SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
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)
255 Consumers Road, Suite 500, Toronto, Ontario Canada M2J 1R4
--------------------------------------------------------------
(Address of principal executive offices and Zip (Postal) Code)
(416) 502-3200
---------------------------
(Issuer's telephone number)
235 Yorkland Blvd., Suite 1101, Toronto, Ontario M2J 4Y8
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(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: August 12, 1999 - 44,931,169 Common
shares, $.001 par value.
Transitional Small Business Disclosure Format: (check one):
Yes _____; No __X__
1
<PAGE>
WAVERIDER COMMUNICATIONS INC.
FORM 10 - Q
For the Period Ended June 30, 1999
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 10-11
PART II OTHER INFORMATION 11
Item 6. Reports on Form 8-K 11
Signatures 11
2
<PAGE>
PART I. FINANCIAL INFORMATION
Unaudited Consolidated Financial Statements
WAVERIDER COMMUNICATIONS INC.
(A Development Stage Company)
Quarter ended June 30, 1999 and year ended December 31, 1998
The Financial statements for the three and six months ended June 30, 1999 and
1998 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 six months
ended June 30, 1999, are not necessarily indicative of results of operations
which will be realized for the year ending December 31, 1999. The financial
statements should be read in conjunction with the Company's Form 10-KSB for the
year ended December 31, 1998.
3
<PAGE>
WaveRider Communications Inc.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(in U.S. dollars)
Quarter ended Year ended
June 30, December 31,
1999 1998
(Unaudited) (Audited)
ASSETS
Current
Cash $ 2,626,841 $ 3,047,257
Accounts receivable 234,536 71,257
Prepaid expenses 112,459 26,730
Inventory 330,058 150,494
-------------------------------
3,303,894 3,295,738
Fixed Assets 972,641 808,531
Acquired research and development 1,304,385 -
Goodwill 30,004 42,565
-------------------------------
$ 5,610,924 $ 4,146,834
===============================
LIABILITIES
Current
Bank indebtedness $ 400,000 $ -
Accounts payable and accrued liabilities 1,352,238 942,192
Note Payable 99,000 -
Deferred Revenue 41,936 39,558
Current portion of obligation under
capital lease 74,725 54,161
-------------------------------
1,967,899 1,035,911
Obligation under capital lease 24,833 12,555
-------------------------------
1,992,732 1,048,466
SHAREHOLDER'S EQUITY
Share Capital 14,277,558 10,849,376
Other Equity 1,468,105 1,503,782
Deficit accumulated during development stage (12,127,471) (9,254,790)
--------------------------------
3,618,192 3,098,368
$ 5,610,924 $ 4,146,834
===============================
See accompanying notes to financial statements.
4
<PAGE>
WaveRider Communications Inc.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF LOSS
(in U.S. dollars)
<TABLE>
<CAPTION>
Three Months ended Six Months ended From Inception
June 30 June 30 on Aug 6, 1987
1999 1998 1999 1998 to June 30, 1999
----------------------------------------------------------------------------
REVENUE
<S> <C> <C> <C> <C> <C>
Product sales $ 140,680 $ 0 $ 145,675 $ - $ 186,808
Internet sales 49,494 36,826 99,405 76,695 341,613
Interest and other 9,744 733 29,523 779 102,196
-----------------------------------------------------------------------------
199,918 37,559 274,603 77,474 630,617
COST OF PRODUCT AND INTERNET SALES 100,018 17,365 132,187 47,069 229,452
-----------------------------------------------------------------------------
GROSS MARGIN 99,900 20,194 142,416 30,405 401,165
-----------------------------------------------------------------------------
EXPENSES
Sales, general and administration 975,654 255,664 1,780,890 699,392 8,017,629
Research and development 576,335 388,254 1,137,674 1,043,579 3,443,694
Depreciation and amortization 8,437 4,850 16,606 17,138 132,273
-----------------------------------------------------------------------------
1,560,426 648,768 2,935,170 1,760,109 11,593,596
-----------------------------------------------------------------------------
NET LOSS $ (1,460,527) $ (628,574) $ (2,792,755) $ (1,729,704) $ (11,192,432)
=============================================================================
BASIC AND FULLY DILUTED LOSS PER SHARE $ (0.045) $ (0.021) $ (.087) $ (.060) $ (1.879)
=============================================================================
Weighted Average Number of Common Shares 32,341,069 29,716,106 31,967,878 28,835,804 5,957,733
=============================================================================
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
WaveRider Communications Inc.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in U.S. dollars)
<TABLE>
<CAPTION>
From Inception
Six Months ended June 30 on August 6, 1987
1999 1998 to June 30, 1999
--------------------------------------------------------
OPERATIONS
<S> <C> <C> <C>
Net loss $ (2,792,755) $ (1,729,704) $ (11,192,432)
Items not involving cash
Depreciation and amortization 171,086 99,448 621,254
Loss on sale of equipment - - 91,616
Options issued to consultants 55,500 246,062 687,139
Warrants issued on financing - - 313,325
Net changes in non-cash working capital items (186,292) 103,311 501,851
-------------------------------------------------------
(2,752,461) (1,280,883) (8,977,247)
-------------------------------------------------------
INVESTING
Acquisition of fixed assets (152,536) (528,703) (1,309,366)
Purchase of Transformation Techniques (253,985) (253,985)
Purchase of Internet service business - - (38,851)
-------------------------------------------------------
(406,521) (528,703) (1,602,202)
-------------------------------------------------------
FINANCING
Proceeds from sale of shares (net of issue fees) 2,895,005 3,495,262 13,528,086
Dividends on preferred shares (79,927) - (159,927)
Loans from affiliates - - 2,657
Payments on capital lease obligations (76,512) - (141,497)
-------------------------------------------------------
2,738,566 3,495,262 13,229,319
-------------------------------------------------------
Effect of exchange rate changes on cash - 22,870 (23,029)
-------------------------------------------------------
Increase (decrease) in cash (420,416) 1,708,546 2,626,841
Cash, beginning of period 3,047,257 437,746 -
-------------------------------------------------------
Cash, end of period $ 2,626,841 $ 2,146,292 $ 2,626,841
=======================================================
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
WaveRider Communications Inc.
(A Development Stage Company)
Notes to Financial Statements
June 30, 1999 and December 31, 1998
1. GOING CONCERN
The Company incurred an operating loss of $2,792,755 (1998 - $1,729,704) for the
six months ended June 30, 1999. These financial statements are prepared on a
going-concern basis which assumes the Company will realize its assets and
discharge its liabilities in the normal course of business. The ability of the
Company to continue as a going-concern is dependent upon its ability to obtain
adequate sources of financing as required and its ability to develop and
maintain profitable operations. If the Company is unable to continue as a going
concern, assets and liabilities would require restatement on a liquidation basis
which would differ materially from the going concern basis.
On December 29, 1998, the Company entered into private placement financing which
the Company projects is sufficient to fund the continued development of its
products and the development of its sales and marketing activities. Management
believes that the proceeds from that financing, together with the anticipated
cash flow from the operations of the Company, will be sufficient to support
currently anticipated working capital requirements.
2. NATURE OF OPERATIONS
WaveRider Communications Inc. (formerly Channel i Inc.), incorporated in 1987
under the laws of the state of Nevada, USA is a public company traded on the OTC
Bulletin Board, trading symbol WAVC.
The Company develops and markets wireless data communications products with a
focus on Internet connectivity. Its first product, the "NCL 135" received
Industry Canada approval for sale in Canada during the fourth quarter of 1998
and received FCC approval for sale in the United States during the first quarter
of 1999. On June 15, 1999, the Company acquired Transformation Techniques,
Inc.(see Note 4 - Acquisition), a competitive supplier of high speed wireless
data communications products.
3. PRIOR PERIOD ADJUSTMENT
During the year ended December 31, 1998, it was determined that the Company had
not accounted for stock options issued for services rendered by non-employees
and the purchase of Major Wireless, as required by GAAP. As a result, the June
30, 1998 consolidated financial statements have been restated to include the
fair value of the non-employee options. These changes, which had no impact on
the Company's cash flow results, have affected the prior reported financial
results as follows:
<TABLE>
<CAPTION>
Six Months Ended June 30, 1998 Inception to June 30, 1998
- -------------------------------------------------------------------------------------------------------------------
Restated Originally Restated Originally
Information Reported Information Reported
<S> <C> <C> <C> <C>
Sales, general and administration 699,392 567,463 4,128,950 3,737,167
Research and development 1,043,579 929,446 1,534,982 1,394,873
Depreciation and amortization 17,138 17,138 97,565 97,565
--------------------------------------------------------------------
Total expenses 1,760,109 1,483,642 5,761,497 5,229,605
--------------------------------------------------------------------
NET LOSS (1,483,642) (1,729,704) (5,119,971) (5,651,863)
====================================================================
LOSS PER COMMON SHARE (0.05) (0.05) (1.74) (1.58)
====================================================================
STOCKHOLDER'S EQUITY
Share Capital 7,781,510 7,781,510
Other Equity 246,062 -
Deficit accumulated during
the development stage (5,366,033) (5,119,971)
--------------------------------
860,551 860,551
================================
</TABLE>
In addition, note disclosure for the 1998 comparative figures has been modified
to conform with GAAP.
7
<PAGE>
WaveRider Communications Inc.
(A Development Stage Company)
Notes to Financial Statements
June 30, 1999 and December 31, 1998
4. ACQUISITION
On June 15, 1999, the Company finalized a merger agreement between
Transformation Techniques, Inc. ("TTI") and a newly incorporated subsidiary, TTI
Merger Inc. The new subsidiary subsequently changed its name to WaveRider
Communications (USA) Inc.
Under the terms of the merger agreement, WaveRider issued 256,232 shares of
common stock, having a market value of $442,000 and paid $253,985 in cash on
closing and will pay an additional $99,000, in monthly installments over the
subsequent 11 months to Mr. Peter Bonk, the sole shareholder of TTI, and TTI was
merged into TTI Merger Inc. Prior to the merger agreement Mr. Bonk had no
shareholding in or affiliation with WaveRider. The cash portion of the purchase
has been and will be paid from working capital. Of the cash proceeds, $94,985
was immediately paid by the former shareholder to the new subsidiary to retire
an existing shareholder loan.
The acquisition of TTI 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. The carrying value of the deficit
of TTI and the excess purchase price, at the date of acquisition, have been
assigned to acquired research and development and will be deferred and expensed
for accounting purposes over the estimated 3 year useful life of the technology.
TTI is a leader in the design and manufacture of wireless radio frequency
communications systems, offering wireless data, bridging and LAN connectivity
systems in both licensed and unlicensed frequencies. TTI has product design,
manufacturing and head office facilities in Cleveland, Ohio as well as sales and
support operations in San Diego, California and Baton Rouge, Louisiana.
WaveRider intends to further develop TTI's existing sales and support
infrastructure to increase its expansion into the US, in a new subsidiary,
WaveRider Communications (USA) Inc.
5. STOCKHOLDER'S EQUITY
Common Stock
In the first quarter of 1999, the remainder of the Series E warrants, amounting
to 30,000 common shares, were exercised for $37,500. In addition, 131,700 common
share options, pursuant to the Employee Stock Option (1997) Plan, were exercised
for $65,303.
In the second quarter of 1999, the Company sold 1,660,945 common shares for
$3,000,000 under the second tranche of the December 1998 financing. In addition,
74,500 common share options, pursuant to the Employee Stock Option (1997) Plan,
were exercised for $31,464.
During the quarter, the Company issued: 1) 220,178 common shares in connection
with the Reset provisions of the December 1998 financing plan; 2) 256,232 common
shares in connection with the acquisition of Transformation Techniques, Inc.; 3)
267,870 common shares to certain new employees from the Employee Stock
Compensation (1997) Plan; and, 4) 12,000 common shares in connection with the
conversion of Series "C" convertible preferred shares.
6. COMMITMENTS
a) Employee Stock Option and Compensation 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. Both of these
plans expired on June 10, 1999, though options granted continue until they are
exercised or they expire upon three years of the date of their award.
On May 28, 1999, the shareholders approved the adoption of the Company's 1999
Incentive and Nonqualified Stock Option Plan for 3,000,000 common shares.
As of June 30, 1999, the Directors had awarded 6,246,777 options under the
Employee Stock Option (1997) Plan, 1,831,500 options under the 1999 Incentive
and Nonqualified Stock Option Plan and 270,370 shares under the Employee
Compensation (1997) Plan. Awards under the Employee Stock Option (1997) Plan and
the 1999 Incentive and Nonqualified Stock Option Plan are made at the average
price of the stock on the date of the award.
8
<PAGE>
WaveRider Communications Inc.
(A Development Stage Company)
Notes to Financial Statements
June 30, 1999 and December 31, 1998
b) Common Share Purchase Agreement
Under a Common Share Purchase Agreement dated December 29, 1998, the Company
entered into an arrangement to sell up to an aggregate amount of $10,000,000 of
common stock in three tranches and to issue four groups of warrants. On December
29th, 1998 the Company issued 1,167,860 common shares in the First Tranche at
$2.57 per share for cash proceeds of $3,000,000. On June 4th, 1999 the Company
issued 1,660,945 common shares at 1.81 per share for cash proceeds of
$3,000,000.
Pursuant to the agreement, the Company is required to issue additional shares to
the investors if the average bid price for the common stock for 30 days prior to
certain future dates ("Reset Price") is below the initial purchase price
multiplied by 117.5 per cent. The number of shares to be issued will be based on
the following formula: ((Number of shares subject to repricing) X (Initial
Purchase Price X 117.5% - Reset Price)) / Reset Price.
The Reset Price will be determined for certain blocks of shares within a
specified number of days from the date that the registration of the shares
issued is effective under the Securities Act of 1933 as follows: 34% within 30
days, 33% within 60 days and 33% within 90 days.
Shares issued under each Tranche are subject to price reset provisions similar
to those provided under the First Tranche for a period of 90 days from the
respective closing date of each Tranche.
On June 8, 1999, the Company issued 220,178 common shares under the first reset
provision of the First Tranche. Subsequent to quarter end, the Company issued
368,493 common shares on July 20, 1999 and 413,770 common shares on August 10,
1999 under the second and third reset provisions respectively of the First
Tranche. To date, no reset shares have been issued in relation to the sale of
common shares under the Second Tranche.
Under the agreement, the Company has the right, but not the obligation to issue
additional shares in a Third Tranche for up to $4,000,000. The number of shares
to be issued will be based on the average bid price for the company's common
stock for five trading days before the closing date. The Third Tranche option is
exercisable after the earlier of September 10, 1999 or two days after the final
reset period for the shares issued in the Second Tranche. The company's rights
to exercise the option are subject to a number of conditions including that the
average bid price for 20 trading days prior to each closing cannot be below
$1.25, certain trading volumes and no change in control.
7. COMPARATIVE FIGURES
Certain comparative amounts have been reclassified, where appropriate,
to correspond with the current year's presentation
9
<PAGE>
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
June 30, 1999.
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.
On June 4, 1999, the Company exercised its option to sell $3,000,000 in
common shares under the second tranche of the financing arrangement entered into
on December 29, 1998. In addition, during the first six months of 1999, the
Company has raised $134,267 through the exercise of warrants and Employee Stock
options.
Current Activities.
The Company currently has 62 employees working in its subsidiaries,
WaveRider Communications (Canada) Inc. WaveRider Communications (USA) 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.
Results of Operations - Second Quarter 1999
During the first quarter of the year, the Company incurred a net loss of
$1,460,527. Cash amounted to $2,626,841 and current liabilities were $1,967,899
including accruals for expenses. Activities during the second quarter related
primarily to ongoing R&D, the acquisition of Transformation Techniques and the
establishment of sales and marketing programs for the NCL family of wireless
data communications product.
Results of Operations - Second Quarter 1998
During the second quarter of 1998, the Company incurred a net loss of
$1,101,130. Cash and equivalents amounted to $2,146,293 and current liabilities
were $440,854 including accruals for expenses. Expenses during the second
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. Non-recurring costs of $60,000 related to the Company's
annual general meeting and $50,000 in fees related to the Company's 4th private
placement were also included in the expenses of the quarter.
Activities during the quarter centered on developing production and marketing
plans for WaveRider(R) products.
10
<PAGE>
Year 2000 Readiness Disclosure
As a development stage Company, WaveRider has specifically designed and
developed its products not to utilize the two digit format in the "year" data
code field and has considered this issue in procuring outside software and
hardware.
The Company established a Year 2000 Committee in the last quarter of 1998
to evaluate mission critical software and hardware. Data was gathered and
reviewed from software and hardware vendors and testing performed in an effort
to confirm Year 2000 compliance. To date the Company has not spent any monies
specifically to make our application software, operating systems and computer
hardware Year 2000 compliant and does not believe that any future costs to
achieve compliance will have a material impact on the Company's results of
operations.
In completing its acquisition of Transformation Techniques, Inc. the
Company obtained certification that Transformation Technique's products sold
since 1997 comply with Year 2000 requirements.
To extent that the Company is unable to assess and correct Year 2000
problems arising from its software and hardware vendors, problems embedded in
their products could have a material adverse effect on the Company.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
a) The Company held it annual general meeting on May 28, 1999 in Toronto,
Canada. Notice of Meeting, dated April 26, 1999, was distributed to all
shareholders of record, effective April 22, 1999, and filed with the
Security and Exchange Commission on form 14A on April 29, 1999.
c) Three matters were voted upon at the annual general meeting.
1) Mr. Gerry Chastelet, Mr. William Krebs, Mr. William Laird, Mr. Cameron
Mingay and Mr. Bruce Sinclair were elected as directors of the
Company. Votes for the directors were 25,581,191 For, and 89,136
Withheld.
2) The appointment of Price Waterhouse as independent public accountants
was ratified by the shareholders. Votes for ratification were
25,606,102 For, 35,255 Against and 28,970 Abstaining.
3) The Company's 1999 Incentive and Nonqualified Stock Option Plan was
approved by the shareholders. Votes were 25,046,756 For, 452,600
Against and 170,971 Abstaining.
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
June 30, 1999 Acquisition of Transformation Techniques, Inc.
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: August 12, 1999 /s/ D. Bruce Sinclair
-------------------------------
D. Bruce Sinclair
President and Chief Executive Officer
/s/ T. Scott Worthington
-------------------------------
T. Scott Worthington
Chief Financial Officer.
11
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<ARTICLE> 5
<CIK> 0000844053
<NAME> WaveRider, Inc.
<MULTIPLIER> 1
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 2,626,841
<SECURITIES> 0
<RECEIVABLES> 268,649
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<CURRENT-LIABILITIES> 1,967,899
<BONDS> 0
0
788
<COMMON> 14,276,770
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<SALES> 190,174
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