SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
Form 10-QSB
QUARTERLYREPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998.
Commission file number 0-25680
WAVERIDER COMMUNICATIONS INC.
(Exact name of small business issuer as specified in its charter)
NEVADA 33-0264030
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
235 Yorkland Blvd., Suite 1101, Toronto, Ontario M2J 4Y8
(Address of principal executive offices and Zip (Postal) Code)
(416) 502-3200
(Issuer's telephone number)
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirement for the past 90 days.
Yes __X__; No _____
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: October 29, 1998 - 40,154,221 Common
shares, $.001 par value.
Transitional Small Business Disclosure Format: (check one):
Yes _____; No __X__
<PAGE>
WAVERIDER COMMUNICATIONS INC.
FORM 10 - QSB
For the Period Ended September 30, 1998
INDEX
Page
PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements 4-9
Balance Sheets 4
Statements of Operations 5
Statements of Cash Flows 6
Notes to Financial Statements 7-9
Item 2. Management's Discussion and Analysis or Plan of Operation 9-10
PART II OTHER INFORMATION 10
Item 6. Reports on Form 8-K 10
Signatures 10
2
<PAGE>
PART I. FINANCIAL INFORMATION
Unaudited Consolidated Financial Statements
WAVERIDER COMMUNICATIONS INC.
( A Development Stage Company)
Quarter ended September 30, 1998 and year ended December 31, 1997
The Financial statements for the three and nine months ended September 30,
1998 and 1997 include, in the opinion of the Company, all adjustments (which
consist only of normal recurring adjustments) necessary to present fairly the
results of operations for such periods. Results of operations for the three and
nine months ended September 30, 1998, are not necessarily indicative of results
of operations which will be realized for the year ending December 31, 1998. The
financial statements should be read in conjunction with the Company's Form
10-KSB for the year ended December 31, 1997.
3
<PAGE>
WaveRider Communications Inc.
( A Development Stage Company)
Balance Sheets
Quarter ended September 30, 1998 and year ended December 31, 1997
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
(Unaudited) (Audited)
----------------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash and Equivalent $ 954,856 437,746
Accounts Receivable 39,965 57,045
Prepaid Expenses 13,970 9,387
Inventory 53,346 19,656
----------------------------------------
Total Current Assets $ 1,062,137 523,834
----------------------------------------
EQUIPMENT
Equipment and Fixtures $ 1,070,863 407,635
Less Accumulated depreciation (205,422) (67,036)
----------------------------------------
Net Equipment $ 865,441 340,599
----------------------------------------
GOODWILL
Cost $ 69,355 78,656
Amortization (24,623) (10,928)
----------------------------------------
$ 44,732 67,728
----------------------------------------
Total assets $ 1,972,310 932,161
========================================
LIABILITIES
CURRENT LIABILITIES
Accounts Payable $ 117,796 108,060
Accrued Liabilities 93,164 150,027
Current Portion of Long-term Capital Lease 74,134
Deferred Revenue 35,772 24,155
----------------------------------------
$ 320,866 282,242
Long-term Capital Lease $ 20,115 -
----------------------------------------
Total Liabilities $ 340,981 282,242
----------------------------------------
STOCKHOLDER'S EQUITY
Preferred stock, $.001 par value:
authorized 5,000,000 shares: issued
and outstanding 800,000 shares as of September 30, 1998
and 4,000,000 as of December 31,1997 $ 800 4,000
Common Stock $.001 par value;
authorized 100,000,000 shares; issued
and outstanding 40,120,221 shares at September 30, 1998
and 26,918,381 shares at December 31, 1997 40,121 26,918
Paid in capital 7,804,450 4,255,329
Accumulated deficit (6,214,041) (3,636,329)
----------------------------------------
Total Stockholder's Equity $ 1,631,330 649,919
----------------------------------------
Total Liabilities and Stockholder's Equity 1,972,310 932,161
========================================
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
WaveRider Communications Inc.
(A Development Stage Company)
Statements of Operations
Quarter Ending September 30, 1998
<TABLE>
<CAPTION>
Inception
Three Months Ended Nine Months Ended (August 6, 1987)
September 30, September 30, to September 30,
1998 1997 1998 1997 1998
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUE
Internet Sales $ 39,543 - $ 116,238 - $ 193,697
Interest and other income 21,150 - 21,929 22 45,497
-------------------------------------------------------------------------------------
60,693 138,167 22 239,194
-------------------------------------------------------------------------------------
EXPENSES
Research and development
Salaries and benefits $ 447,700 71,419 $ 908,788 167,874 1,210,375
Equipment and materials 109,766 33,983 231,916 45,366 298,125
Consulting (16,853) 13,000 151,780 13,000 151,780
Depreciation 60,798 143,108 208,502
Overhead 68,673 163,938 60,256 196,175
Office and general 341,748 113,209 713,653 148,120 2,074,631
Consulting fees 25,328 78,056 133,832 114,516 1,319,953
Legal and accounting 39,786 28,449 98,543 28,449 388,208
Internet services 17,562 64,631 86,429
Depreciation and amortization 8,275 25,413 105,840
Salaries and benefits 11,981 40,278 373,218
-------------------------------------------------------------------------------------
$ 1,114,763 $ 338,116 $ 2,675,879 $ 577,581 $ 6,413,236
-------------------------------------------------------------------------------------
NET INCOME (LOSS) FROM OPERATIONS $(1,054,071) $ (338,116) $(2,537,712) $ (577,559) $(6,174,041)
Preferred Stock Dividends (40,000) (40,000) (40,000)
-------------------------------------------------------------------------------------
NET INCOME (1,094,071) (338,116) (2,577,712) (577,559) (6,214,041)
=====================================================================================
LOSS PER COMMON SHARE (0.03) (0.02) (0.08) (0.06) (1.91)
=====================================================================================
Weighted Average Number Of Common Shares 40,050,296 15,284,162 32,065,723 9,216,954 3,248,311
=====================================================================================
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
WaveRider Communications Inc.
(A Development Stage Company)
Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Nine Months Ended Inception
30-Sept (August 6, 1987)
1998 1997 to September 30,1998
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (2,537,712) $ (577,559) $ (6,174,041)
Adjustments to reconcile net (loss) to cash
Depreciation 168,521 314,342
Exchange loss on net long term assets 58,690 58,690
Loss on sale of fixed assets (36) 91,616
Decrease (increase) in accounts receivable 17,080 (7,809) (39,965)
Decrease (increase) in other current assets (38,273) (36,705) (67,316)
Increase (decrease) in accounts payable 9,736 (20,537) 117,796
Increase (decrease) in accrued liabilities (56,863) 21,761 93,164
Increase (decrease) in capital leases 94,249 94,249
Increase (decrease) in deferred revenue 11,617 35,772
--------------------------------------------------------
Net Cash Flows Used for Operating Activities $ (2,272,955) $ (620,885) $ (5,475,693)
--------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment $ (729,058) (234,122) $ (1,296,166)
Goodwill (78,656)
--------------------------------------------------------
Net Cash Flows Used for Investing Activities $ (729,058) $ (234,122) $ (1,374,822)
--------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Loans from Affiliate - net of repayment $ (12,357)
Advance on sale of stock (26,790)
Preferred stock dividends (40,000) (40,000)
Sale of stock, net of offering costs 3,559,124 1,032,425 7,845,372
--------------------------------------------------------
Net Cash Flows Provided by Financing Activities $ 3,519,124 $ 993,278 $ 7,805,372
--------------------------------------------------------
Net increase in cash $ 517,112 $ 138,271 $ 954,856
Cash and cash equivalents-beginning of period $ 437,746 $ 1,809 $ 0
--------------------------------------------------------
Cash and cash equivalents-end of period $ 954,856 $ 140,080 $ 954,856
========================================================
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
WaveRider Communications Inc.
(A Development Stage Company)
Notes to Financial Statements
September 30, 1998 and December 31, 1997
1. NATURE OF OPERATIONS
- --------------------------------------------------------------------------------
WaveRider Communications Inc., incorporated in 1987 under the laws of the state
of Nevada USA, is a public company traded on NASDAQ OTC Bulletin Board, trading
symbol WAVC. Prior to its takeover of Major Wireless Communications Inc., in May
of 1997, the Company had become dormant and all prior business activities had
been discontinued.
The Company is in the process of developing and marketing digital wireless data
communications technology. The Company's first commercial product, the NCL 135
has completed pilot testing and is in the process of receiving government
certification in Canada and the United States.
The Company incurred an operating loss of $2,537,712 (1997 - $577,559) for the
nine months ended September 30, 1998. The Company's ability to discharge
liabilities in the normal course of business is dependent on future profitable
operations and/or obtaining additional debt or equity financing.
2. SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
Principles of Consolidation and Basis of Accounting - The consolidated financial
statements include the accounts of the Company and its wholly-owned
subsidiaries, WaveRider Communications (Canada) Inc. (formerly Major Wireless
Communications Inc.) and Jetstream Internet Services Inc., both of which are
British Columbia companies with operations in British Columbia, Canada. For the
nine months ended September 30, 1997 the consolidated financial statements
include the accounts of Channel i PLC, which was discontinued in 1997.
The Company's consolidated financial statements are prepared in accordance with
generally accepted accounting principles in the United States of America.
Financial instruments - The Company's financial instruments consist of accounts
receivable, prepaid expenses, accounts payable, and accrued liabilities. It is
management's opinion that the Company is not exposed to significant interest,
currency or credit risks arising from the financial instruments mentioned and
that their fair values approximate their carrying values, unless otherwise
noted.
Use of estimates in the preparation of financial statements - The preparation of
financial statements in conformity with generally accepted accounting principles
requires management 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 reporting period.
Actual results could differ from those estimates.
Foreign currency translation - As all of the Company's operations are in Canada,
the Canadian dollar has been chosen as the Company's functional currency. All
assets and liabilities denominated in Canadian dollars are translated at the
current rate and revenues, expenses, gains and losses are translated at weighted
average exchange rates. Translation adjustments on US dollar transactions are
expensed.
Equipment - Equipment is recorded at cost and depreciated over the estimated
lives of the assets, commencing in the year the assets are put into use, as
follows:
- Modem software - 50% - declining balance method
- Computer equipment - 30% - declining balance method
- Lab equipment - 25% - declining balance method
- Modem housing mold - 25% - declining balance method
- Computer software - 50% - declining balance method
- Office equipment and furniture - 20% - declining balance method
- Leasehold improvements - 2 years - straight line
- Station site development - 40% - declining balance method
Goodwill - Goodwill represents the excess of cost over fair value of the net
assets and liabilities of Jetstream Internet Services Inc. It is amortized using
the straight-line method over a period of three years.
Revenue recognition and deferred revenue - Fees billed for Internet services on
long term service contracts are recognized over the period of the contracts.
Research and development costs - Research and development costs are expensed as
incurred.
7
<PAGE>
NOTE 2: ACQUISITION
On May 13, 1997, the Company completed the acquisition of 100 percent of
the 1,600 common stock and 1,600 preferred stock outstanding of Major Wireless
Communications Inc. (MWCI) in exchange for the Company issuing 4,000,000 shares
of Series B Voting Convertible Preferred Stock with a par value of $0.001 per
share (the "preferred shares"). Under an agreement finalized April 15, 1998, the
preferred shares were exchanged by the shareholders for 10,000,000 common shares
(the "common shares") of the Company. The common shares are held in escrow and
will be released to the previous shareholders of MWCI on the occurrence of
certain performance-related events. In the event that any of the events have not
occurred by May 13, 2002, the remaining common shares will be cancelled by the
Company. This expiry date may be extended by up to two years at the discretion
of the Company's Board of Directors. No shares have been released to date.
The acquisition of MWCI has been accounted for using the purchase method of
accounting with the purchase price assigned to the net assets acquired based on
their fair values at the time of acquisition. As the shares become releasable
from escrow in the future, such shares will be recorded at their fair market
value at the date the release test is met. The carrying value of the deficit of
MWCI, being the deemed excess purchase price at the date of acquisition, has
been assigned to research and development and expensed for accounting purposes.
On March 25, 1998, the Company changed the name of Major Wireless
Communications Inc. to WaveRider Communications (Canada) Inc.
NOTE 3: STOCKHOLDER'S EQUITY
Common Stock
In the first quarter of 1998, the remainder of the Series B, C and D warrants,
attached to units of Series A Convertible Preferred Stock, amounting to
1,491,178 common shares, were exercised for $156,573. In addition, the Company
raised $500,000 through a private placement of 500,000 units of its common
stock. Series E Warrants were attached entitling the holders to purchase an
additional 500,000 shares for $625,000. As well, 75,000 common share options,
pursuant to the Employee Stock Option (1997) Plan, were exercised for $18,750.
During the second quarter, the Company raised $2,000,000 through the private
placement of 800,000 preferred share units. Each unit consisted of one 8%
convertible preferred share and one common share purchase warrant, exercisable
for two years at $2.50 per share. In addition, 410,000 of the Series E Warrants
were exercised for $512,500 and 595,862 common share options, pursuant to the
Employee Stock Option (1997) Plan, were exercised for $307,439. As well, the
Company awarded 2,500 shares pursuant to the Employee Stock Compensation (1997)
Plan.
In the third quarter, 127,300 common share options, pursuant to the Employee
Stock Option (1997) Plan, were exercised for $63,860.
NOTE 4: COMMITMENTS
Agreements
On June 10, 1997 the Company authorized an Employee Stock Option (1997)
Plan for 5,000,000 common shares and an Employee Compensation (1997) Plan for
2,500,000 common shares. On February 16, 1998, the Company authorized an
increase to the Employee Stock Option (1997) Plan to 6,250,000.
As of September 30, 1998, the Directors had awarded 6,092,587 options under
the Employee Stock Option (1997) Plan and 2,500 shares under the Employee
Compensation (1997) Plan. Awards under the Employee Stock Option (1997) Plan are
made at the average price of the stock on the date of the date of the award.
NOTE 5: INCOME TAXES
WaveRider Communications Inc. incurred an operating loss for the nine
months ended September 30, 1998 and the year ended December 31, 1997 of
$2,537,712 and $1,039,130, respectively.
As of December 31, 1997 and 1996, the Company had net operating loss
carry-forwards of $1,965,146 and $1,460,089, respectively, which expire between
the years 2004 - 2012.
8
<PAGE>
NOTE 6: GOING CONCERN AND DISCONTINUED OPERATIONS
At September 30, 1998 and December 31, 1997, the Company has not generated
significant revenues from operations.
The Company is actively designing, developing and planning the production
and sale of wireless data communications products. The Company is entirely
dependent upon its ability to raise the funds necessary for research and
development, manufacturing and operating capital.
NOTE 7: COMPARATIVE FIGURES
Certain comparative amounts have been reclassified, where appropriate, to
correspond with the current year's presentation
ITEM 2.
Management's Discussion and Analysis or Plan of Operation.
The following discussion is intended to assist in an understanding of the
Company's financial position and results of operations for the quarter ending
September 30, 1998.
Forward-Looking Information.
This report contains certain forward-looking statements and information
relating to the Company that are based on the beliefs of its management as well
as assumptions made by and information currently available to its management.
When used in this report, the words "anticipate", "believe", "estimate",
"expect", "intend", "plan", and similar expressions as they relate to the
Company or its management, are intended to identify forward-looking statements.
These statements reflect management's current view of the Company with respect
to future events and are subject to certain risks, uncertainties and
assumptions. Should any of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those described in this report as anticipated, estimated or expected. The
Company's realization of its business aims could be materially and adversely
affected by any technical or other problems in, or difficulties with, planned
funding and technologies, third party technologies which render the Company's
technologies obsolete, the unavailability of required third party technology
licenses on commercially reasonable terms, the loss of key research and
development personnel, the inability or failure to recruit and retain qualified
research and development personnel, or the adoption of technology standards
which are different from technologies around which the Company's business
ultimately is built. The Company does not intend to update these forward-looking
statements.
Liquidity and Capital Resources.
The Company has funded its operations for the most part through equity
financing and has had no line of credit or similar credit facility available to
it. The Company's outstanding shares of Common stock, par value $.001 per share,
are traded under the symbol "WAVC" in the over-the-counter market on the OTC
Electronic Bulletin Board by the National Association of Securities Dealers,
Inc. The Company must rely on its ability to raise money through equity
financing to pursue any business endeavors. The majority of funds raised have
been allocated to the development of the WaveRider(R) line of wireless data
communications products.
During the first nine months of 1998, the Company has raised $2,500,000 through
two private placements, $669,073 through the exercise of warrants and $390,049
through the exercise of Employee Stock options.
Current Activities.
The Company currently has 46 employees working in its two subsidiaries,
WaveRider Communications (Canada) Inc. and JetStream Internet Services Inc. The
majority of these employees are involved in the design, development and
marketing of the WaveRider(R) line of wireless data communications products.
9
<PAGE>
Results of Operations - Third Quarter 1998
During the third quarter of the year, the Company incurred a net loss of
$1,054,071. Cash and equivalents amounted to $954,856 and current liabilities
were $320,866 including accruals for expenses. Expenses during the third quarter
related primarily to R&D costs and the establishment of sales and marketing
programs for the introduction of the NCL 135 wireless data communications
product. During the quarter, accruals of approximately $80,000 related to the
wind-up of Channel i PLC in 1997 were reversed and reduced current period
expenses.
Results of Operations - Third Quarter 1997
During the quarter ended September 30, 1997 the Company incurred a net loss
of $338,116. Cash and equivalents amounted to $140,080 and current liabilities
were $93,918 including accruals for expenses to terminate Channel i PLC.
Expenses during the quarter related primarily to R&D costs and the salaries and
benefits of personnel and consulting fees for experts engaged in management and
R&D of the wireless modem project. Activities during the quarter centered around
developing production and marketing plans for WaveRider products.
The Company discontinued operations of its dormant subsidiary, Channel i
PLC in the UK as announced in previous filings. There was a small accounting
gain on termination.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
NONE
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,
WaveRider Communications Inc.
Date: November 3, 1998
/s/ D. Bruce Sinclair
-------------------------------------
D. Bruce Sinclair
President and Chief Executive Officer
/s/ T. Scott Worthington
-------------------------------------
T. Scott Worthington
Chief Financial Officer.
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with legend, if applicable)
</LEGEND>
<CIK> 0000844053
<NAME> WaveRider, Inc.
<MULTIPLIER> 1
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 954,856
<SECURITIES> 0
<RECEIVABLES> 39,965
<ALLOWANCES> 0
<INVENTORY> 53,346
<CURRENT-ASSETS> 1,062,137
<PP&E> 1,070,863
<DEPRECIATION> (205,422)
<TOTAL-ASSETS> 1,972,310
<CURRENT-LIABILITIES> 320,866
<BONDS> 0
0
800
<COMMON> 40,121
<OTHER-SE> 1,590,409
<TOTAL-LIABILITY-AND-EQUITY> 1,972,310
<SALES> 39,543
<TOTAL-REVENUES> 60,693
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,114,763
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,094,071)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,094,071)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,094,071)
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
