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, 2000
Commission file number 0-25680
WAVERIDER COMMUNICATIONS INC.
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(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)
(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: July 28, 2000 - 62,562,684 Common
shares, $.001 par value.
Transitional Small Business Disclosure Format: (check one):
Yes _____; No __X__
1
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WAVERIDER COMMUNICATIONS INC.
FORM 10 - Q
For the Period Ended June 30, 2000
INDEX
Page
PART I. CONSOLIDATED FINANCIAL INFORMATION 3
Item 1. Consolidated Financial Statements 4-10
Consolidated Balance Sheets 4
Consolidated Statements of Loss and Deficit 5
Consolidated Statements of Cash Flows 6
Notes to Financial Statements 7-10
Item 2. Management's Discussion and Analysis or Plan of Operation 11-12
PART II OTHER INFORMATION 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Reports on Form 8-K 12
Signatures 13
2
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PART I. FINANCIAL INFORMATION
Unaudited Consolidated Financial Statements
WAVERIDER COMMUNICATIONS INC.
Quarter ended June 30, 2000 and year ended December 31, 1999
The consolidated financial statements for the three and six months ended June
30, 2000 and 1999 include, in the opinion of management, 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, 2000, are not necessarily indicative of results of
operations which will be realized for the year ending December 31, 2000. The
consolidated financial statements should be read in conjunction with the
Company's Form 10-K for the year ended December 31, 1999.
3
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WaveRider Communications Inc.
CONSOLIDATED BALANCE SHEETS
(in U.S. dollars)
<TABLE>
<CAPTION>
Quarter ended Year ended
June 30, December 31,
2000 1999
(Unaudited) (Audited)
ASSETS
<S> <C> <C>
Current
Cash and cash equivalents $ 13,580,836 $ 5,540,917
Accounts receivable [Note 3] 1,336,936 707,619
Inventories [Note 4] 1,582,724 609,363
Prepaid expenses 167,306 128,451
-------------------------------
16,667,802 6,986,350
Fixed assets 1,578,084 978,160
Acquired core technologies 963,070 1,203,837
Goodwill 3,131,065 912,169
-------------------------------
$ 22,340,021 $ 10,080,516
===============================
LIABILITIES
Current
Accounts payable and accrued liabilities $ 1,341,820 $ 1,654,401
Deferred revenue 41,190 41,035
Current portion of obligation under capital lease 85,828 68,073
-------------------------------
1,468,838 1,763,509
Obligation under capital lease 39,596 18,625
-------------------------------
1,508,434 1,782,134
-------------------------------
SHAREHOLDERS' EQUITY [Note 5]
Preferred Stock, $.001 par value per share: authorized - 5,000,000 shares;
issued and outstanding - Nil shares at June 30, 2000 and 764,000 shares
December 31, 1999 0 764
Common Stock, $.001 par value per share: authorized - 100,000,000 shares;
issued and outstanding - 54,878,406 at June 30, 2000
43,903,145 shares December 31, 1999 54,878 43,903
Additional paid in capital 45,088,223 22,599,172
Other equity 1,247,270 3,565,327
Deficit (25,558,784) (17,910,784)
------------------------------
20,831,587 8,298,382
-------------------------------
$ 22,340,021 $ 10,080,516
===============================
</TABLE>
See accompanying notes to financial statements.
4
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WaveRider Communications Inc.
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
(in U.S. dollars)
<TABLE>
<CAPTION>
Three Months ended Six Months ended
June 30 June 30
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
REVENUE
Product sales $ 657,222 $ 140,680 $ 1,414,441 $ 145,675
Internet sales 58,398 49,494 107,331 99,405
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715,620 190,174 1,521,772 245,080
COST OF PRODUCT AND INTERNET SALES 606,375 100,018 1,253,858 132,187
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GROSS MARGIN 109,245 90,156 267,914 112,893
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EXPENSES
Sales, general and administration 3,295,816 1,859,091 4,729,318 2,672,496
Research and development 2,061,077 576,335 3,457,256 1,137,674
Interest (175,891) (9,744) (302,042) (29,523)
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5,181,002 2,425,682 7,884,532 3,780,647
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NET LOSS $ (5,071,757) $ (2,335,526) $ (7,616,618) $ (3,667,754)
======================================================================
BASIC AND FULLY DILUTED LOSS PER SHARE $ (0.09) $ (0.07) $ (0.15) $ (0.12)
======================================================================
Weighted Average Number of Common Shares 53,434,117 32,341,069 51,352,903 31,967,878
=====================================================================
OPENING DEFICIT $ (20,485,154) $ (10,627,018) $(17,910,784) $ (9,254,790)
NET LOSS FOR THE PERIOD (5,071,757) (2,335,526) (7,616,618) (3,667,754)
DIVIDENDS ON PREFERRED SHARES (1,873) (39,927) (31,382) (79.927)
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CLOSING DEFICIT $ (25,558,784) $ (13,002,471) $ (25,558,784) $ (13,002,471)
======================================================================
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
WaveRider Communications Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in U.S. dollars)
<TABLE>
<CAPTION>
Six Months ended June 30
2000 1999
------------------------------------
<S> <C> <C>
OPERATIONS
Net loss $ (7,616,618) $ (3,667,754)
Items not involving cash
Depreciation and amortization 809,089 171,086
Compensatory shares released from escrow to employee 712,500 -
Compensation shares issued to employees - 458,246
Options issued to consultants 92,301 55,500
Performance based options issued to employees 552,819 -
Warrants issued on financing - 425,000
Foreign exchange gain (3,021)
Net changes in non-cash working capital items (1,953,959) (186,200)
------------------------------------
(7,406,889) (2,744,122)
------------------------------------
INVESTING
Acquisition of fixed assets (792,656) (152,537)
Purchase of Transformation Techniques,
net of cash acquired - (255,288)
------------------------------------
(792,656) (407,825)
------------------------------------
FINANCING
Proceeds from sale of shares (net of issue fees) 16,329,835 2,886,760
Dividends on preferred shares (31,382) (79,927)
Payments on capital lease obligations (58,080) (76,512)
------------------------------------
16,240,373 2,730,321
-----------------------------------
Effect of exchange rate changes on cash (909) 1,210
-----------------------------------
Increase (decrease) in cash and cash equivalents 8,039,919 (820,416)
Cash and cash equivalents, beginning of period 5,540,917 3,047,257
-----------------------------------
Cash and cash equivalents, end of period $ 13,580,836 $ 2,626,841
===================================
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and December 31, 1999
1) 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
NASDAQ National Market System, trading symbol WAVC.
The Company develops and markets wireless data communications products with a
focus on Internet connectivity. With the release of the Company's initial
products in both the NCL and LMS product families and the completion of its
financing arrangements to date, the Company no longer meets the criteria to be
defined as a Development Stage Company.
2) CHANGE IN ACCOUNTING POLICIES
Fixed Assets - Effective the first quarter of 2000, the Company adopted a change
in its method of depreciation from a declining balance to a straight line basis,
as follows:
Computer software 3 years
Computer equipment 4 years
Lab equipment and tools 4 years
Equipment and fixtures 5 years
Leasehold improvements 2 years
The change in policy had no significant effect on current or prior period
reported amounts for depreciation.
3) ACCOUNTS RECEIVABLE
June December
30, 2000 31, 1999
--------------------------------
Accounts receivable - trade $ 1,313,588 $ 665,525
Other receivables 255,538 108,410
Allowance for doubtful accounts (232,190) (66,316)
---------------------------------
$ 1,336,936 $ 707,619
================================
4) INVENTORIES
June December
30, 2000 31, 1999
--------------------------------
Finished products $ 603,448 $ 161,350
Raw materials 979,276 448,013
--------------------------------
$ 1,582,724 $ 609,363
================================
5) SHAREHOLDERS' EQUITY
During the six months ended June 30, 2000, the Company issued 10,975,263 common
shares for cash consideration of $16,447,235, less fees of $117,400, and
transferred $2,318,057 from other equity to additional paid in capital, net of
additions, as outlined below:
a) Common Stock Purchase Agreement - On January 4, 2000, the
investor under the Common Stock Purchase Agreement, dated
October 18, 1999, completed its commitment to purchase stock
in connection with the public underwriting completed on
December 23, 1999. At that time, the investor purchased the
balance of 1,437,036 common share units for cash proceeds of
$1,940,000 less fees of $117,400.
7
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WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and December 31, 1999
b) Conversion of Series C Preference Shares - holders of 714,000
shares of Series C preference stock converted to 714,000
shares of common stock during the first quarter of the year
and holders of 50,000 shares of Series C preference stock
converted to 50,000 shares of common stock during the second
quarter of the year. As a result, all shares of preference
stock had been converted to shares of common stock by June 30,
2000.
c) Exercise of Options - during the first quarter of 2000,
employees and former employees exercised 1,290,390 options to
purchase common stock for cash proceeds of $1,438,571 and
non-employees exercised 153,625 options to purchase common
stock for cash proceeds of $82,284
During the second quarter of 2000, employees and former
employees exercised 121,450 options to purchase common stock
for cash proceeds of $153,745 and non-employees exercised
33,000 options to purchase common stock for cash proceeds of
$16,500.
d) Warrants - the following warrants were exercised for cash consideration
Quarter ended March 31, 2000
<TABLE>
<CAPTION>
Number Cash
Exercise Prices Exercised Received
--------------- --------- -----------
<S> <C> <C>
$1.01 380,000 $ 383,800
$1.35 444,444 600,000
$2.00 3,481,212 6,962,424
$2.50 148,000 370,000
$2.61 225,000 587,250
$3.00 225,000 675,000
$4.00 191,249 764,995
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$1.01 - $4.00 5,094,905 $ 10,343,469
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</TABLE>
Quarter ended June 30, 2000
<TABLE>
<CAPTION>
Number Cash
Exercise Prices Exercised Received
--------------- --------- ---------
<S> <C> <C>
$2.00 421,333 842,666
$2.50 652,000 1,630,000
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$1.01 - $4.00 1,073,333 $ 2,472,666
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</TABLE>
In addition, warrants to purchase 150,000 shares of common
stock at $3.00 were exercised, during the first quarter, using
a cashless feature. This resulted in the issuance of 107,522
common shares and the return and cancellation of the balance
of 42,478 warrants.
e) Release of Escrow Shares - During the second quarter, the
second milestone related to the release of the common shares
held in escrow was met with the first of the LMS systems
becoming operational in at least one community. As a result,
the Company requested and the Escrow Agent released, on May
26th, the second 10% of the shares held under the Escrow
Agreement, 900,000 shares of Common Stock, valued at
$3,206,250. The Company charged $712,500 to compensation
expense and charged $2,493,750 to Goodwill. The valuation was
based on the closing price of the common stock on May 26th of
$3.5625 per share.
8
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WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and December 31, 1999
6) COMMITMENTS
a) Mexican Contract
On March 9, 2000, the Company entered into a distribution agreement with VoIP
International S.A. de C.V. ("VoIP"), a company incorporated in Mexico. As part
of the agreement WaveRider has granted VoIP exclusive rights to market WaveRider
products in Mexico in exchange for commitments to procure a minimum of
$28,000,000 of WaveRider products. As an incentive, WaveRider has issued to VoIP
4,500,000 Common Stock Purchase Warrants, exercisable at $3.15 up to February 2,
2003. VoIP will earn the right to exercise the warrants based on achievement of
the following minimum commitments.
Minimum Purchase Warrants Earned
Initial purchase $ 1,000,000 500,000
Incremental purchases $ 6,000,000 1,000,000
$ 7,000,000 1,000,000
$ 7,000,000 1,000,000
$ 7,000,000 1,000,000
----------- ---------
Total $28,000,000 4,500,000
----------- ---------
In connection with the contract, the Company also issued to a sales agent 55,000
warrants, exercisable at $6.81 up to February 2, 2003. These warrants will be
earned upon the purchase of $1,000,000 in product by VoIP.
The fair value of the warrants will be charged to commission expense when the
warrants are earned. As of June 30, 2000 none of the purchase requirements had
been met and no warrants earned.
b) Employee Stock Option Agreements
The Company has two existing employee stock option plans -- the Employee Stock
Option (1997) Plan and the 1999 Incentive and Nonqualified Stock Option Plan
which have authorized shares of 6,250,000 and 3,000,000 shares respectively.
Through June 30, 2000, the Company had awarded 6,145,745 options under the
Employee Stock Option (1997) Plan and 2,986,060 options under the 1999 Incentive
and Nonqualified Stock Option Plan.
The Directors had also authorized the award of an additional 1,650,000 options,
on February 25, 2000, from the Company's Employee Stock Option (2000) Plan which
was approved by the shareholders at the annual meeting held July 7, 2000.
7) SUBSEQUENT EVENTS
On July 7, 2000, at the Company's annual general meeting of stockholders, a
resolution was passed extending the Company's Employee Stock Option (1997) Plan
and the options awarded under the Plan to current employees and non-employee
consultants for a further 10 years.
Under Generally Accepted Accounting Principles, a modification that either
renews a fixed award or extends the award's period (life) results in a new
measurement of compensation cost as if the award were newly granted. As such,
for the fixed awards to employees the difference between the fair market value
of the shares of Common Stock at the time of the extension and the time of the
original award will be recorded as an expense to the Company. At July 7, 2000,
the total charge related to the extension of the fixed awards, based on a
closing stock price of $8.75 per share, was $11,099,858. For exercisable
options, the expense will be recognized in the third quarter and for
unexercisable options the expense will be deferred and amortized over the period
they become exercisable.
9
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WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and December 31, 1999
Options granted to non-employees and performance based options awarded to
employees, 318,535 and 850,000 options respectively which have not yet vested
will be valued at the time the options are earned. Extension of these options
allows for additional time for the options to be earned but has not resulted in
a change in the measurement date.
8) SEGMENTED INFORMATION
The Company's operations are in the design, development, marketing, sale and
support of wireless data access products, focused on fixed wireless Internet
access. The Company does not have any other material operating segments.
9) COMPARATIVE FIGURES
Certain comparative amounts have been reclassified to correspond with the
current period's presentation
10
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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, 2000.
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" NASDAQ National Market System. 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 three months of 2000, the Company has raised $13,686,924
through completion of the December 23, 1999 financing and the exercise of
warrants and Employee Stock options. During the second quarter, the Company
raised an additional $2,642,911 through the exercise of warrants and Employee
Stock options.
Based on the Company's current plans and projections, Management believes
that the Company has sufficient funds on hand to meet its current and future
financial commitments until it achieves positive cash flows from operations.
Current Activities.
The Company currently has 105 employees located in its head office in
Toronto, Ontario, its Research and Development facility in Calgary, Alberta and
its sales offices in the United States, Canada and China, as well as at its
subsidiary, JetStream Internet Services in Salmon Arm, British Columbia. 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 - Six Months ended June 30, 2000
For the six months ended June 30, 2000, the Company incurred a net loss of
$7,616,618. Cash and cash equivalents amounted to $13,580,836 and current
liabilities were $1,468,838 including accruals for expenses. The Company
continues to invest significantly in research and development, incurring
expenses of $3,457,256 (1999 - $1,137,674) during the period. The Company was
focused on the roll out of its Wireless Network products, the LMS2000 and
continuing the development of the sales and marketing strategies for the
WaveRider's Wireless Bridging products, the NCL family, incurring $4,729,318
(1999 - $2,672,496) in sales, general and administration expenses.
11
<PAGE>
As a result of the first LMS2000 network becoming operational in the second
quarter, the Company achieved the next milestone in its escrow arrangement with
certain shareholders and option holders. As a result, included in sales, general
and administration expenses for the quarter were non-cash charges of $1,357,620
(1999 - $Nil) related to the vesting of non-employee and employee performance
options and release of compensatory escrow shares.
During the six-month period, the Company has shipped six LMS 2000 systems
and recognized the revenue from five and deferring the revenue recognition of
one. Margins related to the network components of the LMS product line are
significantly higher than those realized on the current NCL product line.
Results of Operations - Six months ended June 1999
For the six months ended June 30, 1999, the Company incurred a net loss of
$3,667,754. Cash amounted to $2,626,841 and current liabilities were $1,967,899
including accruals for expenses. Activities during the period 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. Included in the loss for the period was a $425,000
non-cash expense for the estimated fair value of warrants issued for services
rendered and a $458,246 non-cash expense for shares issued to employees from the
Employee Stock Compensation (1997) Plan.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
a) The Company held it annual general meeting on July 7, 2000 in Toronto,
Canada. Notice of Meeting, dated May 30, 2000, was distributed to all
shareholders of record, effective May 17, 2000, and filed with the
Security and Exchange Commission on form 14A on May 25, 2000.
c) Five matters were voted upon at the annual general meeting.
1) Mr. Gerry Chastelet, Mr. John Curry, Mr. Cameron Mingay, Mr.
Bruce Sinclair, Mr. Guthrie Stewart and Mr. Dennis Wing were
elected as directors of the Company. Votes for the directors were
42,753,543 For, Nil Against.
2) The extension of the Company's Employee Stock Option (1997) Plan
was ratified. Votes for ratification were 16,657,489 For, 611,431
Against and 140,346 Abstaining.
3) The Company's Employee Stock Option (2000) Plan was approved by
the shareholders. Votes were 16,547,050 For, 660,658 Against and
201,558 Abstaining.
4) The Company's Employee Stock Purchase (2000) Plan was approved by
the shareholders. Votes were 16,752,691 For, 481,177 Against and
175,398 Abstaining.
5) The proposal to amend the Company's Restated Certificate of
Incorporation to increase the authorized number of shares of
Common Stock from 100,000,000 to 200,000,000 was approved by the
shareholders. Votes were 41,815,673 For, 835,767 Against and
102,103 Abstaining.
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
None
12
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Signatures:
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized,
WaveRider Communications Inc.
Date: July 31, 2000
/s/ D. Bruce Sinclair
---------------------
D. Bruce Sinclair
President and Chief Executive Officer
/s/ T. Scott Worthington
------------------------
T. Scott Worthington
Chief Financial Officer.
13
