were elected to 01 s Board of Directors at the Annual General Meeting in April. Mr. Ferchat has extensive experience in the telecommunications industry having served as Chairman and Chief Executive Officer of Bell Mobility from November, 1994 until retiring in May, Mr. Brennan has extensive experience in sales and marketing and building technology based companies. He founded Tecway Technologies Ltd. in 1991 building the Company to become a leading distributor of semi conductors until its sale in I am confident that both these individuals will be of invaluable assistance to us as we move our Company forward. Reorganizing and Strengthening our Sales and Marketing Departments The sales and marketing areas of the Company have been reorganized in an effort to further streamline operations and recognize the contributions of those involved. Mr. Brian Howden, who has been with the Company for over 18 months has been promoted to Vice President of Marketing. In his expanded role Mr. Howden will oversee all aspects of the Company s marketing, including product marketing, communications and public relations. Mr. Brian McElwain, Executive Vice-President, has taken on the additional function of Business Development in addition to sales management. He is supported by Mr. Dave Vilim who joins the Company as Director of Strategic Business Development. Mr. Vilim has extensive experience in the technology industry and business development. He was most recently Manager of Business Development for Eicon Networks, responsible for business development and OEM initiatives in North America. A direct outside sales force supported by a telemarketing team has been established. This team is targeting the Small Medium Businesses in the Greater Toronto Area. As this initiative begins to produce revenue the Company will expand geographic coverage beyond the GTA with the addition of more outside sales reps. Mr. Genaro Yupangco joined the Company as Director, VAR Program. Mr. Yupangco brings with him a wealth of experience in developing a VAR (Value Added Reseller) channel in the communications industry. He was most recently Vice President Sales and Business Development at Conexys Inc., a company providing unified communications solutions. The Market Opportunity for I'm InTouch: The I'm InTouch service is an Internet-based solution aimed at "always on, always connected" individual users and small to medium-sized businesses. I'm InTouch provides cost effective remote access to files, , calendar and contacts from a user's business or home PC, as well as providing support for video streaming. The technology behind I'm InTouch is HTML-based, enabling a user's data to be delivered to any browser, which of course includes wireless devices. I'm InTouch thus benefits from the pervasive growth of wireless, adding value to popular devices such as the Research in Motion (RIM) Blackberry, wireless Palm and Handspring PDAs, hand-held computers running the PocketPC operating system from Microsoft (Compaq ipaq, HP Jornada, Sony Clie), as well as the new line of Internet-enabled cell phones, such as Fido s new 2.5G GPRS high speed phone.

4 In addition, I'm InTouch's HTML-based peer-to-peer approach has specific and unique advantages. It does not require any software downloads to the remote device. It does not require a static IP address or a costly set up, such as a RAS (Remote Access Server) or VPN (Virtual Private Network). A user's is processed directly at the desktop, eliminating the need for and problems associated with "synchronizing". Specifically, the opportunities for subscriber growth for I'm InTouch arise from the following market trends: 1. The rapid growth of wide bandwidth Internet service, which includes cable modem, xdsl and satellite. According to Nielson/NetRatings, the total number of broadband users in the U.S. alone grew by 90% to 21.3 million users from November 2000 to November One out of every five U.S. surfers accesses the Internet today using a high-speed connection. 2. The rapid growth of the wireless market and connectivity to the Internet. According to the Strategis Group, today in the U.S. there are 90 million wireless subscribers increasing to 139 million by By 2004, 95% of these subscribers are expected to have access to wireless data and Internet services. 3. The increase in the number of mobile and remote workers. According to IDC, the U.S. mobile and remote worker population is expected to grow at a 9% compound annual growth rate, from 39.2 million to 55.4 million in The increasing popularity of wireless and adoption by small to medium-sized business. According to IDC, the most popular application envisioned for use within a wireless solution is and 47% of small to medium sized companies are planning to implement a wireless solution. We remain confident in our ability to build a profitable and successful company in the remote access and messaging market. Thank you for your continued support. Yours truly, Andrew Cheung May 28, 2002

5 Management s discussion and analysis 01 Communique develops and markets PC-based messaging and communications software that integrates a full range of communications and messaging capabilities, including fax, voice, data and Internet applications ( , Internet phone, fax and video). The Company s I m InTouch service extends the technology beyond the desktop, enabling its customers to remotely access information on their PC, using any Internet connected computer or wireless device. The following comments and analyses are intended to provide an overview of the results of operations and financial position of the Company for the three and six month periods ended April 30,2002 and Results of Operations. Net loss for the second quarter fiscal 2002 was $860,863 compared to a net loss of $2,587,277 for the same period in fiscal For the six month period ending April 30,2002 the net loss was $2,070,807 compared to a net loss of $3,919,792 for the same period in fiscal Expenses have been reduced significantly over the past year, primarily as a result of the Company deemphasizing its retail business in areas where it was felt profitable results could not be attained. The operating loss is in line with management s expectations. Total operating expenses for the second quarter were $1,136,724 which represents a 74% reduction from $4,355,408 for the same period in fiscal 2001 and a 24% reduction from $1,500,360 in the first quarter of fiscal Operating expenses are expected to continue at approximately $1,000,000 per quarter through to the end of the fiscal year. Management will continue to monitor expenses very closely and will adjust them accordingly as revenue from the I m InTouch service starts to build. The Company finished the period with $4,759,007 of cash and short term investment. Management is committed to a return to profitability and plans to achieve this through a continued prudent management of expenses and increase in revenue from the I m InTouch service. Revenues Revenue for the second quarter of fiscal 2002 was $289,046 and $599,010 year to date, compared to $1,853,862 for second quarter fiscal 2001 and $5,398,857 year to date. The reduction in revenue is a result of the Company de-emphasizing its retail business and focusing efforts on I m InTouch. Gross margin Gross margin remained relatively consistent at 95% for the second quarter and year to date for fiscal 2002, compared to 94% for second quarter 2001 and 95% year to date. Selling, general and administration Selling, general and administrative expenses decreased significantly to $779,508 for second quarter 2002 from $4,086,600 for second quarter 2001 and to $1,937,034 year to date 2002 from $8,460,025 for The decrease is a result of the cost reduction program the Company initiated over the past year, which came about primarily from the Company de-emphasizing its retail business and the corresponding reduction in costs. Management believes there is a greater market opportunity for its remote access and file management service, I m InTouch. The Company plans to continue to invest in sales and marketing activities to increase awareness and ultimately revenue from the I m InTouch service offering.

6 Research and development Research and development expenses decreased to $378,106 for second quarter 2002 from $475,113 for second quarter 2001 and to $742,988 year to date 2002 from $875,926 for The decrease is a result of a decrease in the number of product development staff. The staff count has been reduced as the development phase of the offering is now complete and less staff are required to maintain the service and provide enhancements. Liquidity and capital resources Cash, cash equivalents and short-term investments were $4,759,007 at April 30,2002 compared to $7,164,072 at October 31,2001 for a reduction of $2,405,065. The cash was used to fund the operating loss of $2,070,807 and a $334,258 net change in non-cash working capital. The net change in non-cash working capital was primarily the result of a decrease in accounts payable. Prospects for the future and risks The Company is presently reporting losses and expects to continue to do so until such time as revenue from its I m InTouch service starts to build and eventually exceeds operating expenses. Management can not foresee when this will occur. Management expects operating expenses to continue at approximately $1,000,000 per quarter and has $4,759,007 of cash and short term investments. There can be no assurances, should the Company require additional working capital, that such working capital will be available. The Company continues to anticipate, and in some cases has experienced, risks and uncertainties associated with doing business. These include potential delays in obtaining partnerships for the Company s new product offering I m InTouch and an economic slowdown in the North American economy. In addition, unanticipated competitive threats may exist or could arise that could negatively impact the advantage the Company feels it has as the only Company offering a decentralized or peer-to-peer approach to remote access and file management. With the introduction of I m InTouch, new markets have opened up for 01 Communique and the Company expects to broaden exposure and market awareness in these new markets for its products through the continued development of its sales and marketing team. With a unique decentralized or peer-to-peer solution for the remote access and file management market and commitment for continued sales and marketing activities, 01 Communique is well positioned to pursue all types of communications service providers to offer this decentralized solution as an ongoing service to their customers.

7 Balance Sheets ASSETS As at April. 30,2002 As at Oct. 31,2001 Current assets: Cash & cash equivalents $ 605,916 $ 925,860 Short-term investments 4,153,091 6,238,212 Accounts receivable 261, ,012 Inventory 64,986 74,543 Prepaid expenses & deposits 81, $ 5,167,802 $ 7,623,413 Capital assets 255, ,298 $ 5,422,944 $ 7,925,711 LIABILITIES & SHAREHOLDERS EQUITY Current liabilities: Accounts payable and accrued liabilities $ 1,509,668 $ 1,941,628 Shareholders equity: Share capital 22,477,780 22,477,780 Deficit (18,564,504) (16,943,697) 3,913,276 5,984,083 $ 5,422,944 $ 7,925,711

8 Statements of Operations and Deficit for the 3 months ending: 6 months year-to-date: April 30,2002 April 30,2001 April 30,2002 April 30,2001 Revenue $ 289,046 $ 1,853,862 $ 599,010 $ 5,398,857 Cost of revenue 13,189 85,731 32, ,857 Gross profit 275,857 1,768, ,270 5,125,000 Operating expenses Selling, general & admin. 779,508 4,086,600 1,937,034 8,460,025 Research & development 378, , , ,926 Depreciation & amort. 21,795 7,794 47,257 15,588 Other (income) expenses (42,685) (214,098) (90,196) (306,746) Total operating expenses 1,136,724 4,355,408 2,637,083 9,044,792 Net loss for the period 860,863 2,587,277 2,070,807 3,919,792 Deficit, beginning of period 17,703,639 7,147,353 16,493,697 5,817,838 Deficit, end of period $ 18,564,504 $ 9,734,630 $ 18,564,504 $ 9,734,630 Net loss per common share: - Basic $ 0.03 $ 0.09 $ 0.07 $ Diluted $ 0.03 $ 0.09 $ 0.07 $ 0.17 Weighted average number of shares outstanding - Basic - Diluted 30,002,707 36,201,515 29,991,045 35,942,840 30,002,707 36,027,015 29,991,045 35,942,840

9 Statements of Cash Flows For the 3 months ending: 6 months year-to-date: Apr. 30,2002 Apr. 30,2001 Apr. 30,2002 Apr. 30,2001 Cash provided by (used in): Operations: Net loss $ (860,864) $ (2,587,277) $ (2,070,807) $ (3,919,792) Items which do not involve cash: Depreciation and amortization 21,795 7,794 47,157 15,588 Change in non-cash working capital (73,666) 1,027,060 (381,516) 911,823 (912,735) (1,552,423) (2,405,166) (2,992,381) Financing: Issuance of share capital --- 9, , , ,280 Investments: Purchase of fixed assets --- (74,453) --- (74,453) Purchase (reduction) of short-term investments 957,420 1,395,109 2,085,122 2,244, ,420 1,320,656 2,085,122 2,170,341 Increase (decrease) in cash & cash equivalents 44,685 (222,541) (320,044) (816,760) Cash & cash equivalents, beginning of period 561,234 1,768, ,960 2,362,661 Cash & cash equivalents, end of period $ 605,916 $ 1,545,901 $ 605,916 $ 1,545,901

10 Notes to the financial statements (Unaudited) Three and six months ended April 30,2002 Basis of presentation. In the opinion of management, the unaudited financial statements of the Company have been prepared on a consistent basis with the October 31,2001 audited financial statements and include all material adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial position of the Company at April 30,2002 and the results of operations and cash flows for the three and six months ended April 30,2002 in accordance with Canadian generally accepted accounting principles. These statements should be read in conjunction with the Company s October 31,2001 audited financial statements and notes thereto.

11 Corporate Information DIRECTORS Andrew Cheung President & CEO Henry J. Pankratz Chairman President Cavancore Capital M. Grant Brown Managing Partner Covington Capital Corporation Wayne M. Brennan Corporate director and private investor Bob Ferchat Corporate director and private investor Gigi Loo Controller George E. Harvey Retired President of Business Services AT&T Canada and Corporate director William A. Train Corporate director and private investor OFFICERS Andrew Cheung President & CEO Brian McElwain Executive Vice President Brian Stringer Chief Financial Officer Gigi Loo Controller Brian Howden Vice President Marketing INVESTOR RELATIONS to: CORPORATE HEADQUARTERS 1450 Meyerside Drive Mississauga, Ontario L5T 2N5 Phone: (905) Fax: (905) Common Shares Listed on: Toronto Stock Exchange (TSX) Trading Symbol ONE