SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December
31, 1999 Commission File
No. 0-25680
WaveRider Communications Inc.
----------------------------------------------
(Name of small business issuer in its charter)
Nevada 33-0264030
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
255 Consumer Road, Suite 500
Toronto, Ontario Canada M2J 1R4
- ---------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (416) 502-3200
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock par value $.001
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 requirements for the past 90 days.
YES X NO ___
Check if there is no disclosure of delinquent filers in response to
item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $800,167,946 as of March 6,
2000 (based on the closing price for such stock as of March 6, 2000).
As of March 6, 2000 , there were 59,930,711 shares of the registrant's
common stock, par value $.001 per share, outstanding.
TABLE OF CONTENTS
PART I Page
Item 1. Business ....................................................... 3
Item 2. Description of Property ........................................ 7
Item 3. Legal Proceedings .............................................. 7
Item 4. Submission of Matters to a Vote of Security Holders ............ 7
PART II
Item 5. Market for Common Equity and Related Stockholder Matters ....... 8
Item 6. Selected Financial Data ........................................ 9
Item 7. Management's Discussion and Analysis or Plan of Operation ...... 9
Item 7a Quantitative and Qualitative Disclosures about Market Risk ..... 11
Item 8. Financial Statements ........................................... 13
Item 9. Changes in and Disagreements with Accountants on Accounting .... 13
and Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant ............. 14
Item 11. Executive Compensation ......................................... 16
Item 12. Security Ownership of Certain Beneficial Owners and Management . 17
Item 13. Certain Relationships and Related Transactions ................. 18
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 18
PART I
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
This Form 10-K contains forward-looking statements that involve risks and
uncertainties, including the risks associated with the effect of changing
economic conditions, trends in the development of the Internet as a commercial
medium, market acceptance risks, technological development risks, seasonality
and other risk factors identified below under "Item 7a - Quantitative and
Qualitative Disclosures about Market Risk". More specifically, within Item 1.
Description of Business there are a number of forward-looking statements
contained within the sections regarding Products, Markets, Sales Strategy,
Competition and the Regulatory Environment
ITEM 1. DESCRIPTION OF BUSINESS
Background
WaveRider Communications Inc. ("WaveRider" or the "Company" and
collectively referred to as we, us or our) commenced activities in the wireless
industries through its acquisition of Major Wireless Communications Inc. in May
1997.
Major Wireless was organized in British Columbia, Canada, as a private
company in 1996 to address an existing and growing market need to provide
cost-effective, high-speed wireless Internet links. In May 1997, Major Wireless
consummated the business combination with Channel i Inc., pursuant to which
Channel i Inc., a company trading on the OTC-BB, issued stock to the
stockholders of Major Wireless, Major Wireless became a subsidiary of the
Company, and the Company changed its name to WaveRider Communications Inc. The
Company then completed the private placement of common and preferred share units
for over $1.5 million (US).
On June 11, 1999, the Company acquired Transformation Techniques, Inc.
("TTI") through a merger with a newly created subsidiary, WaveRider
Communications (USA) Inc. The acquisition of TTI provided the company with an
established sales force and customer base, mainly within the United States, and
certain products and peripherals that enhanced the company's existing and
planned product lines.
The Company was originally incorporated, under the laws of the State of
Nevada on August 6, 1987, as Athena Ventures, Inc. From 1987 until its takeover
of Channel i PLC in November 1993, Athena Ventures had no activities or
operations. From November 1993 until May 1997, the Company operated under the
names Channel i Limited and Channel i Inc. and was in the business of developing
an interactive multimedia kiosk network to provide consumers with convenient
access to an array of products and services. Prior to its takeover of Major
Wireless Communications Inc. (now "WaveRider Communications (Canada) Inc.") in
May 1997, the Company had become dormant.
WaveRider's executive offices are currently located at 255 Consumers Road,
Suite 500, Toronto, Ontario, Canada M2J 1R4. Our telephone number is (416)
502-3200 and our home page on the Internet is www.waverider.com.
Business of WaveRider Communications Inc.
WaveRider designs, develops, markets and supports fixed wireless
Internet access products. Our high-speed, highly secure products combine
wireless and Internet Protocol (IP) networking into a series of self-contained
products.
WaveRider is focused on developing a family of fixed Wireless Internet
Networking (WIN) products capable of providing high-speed access to businesses,
organizations and consumers. We believe our WIN solutions are faster and easier
to implement than traditional hard-wired communications networks of similar
capacity. We also believe that in the competitive national and international
markets, the ability to install reliable network solutions quickly, gives
WaveRider a competitive edge over providers of hard-wired solutions.
3
We recognize that providing `last mile' access is the key to capitalize
on opportunities presented by today's rapidly changing telecommunications market
place. The ability to provide a full suite of services quickly enables all types
of users to conduct business, access services and communicate is essential to
securing a dominant position in the telecommunications marketplace.
Our products enable clients to communicate with their customers,
suppliers and business partners more efficiently than using more traditional
fibre-based facilities. Furthermore, in many areas of the world where
communications networks lack the capacity and reliability required for Internet
connectivity, wireless solutions such as WaveRider's may be the only solution
for data access. We think there is a significant market for wireless access
solutions in these regions.
Our technology makes use of the unlicensed radio spectrum which we
believe will allow us to achieve lower roll-out costs and facilitate more rapid
market introduction than providers of licensed or hard wired solutions. Using
this license-exempt spectrum enables WaveRider to offer wireless broadband
solutions that we believe provide higher value and margins to customers in North
America and internationally, facilitating the introduction of new WaveRider
products by providing lower operating costs for our customers.
Products
WaveRider has two product portfolios: the LMS (Last Mile Solution(R)))
and NCL (Network Communications Links). Designed to fill the need for high speed
Internet access, these offerings represent the first of our Wireless Internet
Networking products.
LMS Products. Targeted at telecommunications carriers and Internet
Service Providers (ISPs), the LMS series is a fixed wireless access (FWA) system
which uses the license exempt 900 MHz and 2.4 GHz frequency bands to deliver a
variety of services including Internet access for e-mail, file transfer, web
browsing, streaming audio and video as well as VoIP (the use of voice
communications over the Internet).
LMS products provide wireless connectivity to the Internet in
point-to-multi-point applications. The products wirelessly link users to the
Internet via ISPs using a scaleable cellular network, providing the `last mile'
solution to residential, small office/home office ("SOHO"), and small business
markets. All LMS products are optimized for IP networks.
The first commercial network products in the LMS product line are
scheduled for release in the first half of 2000 and are expected to provide high
speed wireless connectivity to specific target markets.
LMS2000. The first product, scheduled for release in the first quarter
of 2000, is the LMS2000, a 2.4 GHz network designed to provide organizations and
businesses with high speed Internet connectivity. Using network architectures
based on industry standards and operating in point-to-multi-point mode, the
LMS2000 provides Internet connectivity at raw data speeds up to 11Mbps.
LMS3000. The second product in the LMS family, with release planned in
the second quarter of 2000, is the LMS3000, a 900MHz wireless Internet network
designed to provide Internet connectivity to the residential and SOHO markets.
NCL Products. Targeted at ISPs, network managers, and IT managers, the
NCL series of products consist of intelligent wireless bridges and routers.
Offering point-to-point and point-to-multi-point line of sight wireless
connectivity in the 2.4 to 2.485GHz frequency band, the NCL series can be used
for a variety of applications including Internet access, Wide Area Networks and
building-to-building links. The products connect a single computer or computer
network to another computer, or to several computers or computer networks. Each
NCL series product provides the wireless connection to link these computers and
networks and ensures data packets are sent to their intended destinations.
The NCL product portfolio is currently comprised of three product
offerings: NCL135; NCL200; and, NCL1100.
4
NCL135 Bridges and Routers. As WaveRider's first commercially available
product, the NCL 135 provides high capacity, wireless 2.4 GHz connections
between local area networks at speeds up to 800Kbps. System administrators can
use NCL 135 to extend Ethernet networks, access the Internet at high speed,
connect to remote locations and perform general data networking without the
ongoing costs of leased telephone lines.
The operating system built into the NCL135 differs from other wireless
networking bridges by incorporating a complete Simple Network Management
Protocol ("SMNP" ) compliant managed routing solution. As an industry standard,
the incorporation of SNMP into our products greatly increases their ease of
installation and use. The operating system also adheres to IP (Internet
Protocol) version 4.0 thereby permitting a variety of network routing
capabilities. These functions grant extensive control of the network and
increase the overall performance of network traffic by significant factors.
NCL1100 and NCL200 Series Bridges. The NCL1100 and NCL200 series
bridges offer high speed wireless connections for LAN-to-LAN and LAN-to-Internet
connectivity. The products operate in point-to-point and point-to-multi-point
applications, extending Ethernet networks without additional telephone lines.
The products deliver between 500 Kbps and 6.7 Mbps of user data throughput,
using radio technology with 1 Mbps to 11 Mbps radios.
Markets for the WaveRider Product Families
According to surveys of businesses and telecommunications carriers, the major
source of telecommunication market growth is expected to be in the data services
segment, as businesses extend their local and wide area networks to more
locations worldwide and use telecommunications network services to support an
increasing number and variety of business applications. As the market demand for
networks that support data services grows, the Internet is becoming a critical
business tool. It provides the media for businesses to transmit data in
applications ranging from product and marketing support to information provision
and e-commerce transactions.
At the same time, we believe increasing competition in Internet Service Provider
(ISP) markets is forcing many ISPs to seek alternative access options such as
wireless networks to improve their revenue and profitability. We expect this
will provide a source of growth in demand for our products. As this market
expands, we anticipate WaveRider's development and introduction of our NCL and
LMS families of products, combined with the limited availability of other
wireless network solutions, will enable us to become an important supplier in
the industry. Although some competition is developing, it is primarily from
smaller companies that have not established significant presence in either North
American or international markets.
Sales Strategy
In the North American market, WaveRider utilizes a direct sales organization to
market the WIN products to the almost 5,000 ISPs servicing this market. In
addition, this direct sales organization is approaching the major
telecommunications service providers, Value Added Resellers and Systems
Integrators to develop package solutions.
On the international side, the company plans to expand its agency agreements
with Telecommunications Service Providers, Telecommunications Distributors and
large regional Internet Service Providers to distribute its products.
In addition, the Company's Web Site and Internet presence has provided an
ongoing source of potential customers, investors, business partners and
employees from around the world. It is the Company's intention to continue to
develop a leading presence on the Internet to generate further interest and
exposure.
Manufacturing and Distribution
WaveRider has entered into a long term manufacturing agreement with C-MAC
Electronic Systems Inc. ("C-MAC") to mass manufacture the WaveRider products,
including packaging and distribution.
5
C-MAC is a global manufacturer of advanced microelectronic modules, interconnect
systems, frequency control products, electronic system assemblies and energy
control devices. C-MAC offers a wide range of advanced technical solutions and
products - both custom and proprietary, supporting many applications in a
variety of end markets.
Through WaveRider's association with C-MAC, the Company has the capability to
meet the demands of a rapidly growing Internet market, with high quality
efficiently manufactured products.
Competition
Competition in the data communication industry is intense. Specifically,
although our products are based on a wireless technology, we compete not only
against companies that base their products on wireless technology, but also
against companies that base their products on hard-wired technology (wire or
fiber optic cable). There can be no assurance that we will be able to compete
successfully in the future against existing or new competitors or that our
operating results will not be adversely affected by increased price competition.
Competition is based on design and quality of the products, product performance,
price and service, with the relative importance of such factors varying among
products and markets. Competition, in the various markets we serve, comes from
companies of various sizes, many of which are larger and have greater financial
and other resources than we do and, thus, can better withstand adverse economic
or market conditions than we can.
Regulation of Wireless Communications
Currently, the WaveRider(R) technology is not subject to any wireless or
transmission licensing in either Canada or the United States. Continued
license-free operation will be dependent upon the continuation of existing
government policy and while we are not aware of any policy changes planned or
expected this cannot be assured. License-free operation of the WaveRider(R)
products in the 902 to 928 MHz band is subordinate to certain licensed and
unlicensed uses of the band and WaveRider(R) products must not cause harmful
interference to other equipment operating in the band and must accept
interference from any of them. If the Company should be unable to eliminate any
such harmful interference, or should our products be unable to accept
interference caused by others, the Company or our customers could be required to
cease operations in the band in the locations affected by the harmful
interference. Additionally, in the event the 902 to 928 MHz band becomes
unacceptably crowded, and no additional frequencies are allocated, the Company's
business could be adversely affected.
Research and Development
With the introduction of its LMS 2000 and LMS 3000 products in the first half of
2000, the Company intends to continue to invest heavily in research and
development to expand the capabilities of both the NCL and LMS product families.
Investments in the future will focus around three development areas: 1)
increasing the speed and user capacity of the networks, to allow more users at
greater throughput; 2) expanding the product offerings into other licensed and
unlicensed bands, to address additional international markets; and, 3) further
enhancing the network capabilities of the systems to support new developing
applications, such as voice communications over the Internet (VoIP).
The markets in which the Company participates and intends to participate are
characterized by rapid technological change. As such, the Company believes that,
for the foreseeable future, it will be required to make significant investments
in research and development in order to achieve its market objectives. Research
and development expenses were $3,028,555, $1,814,617 and $405,705 in 1999, 1998
and 1997 respectively. The Company expects research and development expenses to
increase in absolute dollars in future periods.
WaveRider's Staff
The Company, through its subsidiaries, WaveRider Communications (Canada) Inc.,
WaveRider Communications (USA) Inc. and Jetstream Internet Services Inc.
currently has approximately 80 full-time employees, thirty in the Toronto head
office and satellite sales offices and the rest directly involved in or
supportive of R&D activities in Calgary and the provision of Internet Services
in the Salmon Arm, British Columbia area. The Company is actively recruiting
additional staff to support its projected growth and to enhance its research and
development activities.
6
ITEM 2. DESCRIPTION OF PROPERTY
The Company owns no real estate or other properties. We have main offices
and test sites in Toronto, Ontario, and Calgary, Alberta in Canada. These
offices house sales, administration and research operations and are leased from
unrelated parties. We maintain sales offices in Baton Rouge, Boston, Cleveland,
Chicago, and San Diego in the United States and Beijing, China. In addition,
our.subsidiary JetStream Internet Services Inc maintains offices in Salmon Arm,
British Columbia in Canada.
WaveRider's Toronto Office is leased for a period of five years ending May
31, 2004 and our Calgary facility is being leased for a period of five years
ending March 31, 2004. The lease for our JetStream's office was renewed
effective January 1, 2000, for a one-year period.
Cost commitments related to present leases are described in Item 7.
ITEM 3. LEGAL PROCEEDINGS
There are no active or pending legal proceedings of a material nature to which
the Company is a party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the shareholders during the fourth
quarter of 1999.
7
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common shares are quoted under the symbol "WAVC" on the OTC
(over-the-counter) Electronic Bulletin Board operated by the National
Association of Securities Dealers, Inc. ("NASD") and are traded in the
non-NASDAQ segment of the United States over-the-counter market. The following
table sets forth the closing high and low bid prices of the Common Stock for the
periods indicated, as reported by the NASD. These quotations are believed to be
representative inter-dealer prices, without retail mark-up, markdown or
commissions and may not represent prices at which actual transactions occurred:
1999 Bid 1998 Bid
High Low High Low
First Quarter $2.97 $1.69 $1.49 $0.85
Second Quarter $2.59 $1.31 $3.96 $1.41
Third Quarter $1.81 $0.78 $3.01 $1.35
Fourth Quarter $2.69 $0.75 $3.40 $1.30
Holders: The Company has approximately 883 common shareholders of record as of
March 6, 2000. This number does not include shareholders whose shares are held
in street or nominee names.
Dividends: While there are no restrictions on the ability of the Company to pay
dividends other than those common to all companies incorporated under the laws
of the State of Nevada, no dividends have been paid to common stock shareholders
by the Company in the last two years. The Company does not expect to pay a cash
dividend on its common stock in the foreseeable future and payment of dividends
in the future will depend on the Company's earnings and cash requirements.
8
ITEM 6. SELECTED FINANCIAL DATA
STATEMENT OF LOSSES DATA:
Year ended December 31
1999 1998 1997
REVENUE ................................ $ 1,764,141 $ 254,987 $ 77,459
COST OF PRODUCT AND INTERNET SALES ..... 1,294,815 75,467 21,798
------------ ------------ ------------
GROSS MARGIN ........................... 469,326 179,520 55,661
------------ ------------ ------------
EXPENSES
Selling, general and administration 5,357,587 2,807,181 962,346
Research and development .......... 3,028,555 1,814,617 405,705
Depreciation and amortization ..... 35,034 35,240 12,570
------------ ------------ ------------
8,421,176 4,657,038 1,380,621
------------ ------------ ------------
NET LOSS BEFORE TAXES .................. (7,951,850) (4,477,518) (1,324,960)
DEFERRED TAX RECOVERY .................. 504,000 -- --
------------ ------------ ------------
NET LOSS ............................... (7,447,850) (4,477,518) (1,324,960)
============ ============ ============
BASIC AND FULLY DILUTED LOSS PER SHARE . $ (0.22) $ (0.18) $ (0.11)
============ ============ ============
Weighted Average Number of Common Shares 34,258,565 29,485,320 12,299,522
============ ============ ============
BALANCE SHEET DATA:
December 31,
1999 1998
Cash and cash equivalents $ 5,540,918 $ 3,047,257
Working capital 5,222,841 2,259,827
Fixed assets 978,160 808,531
Total assets 10,080,516 4,146,834
Long term capital leases 18,625 12,555
Shareholder's Equity 8,298,382 3,098,368
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Liquidity and Capital Resources.
We have funded our operations for the most part through equity financing
and have had no line of credit or similar credit facility available to us. The
Company's outstanding shares of Common Stock, par value $.001, are traded under
the symbol "WAVC" in the over-the-counter market on the OTC Electronic Bulletin
Board operated by NASD.
9
In 1999, the Company issued 11,951,664 shares of Common Stock and 4,309,629
Common Stock Purchase Warrants for cash considerations, net of cash expenses, of
$10,909,353. The private and public sale of shares and attached warrants
accounted for the issue of 10,857,766 shares of Common Stock and 4,309,629
Common Stock Purchase Warrants. 405,440 shares of Common Stock were issued
pursuant to exercises under the company's employee option plans and 36,000
shares of Common Stock were issued pursuant exercises of warrants. In addition,
the Company issued 384,588 shares of Common Stock pursuant to the acquisition of
Transformation Techniques, Inc. and a further 267,870 shares of Common Stock
were awarded pursuant to the Employee Stock Compensation (1997) Plan.
Subsequent to the 1999 year end and up to February 14, 2000, the Company
issued a further 6,528,239 shares of Common Stock for cash proceeds, net of
expenses, of $11,129,332, as a result of the conversions and exercises of
options, warrants and rights granted prior to December 31, 1999.
The Company issued 4,583,100 shares of Common Stock and 800,000 shares of
Preferred Stock and 2,850,000 warrants to purchase common shares during 1998 for
cash proceeds of $6,350,833, net of cost of $348,419. Private placements and the
exercise of attached warrants accounted for the issue of 3,629,038 shares of
Common Stock and 800,000 shares of Preferred Stock. 951,562 shares of the Common
Stock were issued pursuant to exercises under the Employee Stock Option (1997)
Plan, and 2,500 shares of the Common Stock were awarded under the Employee Stock
Compensation (1997) Plan. In addition, the Company converted the 4,000,000
Series B convertible Preferred Stock, issued in 1997, into 10,000,000 common
shares.
During 1997, the Company issued 21,734,000 shares of Common Stock for
$1,780,489; 19,358,852 shares of the Common Stock as part of the private
placements completed in the First Quarter 1997 and the subsequent exercise of
attached warrants, 908,000 shares of the Common Stock for services rendered and
1,467,000 shares of the Common Stock for options outstanding. In addition,
4,000,000 shares of Preferred Stock were issued in connection with the
acquisition of Major Wireless.
The details of these offerings were set out in previous filings. The
proceeds from these issues have and will continue to be used to continue the
on-going expansion of the operations of the Company and the development of the
WaveRider(R) product families.
Results of Operations - 1999
During the year, the Company incurred a net loss of $7,447,850 on revenues
of $1,764,141. At year-end cash and cash equivalents amounted to $5,540,918 and
current liabilities were $1,763,509.
The Company received FCC certification on its first product offering, the
NCL 135, during the first quarter of 1999. Combined with the acquisition of TTI
in June 1999, this allowed the company to begin the ramp up of sales in North
America and other jurisdictions which recognize the FCC certification. During
1999, product sales amounted to $1,519,469 compared to $41,133 during 1998.
During 1999, the Company continued to invest heavily in the development of
its NCL and LMS product families, with Research and Development costs increasing
to $3,028,555 in 1999 from $1,814,617 in 1998.
With the first product approvals, the Company has focused on developing its
sales, marketing and support structures. At the same time a significant amount
of focus and cost was spent on obtaining the ongoing financing required to
continue the growth and development of the products and markets. As a result,
Sales, general and administration expenses increased to $5,357,587 in 1999 from
$2,807,181 in 1998.
Results of Operations - 1998
During the year, the Company incurred a net loss of $4,477,518 on revenues
of $254,987. At year-end cash and cash equivalents amounted to $3,047,257 and
current liabilities were $1,035,911.
10
The majority of the expenses incurred during 1998 related to the continued
development of the WaveRider product line. In November of 1998, we received
Canadian certification on our first product, the NCL 135, and commenced shipment
within Canada. Subsequent to the year-end, FCC approval was obtained and the
Company began marketing and selling the product in the United States as well as
internationally.
Results of Operations - 1997
During the year, the Company incurred a restated net loss of $1,324,960 on
revenues of $77,459. At year end cash and cash equivalents amounted to $437,746
and current liabilities were $282,242.
Expenses during the year 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. In addition, the fair market value of
options awarded to consultants was expensed increasing the loss previously
reported by $289,830.
Activities by WaveRider Canada during the year centered around developing
production and marketing plans for WaveRider(R) products. Revenues were
generated by Jetstream as the result of the provision of Internet services from
August 1, 1997, the date of acquisition to the year end.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company faces a number of risk factors which may create circumstances beyond
the control of management which may adversely impact on the Company's ability to
achieve its business plan. The key risk factors are described below.
We Have A Limited Operating History, Therefore There Is A High Degree Of
Uncertainty Whether Our Business Plans Or Our Products Will Be Successful
Up to the present time, our company has been entirely a research and
development entity with sales or revenues only commencing in volume during the
second half of 1999. There can be no assurance that the products that we offer
will meet with market acceptance. In addition, there is no guarantee that even
if there proves to be a market for our products, such market will be able to
sustain our profitability requirements.
None of our current products has achieved widespread distribution or
customer acceptance. Some of our products have passed the development stage and
we are establishing a market for them. Although we believe that we have the
expertise to commercialize our products and establish a large enough market for
them, there is no assurance that we will be successful or that such products
will prove to have widespread customer appeal.
We Have A History Of Losses, And Our Future Profitability Is Uncertain
Due to our limited operating history, we are subject to the
uncertainties and risks associated with any new business. Until recently we had
no product that could be commercialized, and therefore we experienced
significant operating losses every year since incorporation. The Company
incurred an operating loss of $7,447,850 for the year ended December 31, 1999
(1998 - $4,477,518 and 1997 - $1,324,960) and reported a deficit at that date of
$16,860,784 (1998 - $9,254,790).
There can be no assurance that we will ever generate an overall profit
from our products or that we will ever reach profitability on a sustained basis.
11
Competition In The Data Communication Industry Is Intense And There Is
Uncertainty That Given Our New Technology And Limited Resources That We Will Be
Able To Succeed.
Although our products are based on a wireless technology, we compete
not only against companies that base their products on wireless technology, but
also against companies that base their products on hard-wired technology (wire
or fiber optic cable). There can be no assurance that we will be able to compete
successfully in the future against existing or new competitors or that our
operating results will not be adversely affected by increased price competition.
Competition is based on design and quality of the products, product performance,
price and service, with the relative importance of such factors varying among
products and markets. Competition, in the various markets we serve, comes from
companies of various sizes, many of which are larger and have greater financial
and other resources than we do and, thus, can better withstand adverse economic
or market conditions than we can.
Our technology is at an early stage of development. As a result, we
have no historical financial information upon which you as an investor could
make an evaluation of your investment. Our future operating results are subject
to a number of risks, including our ability or inability to implement our
strategic plan, to attract qualified personnel and to raise sufficient financing
as required. Inability of our management to guide growth effectively, including
implementing appropriate systems, procedures and controls, could have a material
adverse effect on our business, financial condition and operating results.
The Data Communication Industry Is In A State Of Rapid Technological Change And
We May Not Be Able To Keep Up
We may be unable to keep up with technological advances in the data
communications industry. As a result, our products may become obsolete or
unattractive. The data communications industry is characterized by rapid
technological change. In addition to frequent improvements of existing
technology, there is frequent introduction of new technologies leading to more
complex and powerful products. Keeping up with these changes requires
significant management, technological and financial resources. As a small
company, we do not have the management, technological and financial resources
that larger companies in our industry may have. There can be no assurance that
we will be able or successful in enhancing our existing products, or in
developing, manufacturing and marketing new products. An inability to do so
would adversely effect our business, financial condition and results of
operation.
We Have Limited Intellectual Property Protection And There Is Risk That Our
Competitors Will Be Able To Appropriate Our Technology
Our ability to compete depends to a significant extent on our ability
to protect our intellectual property and to operate without infringing the
intellectual property rights of others. We regard our technology as proprietary.
We have no issued patents or pending patent applications, nor do we have any
registered copyrights with respect to our intellectual property rights, but we
intend to file patent applications. We rely on employee and third party
non-disclosure agreements and on the legal principles restricting the
unauthorized disclosure and use of trade secrets. Despite our precautions, it
might be possible for a third party to copy or otherwise obtain our technology,
and use it without authorization. Although we intend to defend our intellectual
property, we can not assure you that the steps we have taken or that we may take
in the future will be sufficient to prevent misappropriation or unauthorized use
of our technology. In addition, there can be no assurance that foreign
intellectual property laws will protect our intellectual property rights. There
is no assurance that patent application or copyright registration that may be
filed will be granted, or that any issued patent or copyrights will not be
challenged, invalidated or circumvented. There is no assurance that the rights
granted under patents that may be issued or copyrights that may be registered
will provide sufficient protection to our intellectual property rights.
Moreover, we cannot assure you that our competitors will not independently
develop technologies similar or even superior to our technology.
12
Use Of Our Products Is Subordinated To Other Uses And There Is Risk That Our
Customers May Have To Limit Or Discontinue The Use Of Our Products.
License-free operation of our products, in certain radio frequency
bands, is subordinated to certain licensed and unlicensed uses of these bands.
This subordination means that our products must not cause harmful interference
to other equipment operating in the band, and must accept potential interference
from any of such other equipment. If our equipment is unable to operate without
any such harmful interference, or is unable to accept interference caused by
others, our customers could be required to cease operations in some or all of
these bands in the locations affected by the harmful interference. As well, in
the event these bands become unacceptably crowded, and no additional frequencies
are allocated to unlicensed use, our business could be adversely affected.
Currently, our products are designed to operate in frequency bands for
which licenses are not required in the United States, Canada and other countries
that we view as our potential market. Extensive regulation of the data
communications industry by U.S. or foreign governments, and in particular
imposing license requirements in the frequency bands of our products, could
materially and adversely affect us through the effect on our customers and
potential customers. Continued license-free operation will depend upon the
continuation of existing U.S., Canadian and such other countries' government
policy and, while no planned policy changes have been announced or are expected,
this cannot be assured.
We May Be Subject To Product Liability Claims, And We Lack Product Liability
Insurance
We face an inherent risk of exposure to product liability claims in the
event that the products designed and sold by us contain errors, "bugs" or
defects. There can be no assurance that we will avoid significant product
liability exposure. We do not currently have significant product liability
insurance, and there can be no assurance that significant insurance coverage
will be available in the future on commercially reasonable terms, or at all.
Further, there can be no assurance that such insurance, if obtained, will be
adequate to cover potential product liability claims, or that a loss of
insurance coverage or the assertion of a product liability claim or claims would
not materially adversely affect our business, financial condition and results of
operations.
We Depend Upon A Single Third Party Manufacturer And There Is Risk That If This
Supplier Becomes Unavailable For Any Reason We Will Have No Product To Sell
We depend significantly upon a single third party manufacturer to make
our products. We do not have a second source. If our single supplier is not able
to manufacture for us for any reason, we will have no products to sell.
Accordingly, no assurance can be given that manufacturing capacity will continue
to be available to us, on commercially reasonable terms or otherwise. Inability
to obtain manufacturing capacity will have a material adverse effect on our
business, financial condition and results of operation.
ITEM 8. FINANCIAL STATEMENTS
The information required hereunder in this report as set forth in the
"Index to Financial Statements" on page 22.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
13
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
Directors and Executive Officers
The present directors and officers of the Company, their ages and their
positions held in the Company are listed below. Each director will serve until
the next annual meeting of the stockholders or until his successor has been
elected and duly qualified. Directors serve one year terms and officers hold
office at the pleasure of the Board of Directors, subject to employment
agreements. There are no family relationships between or among directors or
executive officers.
NAME AGE POSITION
Bruce Sinclair 48 Director, President and Chief Executive Officer
Cameron A. Mingay 48 Director and Corporate Secretary.
Gerry Chastelet 53 Director
John Curry 53 Director
Guthrie Stewart 44 Director
Dennis Wing 51 Director
Charles Brown 44 Vice President, Marketing
James Chinnick 53 Vice President, Engineering
Scott Worthington 45 Vice President, Finance and Administration
The following describes the business experience of the Company's directors and
executive officers, including, for each director, other directorships held in
reporting companies and naming each Company.
D. Bruce Sinclair is an experienced management professional with a Masters
Degree in business administration from the University of Toronto. He has worked
in sales and management with companies including IBM Canada, Northern Telecom
and Harris Systems Limited. From 1988 to 1991, Mr. Sinclair was with Dell
Computer Corporation, a computer manufacturing company, where he held the office
of President of its Canadian subsidiary. In 1991 he was appointed
Vice-President, Europe for Dell Computer Corporation and subsequently CEO of
Dell in Europe, a position he held until 1994. He resigned from Dell in 1995 and
operated his own independent consulting business until joining the Company in
November 1997.
Cameron A. Mingay is a partner at Cassels Brock & Blackwell, Toronto, Ontario,
Canada and specializes in the areas of securities and corporate commercial law,
with an emphasis on public offerings, mergers and acquisitions, and corporate
reorganizations. He has extensive experience in representing companies and
investment dealers in all manners of public and private corporate finance
transactions. He acts as lead counsel for a number of public clients and he
serves as counsel to a number of investment dealers on corporate finance
matters. He is currently on the board for Image Processing Systems and
Matachewan Consolidated Mines Limited. He completed his undergraduate degree at
the University of Wisconsin and York University and his law degree at Queen's
University.
Gerry Chastelet, a 30-year veteran of the telecommunications industry, is
currently president and CEO of Digital Lightwave Inc. of Clearwater, Florida.
Prior to Digital Lightwave, he served as president and CEO of Wandel and
Goltermann Techologies Inc. a global supplier of communication test and
measurement equipment. From 1993 to 1995 he served as vice president, Sales
Marketing and Service - Americas and Asia Pacific for Network Systems
Corporation. He has also held senior management roles with other high-tech
companies including Gandalf Systems Corporation, Paradyne Corporation and IBM.
14
John E. Curry recently joined the Venture Capital funding group and is acting as
Chief Financial Officer of Voice Mobility International, Inc. Prior to joining
Voice Mobility, Mr. Curry was with Bedford Curry & Co., a Vancouver-based
chartered accounting firm with one of the region's strongest, medium-sized
accounting practices specializing in public companies and business financing,
which he co-founded in 1983. He is a member of the British Columbia Institute of
Chartered Accountants.
Guthrie J. Stewart is Executive Vice-President, Global Development for the
Teleglobe Group and Chairman and Chief Executive Officer of Teleglobe Media
Enterprises. Since 1992, he has held various executive positions within the
Teleglobe Group including President and Chief Executive Officer of Teleglobe
Canada Inc., Canada's international telecommunications carrier. Mr. Stewart is a
member of the Board of the Information Technology Association of Canada and a
past-Chairman of the Board of the Wireless Communications Association, Canada's
national industry association of wireless service providers.
Dennis R. Wing is Director of International Operations for Fahnestock & Co.
Inc., an U.S. investment bank. Previously, he was founding partner and Board
Member of First Marathon Securities Inc. and was Director of International
Operations for 18 years. His other Board memberships include Cryptologic Inc.,
Vengold Inc. and the University of Waterloo. He holds a Bachelor of Arts degree
in Economics from University of Waterloo.
Charles W. Brown, MBA, was Clearnet Communications' first Vice President and CIO
from 1994 to 1997. Prior to this Mr. Brown has held numerous senior Sales and
Marketing positions including Vice President, Sales and Marketing for Trillium
Communications (1993-1994) and Director, Strategic Planning and Marketing for
BCE Mobile (1990-1993)
James H. Chinnick, was vice president and general manager of Harris
Corporation's Wireless Access Division in Calgary, AB, from 1995 to 1998. Prior
to this, Mr. Chinnick held several senior positions with NovAtel (1988-1995),
Northern Telecom (1985-1988), Foundation Electronic Instruments (1980-1984) and
the Communications Research Centre in Ottawa (1971-1980). In addition to a B.Sc.
Engineering (Physics), he has an M.Sc. in Electrical Engineering
(Communications) and a Diploma in Business Administration. He is a member of the
Association of Professional Engineers, Geologists and Geophysicists of Alberta
(APEGGA).
T. Scott Worthington is a Chartered Accountant. From 1988 to 1996, he worked at
Dell Computer Corporation, in Canada, where he held numerous positions including
CFO of the Canadian subsidiary. Subsequent to leaving Dell, he was a financial
and business consultant until his joining the Company in January 1998.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, (the "Exchange
Act"), requires officers, directors and persons who beneficially own more than
10% of a class of the Company's equity securities registered under the Exchange
Act to file reports of ownership and changes in ownership with the Securities
and Exchange Commission. Based solely on a review of the forms it has received
and on representation from certain reporting persons, the Company believes that,
during the year ended December 31, 1999, all Section 16(a) filing requirements
applicable to its officers, directors and 10% beneficial owners were complied
with by such persons.
15
ITEM 11. EXECUTIVE COMPENSATION
The following table describes the compensation earned in fiscal 1998 by
the Chief Executive Officer of the Company and all executives officer who
received compensation in excess of $100,000 in 1999. The directors of the
Company received $1,000 per meeting attended during the year and were
automatically awarded 50,000 options under the 1999 Incentive and Nonqualified
Stock Option Plan upon their election to the board of directors.
SUMMARY COMPENSATION TABLE 1999
Annual Compensation
Name and
Principal Position Year Salary Bonus Stock Options
Bruce Sinclair 1999 204,730 134,617 100,000
Pres./CEO/Director 1998 182,002 Note 1
1997 10,500 1,000,000 Note 2
Charles Brown 1999 128,156 50,885 535,000
Vice Pres., Marketing 1998 101,112 39,045 465,000
Scott Worthington 1999 103,863 26,923 450,000
Vice Pres., Finance 1998 76,845 15,369 550,000
James Chinnick 1999 87,748 76,732 630,000
Vice Pres., Engineering
Mike Orloff 1999 62,110 68,574 36,000
Vice Pres., International
Other than noted above, no Officer or employee of the company received
compensation in excess of $100,000 in any of the last 3 fiscal years.
(1) Mr. Sinclair's 1998 compensation was based on an annualized amount of
Can.$500,000 payable Can.$270,000 in cash salary with the balance payable
in shares out of the Employee Stock Compensation (1997) Plan subject to
certain performance criteria. Despite having achieved the bonus
requirements, Mr. Sinclair waived receipt of the $155,038 bonus in
conjunction with an agreement with other shareholders who returned
1,000,000 shares for cancellation. This agreement allowed the Company to
issue 1,495,000 options to the other senior executives without significant
further dilution for the shareholders.
(2) The amount shown as salary above is the amount paid in cash for the period
Mr. Sinclair was with the Company in 1997. A total of 800,000 Series B
Preferred Shares were transferred to Mr. Sinclair by way of an additional
incentive together with the private option to purchase additional common
shares of up to 1,000,000. Both the Series B Preferred shares and the
private option to purchase common shares were provided by existing
shareholders and were not payable by or otherwise a liability of the
Company.
16
The following table summarizes option grants during 1999 to the
executive officers named in the Summary Compensation Table (the "Named Executive
Officers")
Individual Grants
Percent of
Total
Number of Options Potential Realizable Value
Securities Granted to Exercise Market at Assumed Annual Rates
Underlying Employees or Base Price on of Stock Price Appreciation
Options in Fiscal Price Date of Expiration for Option Term
Granted Year ($/sh) Grant Date 0% 5% 10%
Bruce Sinclair 100,000 3.6% $0.91 $0.91 10/25/09 0 4,550 9,100
Charles Brown 535,000 19.4% $2.03 $2.03 4/8/09 0 54,303 108,605
James Chinnick 120,000 4.3% $2.50 $2.50 1/4/02 0 15,000 30,000
510,000 18.5% $2.03 $2.03 4/8/09 0 51,765 103,530
Scott Worthington 450,000 16.3% $2.03 $2.03 4/8/09 0 45,675 91,350
Mike Orloff 18,000 0.7% $2.50 $2.50 1/4/02 0 2,250 4,500
18,000 0.7% $2.00 $2.00 4/23/09 0 1,800 3,600
None of the Officers listed exercised any of their options in 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following tables set forth, as of March 6,2000, the stock ownership of each
officer and director of the Company, of all officers and directors of the
Company as a group, and of each person known by the Company to be a beneficial
owner of 5% or more of its Common Stock, $0.001 par value. Except as otherwise
noted, each person listed below is the sole beneficial owner of the shares and
has sole investment and voting power with respect to such shares. No person
listed below has any option, warrant or other right to acquire additional
securities of the Company, except as may otherwise be noted. The Company had
59,930,711 shares of Common Stock and 98,000 shares of Preferred Stock issued
and outstanding as of such date, which numbers do not include any options or
warrants issued and outstanding.
Name and Address of Amt. Of Common % of Common Stock
Beneficial Owner Stock benef. Owned outstanding
Bruce Sinclair, Director, CEO, President 4,100,000 6.61%
32 Steeplechase Dr. Aurora Ontario Canada
Cameron A. Mingay, Secretary/Director 50,000 0.08%
Gerry Chastelet, Director 50,000 0.08%
John Curry, Director 50,000 0.08%
Guthrie Stewart, Director 50,000 0.08%
Dennis Wing, Director 50,000 0.08%
Charles Brown, Vice-President 1,000,000 1.64%
Scott Worthington, Vice-President 1,000,000 1.64%
Jim Chinnick 730,000 1.20%
----------- -----
All Directors and Executive Officers (9) 7,080,000 10.89%
17
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
There were no transactions or series of transactions, for the fiscal year ended
December 31, 1999, to which the Company is a party, in which the amount exceeds
$60,000 and in which, to the knowledge of the Company, any director, executive
officer, nominee, 5% or greater stockholder, or any member of the immediate
family of any of the foregoing persons, have or will have any direct or indirect
material interest other than as disclosed in the 10 KSB filed by the Company for
the year ended December 31, 1998.
PART IV
ITEM 14. Exhibits and Reports on Form 8-K
(a) Exhibits. The exhibits below marked with an asterisk (*) are included with
and filed as part of this report. Other exhibits have previously been filed with
the Securities and Exchange Commission and are incorporated by reference to
another report, registration statement or form. References to the "Company"
below includes Channel i Inc., the Company's previous name under which exhibits
may have been filed.
Exhibit
No. Description.
3.1 Articles of Incorporation of the Company, incorporated by reference to
Exhibit 3.1 registration statement on Form S-18, File no. 33-25889-LA.
3.2 Bylaws of the Company, incorporated by reference to Exhibit 3.2 to the
annual report on Form 10-KSB for the year ended December 31, 1996.
3.3 Certificate of Amendment to the Articles of Incorporation of the
Company filed with the Nevada Secretary of State on October 8th, 1993,
incorporated by reference to Exhibit 3.3 to the quarterly report on
Form 10-QSB for the period ended September 30th, 1994.
3.4 Certificate of Amendment to the Articles of Incorporation of the
Company filed with the Nevada Secretary of State on October 25th, 1993,
incorporated by reference to Exhibit 2(d) to the registration statement
on Form 8-A, File No. 0-25680.
3.5 Certificate of Amendment to the Articles of Incorporation of the
Company filed with the Nevada Secretary of State on March 25th, 1995,
incorporated by reference to Exhibit 2(e) to registration statement on
Form 8-A, File no. 0-25680.
3.6 Certificate of Amendment to the Articles of Incorporation of the
Company, designating the Series A Voting Convertible Preferred Stock,
filed with the Nevada Secretary of State on March 24th, 1997,
incorporated by reference to Exhibit 3.6 on Form 10KSB for the year
ended December 31, 1996.
3.7 Certificate of Amendment to the Articles of Incorporation of the
Company designating the Series B Voting Convertible Preferred Stock,
filed with the Nevada Secretary of State on May 16, 1997 incorporated
by reference to Exhibit 3.7 on Form 10KSB for the year ended December
31, 1997.
3.8 Certificate of Amendment to the Memorandum of the Company changing the
name to WaveRider Communications Inc., filed with the Nevada Secretary
of State on May 27, 1997 incorporated by reference to Exhibit 3.8 on
Form 10KSB for the year ended December 31, 1997.
3.9 Certificate of Amendment to the Certificate of Designation of the
Series B Voting Convertible Preferred Stock, filed with the Nevada
Secretary of State on May 16, 1997 incorporated by reference to Exhibit
99.1 on Form 8-K filed May 5, 1998.
3.10 Certificate of Amendment to the Articles of Incorporation of the
Company designating the Series C Voting 8% Convertible Preferred Stock,
filed with the Nevada Secretary of State on June 3, 1998 incorporated
by reference to Exhibit 4 on Form 8-K filed June 18, 1998
18
4.1 Specimen common stock certificate, incorporated by reference to Exhibit
4.1 to registration statement on Form S-18, File no. 33-25889-LA.
4.2 Specimen Class A Common Stock Purchase Warrant Certificate,
incorporated by reference to Exhibit 4.2 on Form 10KSB for the year
ended December 31, 1996.
4.3 Specimen Class B Common Stock Purchase Warrant Certificate,
incorporated by reference to Exhibit 4.3 on Form 10KSB for the year
ended December 31, 1996.
4.4 Specimen Class C Common Stock Purchase Warrant Certificate,
incorporated by reference to Exhibit 4.4 on Form 10KSB for the year
ended December 31, 1996.
4.5 Specimen Class D Common Stock Purchase Warrant Certificate,
incorporated by reference to Exhibit 4.5 on Form 10KSB for the year
ended December 31, 1996.
4.6 Warrant Terms dated February 10th, 1997, relating to the Class A, Class
B, Class C and Class D, Common Stock Purchase Warrants, incorporated by
reference to Exhibit 4.6 on Form 10KSB for the year ended December 31,
1996.
4.7 Warrant Terms dated April 15, 1998, relating to the Class E Common
Stock Purchase Warrants.
4.8 Warrant Terms dated June 11, 1998, relating to the Class F Common Stock
Purchase Warrants.
4.9 Warrant Terms dated December 15, 1998, relating to the Class G Common
Stock Purchase Warrants
4.10 Warrant Terms dated December 29, 1998, relating to the Common Stock
Purchase Warrants
4.11 Warrant Terms dated June 30, 1999, relating to the Class H Common Stock
Purchase Warrants, incorporated by reference to Exhibit 4.11 on Form
S-3, File No. 333-82855.
4.12 Warrant Terms dated October 18, 1999, relating to the Common Stock
Purchase Warrants, incorporated by reference to Exhibit 10.1 and 10.2
in Form 10-Q for the quarter ended September 30, 1999.
4.13 Specimen Common Stock Purchase Warrant Certificate, incorporated by
reference to exhibit 4.13 on Form S-3A, File No. 333-92591
4.14 Specimen Underwriters' Warrant Certificate, incorporated by reference
to exhibit 4.14 on Form S-3A, File No. 333-92591
10.1 Agreement dated February 2nd, 1997, between Ray Hoag and the Company,
incorporated by reference to Exhibit 10.2 on Form 10KSB for the year
ended December 31, 1996.
10.2 Agreement dated February 2nd, 1997, between C. Jeremy Renton and the
Company, incorporated by reference to Exhibit 10.21 on Form 10KSB for
the year ended December 31, 1996.
10.3 Stock Option Agreement dated January 22nd, 1997 between the Company and
Charlie Rodriguez, incorporated by reference to Exhibit 10.22 on Form
10KSB for the year ended December 31, 1996.
10.4 Stock Option Agreement dated January 22nd, 1997 between the Company and
C. Jeremy Renton, incorporated by reference to Exhibit 10.23 on Form
10KSB for the year ended December 31, 1996.
10.5 Stock Option Agreement dated January 22nd, 1997, between the Company
and Ray Hoag, incorporated by reference to Exhibit 10.24 on Form 10KSB
for the year ended December 31, 1996.
10.6 Share Exchange Agreement executed the 13th day of May, 1997 between the
Company and the shareholders of Major Wireless Communications Inc.,
("Major Wireless"), with respect to the purchase by the Company of all
the issued and outstanding shares in the capital stock of Major
Wireless, incorporated by reference to Exhibit 2.1 in Form 8-K filed
May 29, 1997
10.7 Agreement supplemental to the Share Exchange Agreement executed the
13th day of May, 1997 (see 10.6 supra) incorporated by reference to
Exhibit 10.1 in Form 8-K filed May 29, 1997.
19
10.8 Employee Stock Compensation (1997) Plan incorporated by reference to
Exhibit 99 in Form S-8 filed August 29th, 1997.
10.9 Employee Stock Option (1997) Plan incorporated by reference to Exhibit
99 in Form S-8 filed August 29th, 1997.
10.10 Employment Agreement between the Company and D. Bruce Sinclair dated
November 18, 1997 incorporated by reference to Exhibit 10.10 on Form
10KSB for the year ended December 31, 1997.
10.11 Amendment to the Share Exchange Agreement executed the 13th day of May,
1997 (see 10.6 supra) incorporated by reference to Exhibit 10.1 in Form
8-K filed May 4,1998.
10.12 Amendment to the Employee Stock Option (1997) Plan incorporated by
reference to Form S-8 filed May 13, 1998
10.13 Convertible Debenture Agreement between WaveRider and International
Advisory Services Ltd. And Wyndel Consulting Ltd. dated December 15,
1998 incorporated by reference to Exhibit 10.11 on Form S-3 filed
January 19, 1999.
10.14 Letter of termination of the Convertible Debenture, dated January 8,
1999, incorporated by reference to Exhibit 10.11 on Form S-3 filed
January 19, 1999.
10.15 Common Stock Purchase Agreement between WaveRider and Sovereign
Partners LP and Canadian Advantage Limited Partnership, dated December
31, 1998, including the exhibits to such agreement incorporated by
reference to Exhibit 10.13 on Form S-3 filed January 19, 1999.
10.16 Amendment to the Common Stock Purchase Agreement between WaveRider and
Sovereign Partners LP and Canadian Advantage Limited Partnership, dated
June 14, 1999, incorporated by reference to Exhibit 10.14 on Form S-3,
File No. 333-82855.
10.17 Merger Agreement between WaveRider Communications Inc and TTI Merger
Inc and Transformation Techniques, Inc. and Peter Bonk, incorporated by
reference to Exhibit 10.1 in Form 8-K filed June 30, 1999
10.18 Employment agreement between Mr. Peter Bonk and WaveRider
Communications (USA) Inc., dated June 11, 1999, incorporated by
reference to Exhibit 10.2 in Form 8-K filed June 30, 1999.
10.19 Loan Agreement between WaveRider Communications Inc. and AMRO
International, S.A. dated October 15, 1999, incorporated by reference
to Exhibit 10.1 in Form 10-Q for the quarter ended September 30, 1999.
10.20 Common Stock Purchase Agreement between WaveRider Communications Inc.
and Radyr Group Investments dated October 18, 1999, incorporated by
reference to Exhibit 10.2 in Form 10-Q for the quarter ended September
30, 1999.
10.21 Underwriting Agreement between WaveRider Communications Inc. and Groome
Capital.com Inc. dated December 17, 1999 incorporated by reference to
exhibit 10.19 on Form S-3A, File No. 333-92591.
21 *Subsidiaries
(b) Reports on Form 8-K
No reports on Form 8-K were filed in the 4th quarter of 1999.
20
Exhibit 21
SUBSIDIARIES
The company has a wholly owned subsidiary, WaveRider Communications (USA) Inc.
(formerly TTI Merger, Inc.), incorporated under the laws of the State of Nevada,
on May 19, 1999.
The company has a wholly owned subsidiary, WaveRider Communications (Canada)
Inc. (formerly Major Wireless Communications Inc.), incorporated under the laws
of the Province of British Columbia, Canada the 9th day of October, 1996 under
no. 0528772.
WaveRider Communications (Canada) Inc. has a wholly owned subsidiary, Jetstream
Internet Services Inc., incorporated under the laws of the Province of British
Columbia, Canada the 29th day of July, 1997, under no. 0547668.
21
CONSOLIDATED FINANCIAL STATEMENTS
WaveRider Communications Inc.
(A Development Stage Company)
TORONTO, ONTARIO, CANADA
DECEMBER 31, 1999
1. AUDITORS' REPORT
2. CONSOLIDATED BALANCE SHEETS
3. CONSOLIDATED STATEMENTS OF LOSS
4. CONSOLIDATED STATEMENTS OF CHANGES IN CASH FLOWS
5. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
6. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
22
PricewaterhouseCoopers
- --------------------------------------------------------------------------------
PricewaterhouseCoopers
Chartered Accountants
145 King Street West
Toronto Ontario
Canada M5H 1V8
Telephone +1 (416) 869-1130
Facsimile +1 (416) 863-0926
February 4, 2000, except for note 20 which is February 14, 2000
To Stockholders and Board of Directors WaveRider Communications Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of loss, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of WaveRider
Communications Inc. at December 31, 1999 and December 31, 1998, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1999, in conformity with generally accepted accounting
principles in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards in the United States which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
The financial statements of WaveRider Communications Inc. for each of the
periods from inception on August 6, 1987 to December 31, 1997 were audited by
other independent accountants whose report dated March 20, 1998 (and March 22,
1999 for Note 15, prior period adjustment) on those statements included an
explanatory paragraph that described the substantial doubt about the ability of
the Company to continue as a going concern as discussed in Note 1 to the
financial statements.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has not generated commercially significant
revenues from operations which raises substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
PricewaterhouseCoopers LLP
PricewaterhouseCoopers refers to the Canadian firm of PricewaterhouseCoopers LLP
and other members of the worldwide PricewaterhouseCoopers organization.
23
Johnson, Holscher & Company, P.C.
Certified Public Accountants
Stockholders and Board of Directors
WaveRider Communications Inc.
INDEPENDENT AUDITORS' REPORT
We have audited the consolidated balance sheet of WaveRider Communications Inc.
as of December 31, 1997 and 1996, and the related consolidated statements of
loss and deficit, stockholder's equity (deficit) and cash flows for the years
ended December 31, 1997 and 1996 and the period from inception to December 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit and the reports of other auditors provide a reasonable basis for our
opinion
In our opinion, based on our audit and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of WaveRider Communications Inc. as of
December 31, 1997 and 1996 and the results of its operations and its cash flows
for the years ended December 31, 1997 and 1996 and the period from inception to
December 31, 1997 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has not generated revenues from operations
which raises substantial doubt about its ability to continue as a going concern.
Management's plan in regard to these matters are also described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Johnson, Holscher & Company, P.C.
March 20, 1998
March 22, 1999, Note 15. Prior Period Adjustment
Member of the American Institute of Certified Public Accountants 5975 Greenwood Plaza Boulevard, Suite 140
Member of the Private Companies Practice Section Greenwood Village, Colorado, 80111
Member of the SEC Practice Section (303) 694-2727
Fax (303) 694-3172
24
WaveRider Communications Inc.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(in U.S. dollars)
December 31
1999 1998
ASSETS
Current
Cash and cash equivalents .............................................. $ 5,540,917 $ 3,047,257
Accounts receivable [Note 5] ........................................... 707,619 71,257
Prepaid expenses ....................................................... 128,451 26,730
Inventories [Note 6] ................................................... 609,363 150,494
------------ ------------
6,986,350 3,295,738
Fixed Assets [Note 7] ...................................................... 978,160 808,531
Acquired core technologies [Note 8] ........................................ 1,203,837 --
Goodwill [Note 9] .......................................................... 912,169 42,565
------------ ------------
$ 10,080,516 $ 4,146,834
============ ============
LIABILITIES
Current
Accounts payable and accrued liabilities [Note 10] ..................... $ 1,654,401 $ 942,192
Deferred revenue ....................................................... 41,035 39,558
Current portion of obligation under capital lease [Note 11] ............ 68,073 54,161
------------ ------------
1,763,509 1,035,911
Obligation under capital lease [Note 11] ................................... 18,625 12,555
------------ ------------
1,782,134 1,048,466
------------ ------------
SHAREHOLDERS' EQUITY [Note 12]
Preferred Stock, $.001 par value per share: authorized - 5,000,000 shares;
issued and outstanding 764,000 shares in 1999 and 800,000 in 1998 ...... 764 800
Common Stock, $.001 par value per share: authorized - 100,000,000 shares;
issued and outstanding - 43,903,145 shares in 1999 and 31,501,481 shares
in 1998 ............................................................ 43,903 31,501
Additional paid in capital ................................................. 22,599,172 10,817,075
Other equity ............................................................... 3,565,327 1,503,782
Deficit accumulated during the development stage ........................... (17,910,784) (9,254,790)
------------ ------------
8,298,382 3,098,368
------------ ------------
$ 10,080,516 $ 4,146,834
============ ============
Commitments (Note 11)
Approved by the Board Director Director
REFER TO ACCOMPANYING NOTES
25
WaveRider Communications Inc.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF LOSS
(in U.S. dollars)
From Inception
Year ended December 31 on August 6, 1987
1999 1998 1997 to December 31, 1999
REVENUE
Product sales .......................... $ 1,519,469 $ 41,133 $ -- $ 1,560,602
Internet sales ......................... 196,576 164,749 77,459 438,784
Interest and other ..................... 48,096 49,105 -- 120,769
------------ ------------ ------------ ------------
1,764,141 254,987 77,459 2,120,155
COST OF PRODUCT AND INTERNET SALES
Product sales .......................... 1,225,194 13,445 -- 1,238,639
Internet sales ......................... 69,621 62,022 21,798 153,441
------------ ------------ ------------ ------------
1,294,815 75,467 21,798 1,392,080
------------ ------------ ------------ ------------
GROSS MARGIN ........................... 469,326 179,520 55,661 728,075
------------ ------------ ------------ ------------
EXPENSES
Selling, general and administration .... 5,357,587 2,807,181 962,346 11,594,325
Research and development ............... 3,028,555 1,814,617 405,705 5,334,576
Depreciation and amortization .......... 35,034 35,240 12,570 150,701
------------ ------------ ------------ ------------
8,421,176 4,657,038 1,380,621 17,079,602
------------ ------------ ------------ ------------
NET LOSS BEFORE TAXES .................. (7,951,850) (4,477,518) (1,324,960) (16,351,527)
DEFERRED TAX RECOVERY .................. 504,000 -- -- 504,000
------------ ------------ ------------ ------------
NET LOSS ............................... (7,447,850) (4,477,518) (1,324,960) (15,847,527)
============ ============ ============ ============
BASIC AND FULLY DILUTED LOSS PER SHARE . $ (0.25) $ (0.18) $ (0.11) $ (2.49)
============ ============ ============ ============
[Note 17]
Weighted Average Number of Common Shares 34,258,565 29,485,320 12,299,522 7,199,334
============ ============ ============ ============
REFER TO ACCOMPANYING NOTES
26
WaveRider Communications Inc.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in U.S. dollars)
From Inception
Year ended December 31 on August 6, 1987
1999 1998 1997 to December 31,1999
OPERATIONS
Net loss .......................................... $ (7,447,850) $ (4,477,518) $ (1,324,960) $(15,847,527)
Items not involving cash
Depreciation and amortization ................. 736,875 304,347 77.964 1,187,043
Loss on sale of equipment ..................... -- -- 13,855 91,616
Options issued to consultants ................. 70,412 341,809 289,830 702,051
Compensatory shares issued to employees ....... 457,007 -- -- 457,007
Compensatory options issued to employees ...... 32,763 -- -- 32,763
Warrants issued on financing and other services 360,098 313,325 -- 673,423
Foreign exchange loss ......................... 22,044 (18,340) -- 3,704
Deferred tax recovery ......................... (504,000) -- -- (504,000)
Net changes in non-cash
working capital items [Note 13] ................. (851,165) 560,144 17,930 (163,022)
------------ ------------ ------------ ------------
(7,123,816) (2,976,233) (925,381) (13,366,942)
------------ ------------ ------------ ------------
INVESTING
Acquisition of fixed assets ....................... (376,767) (612,184) (380,320) (1,533,597)
Purchase of Transformation Techniques Inc. [Note 4] (655,288) -- -- (655,288)
Purchase of Internet service business [Note 4] .... -- -- (38,851) (38,851)
------------ ------------ ------------ ------------
(1,032,055) (612,184) (419,171) (2,227,736)
------------ ------------ ------------ ------------
FINANCING
Proceeds from sale of shares
and warrants (net of issue fees) ............... 10,909,353 6,350,833 1,780,489 21,542,434
Dividends on preferred shares ..................... (158,144) (80,000) -- (238,144)
Loans from affiliates ............................. -- -- -- 2,657
Payments on capital lease obligations ............. (105,848) (68,216) -- (170,833)
------------ ------------ ------------ ------------
10,645,361 6,202,617 1,780,489 21,136,114
------------ ------------ ------------ ------------
Effect of exchange rate changes on cash ........... 4,170 (4,689) -- (519)
------------ ------------ ------------ ------------
Increase in cash and cash equivalents ............. 2,493,660 2,609,511 435,937 5,540,917
Cash and cash equivalents, beginning of period .... 3,047,257 437,746 1,809 --
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS,
end of period ................................... 5,540,917 3,047,257 437,746 5,540,917
============ ============ ============ ============
REFER TO ACCOMPANYING NOTES
27
WaveRider Communications Inc.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in U.S. dollars)
Years ended December 31
Additional
Common Shares Preferred Shares Paid-in Share
Number Par Value Number Par Value Capital Capital
---------------------------------------------------------------------------------------
Issuances 4,000,000 $ 4,000 $ 6,000 $ 10,000
Net income -
---------------------------------------------------------------------------------------
December 31, 1987 4,000,000 4,000 - - 6,000 10,000
Issuances 2,780,000 2,780 4,170 6,950
Net loss -
---------------------------------------------------------------------------------------
December 31, 1988 6,780,000 6,780 - - 10,170 16,950
Issuances 2,008,000 2,008 19,618 21,626
Net loss -
---------------------------------------------------------------------------------------
December 31, 1989 8,788,000 8,788 - - 29,788 38,576
Adjustment to offering costs (10,500) (10,500)
Net loss -
---------------------------------------------------------------------------------------
December 31, 1990, 1991 & 1992 8,788,000 8,788 - - 19,288 28,076
Reverse stock split (8,700,120) (8,700) 8,700 -
Issuances 1,200,000 1,200 6,300 7,500
Share subscriptions -
Net loss -
---------------------------------------------------------------------------------------
December 31, 1993 1,287,880 1,288 - - 34,288 35,576
Issuances 3,218,181 3,218 1,764,424 1,767,642
Subscriptions returned -
Net loss -
---------------------------------------------------------------------------------------
December 31, 1994 4,506,061 4,506 - - 1,798,712 1,803,218
Issuances 100,000 100 199,900 200,000
Net loss -
---------------------------------------------------------------------------------------
December 31, 1995 4,606,061 4,606 - - 1,998,612 2,003,218
Shares cancelled (50,002) (50) (50)
Issuances 628,500 629 497,962 498,591
Net loss -
---------------------------------------------------------------------------------------
December 31, 1996 5,184,559 5,185 2,496,574 2,501,759
Issuances 2,693,000 2,693 4,298,125 4,298 299,249 306,240
(Note 12B(i), (ii), (iv), (xiii))
Conversions & exercises 19,040,822 19,041 (298,125) (298) 1,683,547 1,702,290
(Note 12B (i), (ii), 12E)
Options to non-employees (note 12E) -
Net loss -
Shares in escrow (note 12B(iv)) (4,000,000) (4,000) (4,000)
---------------------------------------------------------------------------------------
December 31, 1997 26,918,381 $ 26,919 - - $ 4,479,370 $4,506,289
---------------------------------------------------------------------------------------
Warrants Other
Number Amount Other equity Deficit Total
-------------------------------------------------------------------------------------
Issuances - $ 10,000
Net income - 56 56
-------------------------------------------------------------------------------------
December 31, 1987 - - - - 56 10,056
Issuances - 6,950
Net loss - (5,380) (5,380)
-------------------------------------------------------------------------------------
December 31, 1988 - - - - (5,324) 11,626
Issuances - 21,626
Net loss - (5,112) (5,112)
-------------------------------------------------------------------------------------
December 31, 1989 - - - - (10,436) 28,140
Adjustment to offering costs - (10,500)
Net loss - (17,640) (17,640)
-------------------------------------------------------------------------------------
December 31, 1990, 1991 & 1992 - - - - (28,076) -
Reverse stock split - -
Issuances - 7,500
Share subscriptions 100,000 100,000 100,000
Net loss - (177,686) (177,686)
-------------------------------------------------------------------------------------
December 31, 1993 - - 100,000 100,000 (205,762) (70,186)
Issuances - 1,767,642
Subscriptions returned (100,000) (100,000) (100,000)
Net loss - (1,215,576) (1,215,576)
-------------------------------------------------------------------------------------
December 31, 1994 - - - - (1,421,338) 381,880
Issuances - 200,000
Net loss - (1,054,085) (1,054,085)
-------------------------------------------------------------------------------------
December 31, 1995 - - - - (2,475,423) (472,205)
Shares cancelled - (50)
Issuances - 498,591
Net loss - (121,776) (121,776)
-------------------------------------------------------------------------------------
December 31, 1996 - - - - (2,597,199) (95,440)
Issuances 16,083,750 101,890 101,890 (62,848) 345,282
(Note 12B(i), (ii), (iv), (xiii))
Conversions & exercises (14,592,572) (91,411) (171,672) (263,083) 1,439,207
(Note 12B (i), (ii), 12E)
Options to non-employees (note 12E) 289,830 289,830 289,830
Net loss - (1,324,960) (1,324,960)
Shares in escrow (note 12B(iv)) - (4,000)
-------------------------------------------------------------------------------------
December 31, 1997 1,491,178 $ 10,479 $ 118,158 $ 128,637 $ (3,985,007) $ 649,919
-------------------------------------------------------------------------------------
REFER TO ACCOMPANYING NOTES
28
WaveRider Communications Inc.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in U.S. dollars)
Years ended December 31
Additional
Common Shares Preferred Shares Paid-in Share
Number Par Value Number Par Value Capital Capital
---------------------------------------------------------------------------------------
December 31, 1997 26,918,381 $ 26,919 - - $ 4,479,370 $ 4,506,289
Issuances 1,670,360 1,670 800,000 800 4,787,697 4,790,167
(Note 12B(iii), (v), (vi), (vii), 12E, 12F)
Conversions & exercises 12,912,740 12,912 1,550,008 1,562,920
(Note 12B (ii), (iii), (iv), 12E)
Options to non-employees (note 12E) -
Dividends on preferred shares -
Net loss -
Shares in escrow (note 12B(iv)) (10,000,000) (10,000) (10,000)
---------------------------------------------------------------------------------------
December 31, 1998 31,501,481 31,501 800,000 800 10,817,075 10,849,376
Issuances (Note 12B(v), (ix), (x), 10,857,766 10,858 10,026,885 10,037,743
(xi), (xii), 12E, 12F)
Conversions & exercises 441,440 441 (36,000) (36) 322,933 323,338
(Note 12B (iii), 12E)
Release of shares from escrow 450,000 450 533,925 534,375
(Note 12B(iv))
Issue for purchase of subsidiary 384,588 385 441,615 442,000
(Note 12B(viii))
Issued as compensation (Note 12F) 267,870 268 456,739 457,007
Compensatory options to employees
(Note 12E)
Options to non-employees (Note 12E) -
Dividends on preferred shares -
Net loss -
---------------------------------------------------------------------------------------
December 31, 1999 43,903,145 $ 43,903 764,000 $ 764 $ 22,599,172 $ 22,643,839
=======================================================================================
Warrants Other
Number Amount Other equity Deficit Total
------------------------------------------------------------------------------------
December 31, 1997 1,491,178 $ 10,479 $ 118,158 $ 128,637 $ (3,985,007) $ 649,919
Issuances 2,850,000 1,387,004 1,387,004 (712,265) 5,464,906
(Note 12B(iii), (v), (vi), (vii), 12E, 12F)
Conversions & exercises (1,961,178) (100,049) (253,619) (353,668) 1,209,252
(Note 12B (ii), (iii), (iv), 12E)
Options to non-employees (note 12E) 341,809 341,809 341,809
Dividends on preferred shares - (80,000) (80,000)
Net loss - (4,477,518) (4,477,518)
Shares in escrow (note 12B(iv)) - (10,000)
--------------------------------------------------------------------------------------
December 31, 1998 2,380,000 1,297,434 206,348 1,503,782 (9,254,790) 3,098,368
Issuances (Note 12B(v), (ix), (x), 4,309,629 2,063,717 2,063,717 (1,050,000) 11,051,460
(xi), (xii), 12E, 12F)
Conversions & exercises (30,000) (5,717) (99,630) (105,347) 217,991
(Note 12B (iii), 12E)
Release of shares from escrow 534,375
(Note 12B(iv))
Issue for purchase of subsidiary 442,000
(Note 12B(viii))
Issued as compensation (Note 12F) 457,007
Compensatory options to employees 32,763 32,763 32,763
(Note 12E)
Options to non-employees (Note 12E) 70,412 70,412 70,412
Dividends on preferred shares - (158,144) (158,144)
Net loss - (7,447,850) (7,447,850)
--------------------------------------------------------------------------------------
December 31, 1999 6,659,629 $ 3,355,434 $ 209,893 $ 3,565,327 $ (17,910,784) $ 8,298,382
======================================================================================
REFER TO ACCOMPANYING NOTES
29
WaveRider Communications Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. dollars)
Years ended December 31, 1999, 1998 and from inception on August 6, 1987 to
December 31, 1999
1. GOING CONCERN
These financial statements are prepared on a going-concern basis which assumes
that the Company will realize its assets and discharge its liabilities in the
normal course of business. The Company incurred an operating loss of $ 7,447,850
for the year ended December 31, 1999 (1998 - $4,477,518) and reported a deficit
at that date of $16,860,784 (1998 - $9,254,790). In addition, projected cash
flows from the Company's current operations are not sufficient to finance the
Company's current and projected working capital requirements. The circumstances,
together with the requirements to continue investing in research and development
activities to meet the Compnay's growth objectives and without assurance of
broad commercial acceptance of the Company's products, lend some doubt as to the
ability of the Company to continue in normal business operations. In recognition
of this issue, the Company entered into an underwriting on December 23, 1999
thereby raising $10 million. The ability of the Company to continue as a going
concern is dependent upon obtaining adequate sources of financing and developing
and maintaining profitable operations. Should the Company be 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.
2. NATURE OF OPERATIONS
WaveRider Communications Inc. (formerly Channel i Inc.), incorporated in 1987
under the laws of the state of Nevada, is a public company traded on the OTC
Bulletin Board using the trading symbol WAVC.
The Company develops and markets wireless data communications products,
throughout the world, focusing on Internet connectivity. The Company's primary
market is telecommunications companies and Internet Service Providers (ISP's)
supplying high speed wireless internet connectivity to their customers. A
significant secondary market is that of Value Added Resellers, either directly
or through distribution, to allow them to supply their customers with wireless
connectivity for local area networks.
3. 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 (USA) Inc., a Nevada Corporation,
WaveRider Communications (Canada) Inc., a British Columbia company, and
JetStream Internet Services Inc., a British Columbia company.
The Company's consolidated financial statements are prepared in accordance with
generally accepted accounting principles in the United States of America.
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.
Revenue recognition and deferred revenue -The Company generally recognizes
product revenue upon shipment of product unless there are significant
post-delivery obligations or collection is not considered probable at the time
of sale. When significant post-delivery obligations exist, revenue is deferred
until such obligations are fulfilled. Revenue from service obligations is
deferred and generally recognized ratably over the period of the obligation. The
Company accrues for warranty costs, sales returns, and other allowances at the
time of shipment based on its experience.
Fees billed for internet services on long-term service contracts are recognized
over the period of the contracts.
31
WaveRider Communications Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. dollars)
Years ended December 31, 1999, 1998 and from inception on August 6, 1987 to
December 31, 1999
Financial instruments - Financial instruments are initially recorded at
historical cost. If subsequent circumstances indicate that a decline in the fair
value of a financial asset is other than temporary, the financial asset is
written down to its fair value. Unless otherwise indicated, the fair values of
financial instruments approximate their recorded amounts.
By their nature, all financial instruments involve risk, including credit risk
for non-performance by counterparties. The contract or notional amounts of these
instruments reflect the extent of involvement WaveRider has in particular
classes of financial instruments. The maximum potential loss may exceed any
amounts recognized in the Consolidated Balance Sheets. However, WaveRider's
maximum exposure to credit loss in the event of nonperformance by the other
party to the financial instruments for commitments to extend credit and
financial guarantees is limited to the amount drawn and outstanding on those
instruments. WaveRider seeks to reduce credit risk on financial instruments by
dealing only with financially secure counterparties. Exposure to credit risk is
controlled through credit approvals, credit limits and monitoring procedures.
WaveRider seeks to limit its exposure to credit risks in any single country or
region.
By virtue of its international operations, the Company is exposed to
fluctuations in currency. WaveRider manages its exposure to these market risks
through its regular operating and financing activities. The Company is subject
to foreign currency risk on its Canadian business activities.
The fair values of cash on deposit with commercial banks, accounts receivable
and accounts payable and accrued liabilities approximate recorded amounts
because of the short period to receipt or payment of cash.
Cash and cash equivalents - All liquid investments having an original maturity
not exceeding three months are treated as cash equivalents.
Inventory - Inventory is stated at the lower of cost and net realizable value.
Cost is determined on the weighted average cost basis.
Fixed assets - Fixed assets are recorded at cost and depreciated over the
estimated lives of the assets, commencing at the time the assets are put into
use, as follows:
- Computer software - 50% - declining balance
- Computer equipment - 30% - declining balance
- Lab equipment and tools - 25% - declining balance
- Equipment and fixtures - 20% - declining balance
- Leasehold improvements - 2 years - straight line
Foreign currency translation - The Company's functional currency is the United
States dollar. Monetary assets and liabilities denominated in foreign currencies
are translated into United States dollars at the exchange rate prevailing at the
balance sheet date. Other assets, liabilities and operating items are translated
at exchange rates prevailing at the respective transaction dates. Resulting
translation adjustments are included in the consolidated statement of loss.
Income taxes - Income taxes are accounted for in accordance with the Statement
of Financial Accounting Standards ("SFAS") No. 109 "Accounting for Income
Taxes". Under this method, deferred tax assets and liabilities are determined
based on differences between the financial reporting and income tax bases of
assets and liabilities and are measured using the tax rates and laws currently
enacted. Valuation allowances are established, when necessary, to reduce
deferred tax assets when realization is less likely than not.
32
WaveRider Communications Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. dollars)
Years ended December 31, 1999, 1998 and from inception on August 6, 1987 to
December 31, 1999
Stock options - The Company applies SFAS 123, together with APB 25 as permitted
under SFAS 123, in accounting for its stock option plan. Accordingly, the
Company uses the intrinsic value method to measure the costs associated with the
granting of stock options to employees and this cost is accounted for as
compensation expense in the consolidated statement of loss over the option
vesting period or upon meeting certain performance criteria. In accordance with
SFAS 123, the Company discloses the fair values of stock options issued to
employees. Stock options issued to outside consultants are valued at their fair
value and charged to the consolidated statement of loss in the period in which
the services are rendered.
Research and development costs - Research and development costs are charged to
expense as incurred.
Acquired core technologies - Acquired research and development costs are
recorded at cost and amortized using the straight-line method over a period of
three years. The value of the acquired research and development is regularly
evaluated and, in the event that the carrying amount exceeds the related
estimated net cash flows on a non discounted basis, the acquired research and
development is written down.
Goodwill - Goodwill is recorded at cost and amortized using the straight-line
method over a period of three years. The value of goodwill is regularly
evaluated and, in the event that the carrying amount exceeds the related
estimated net cash flows on a non discounted basis, goodwill is written down.
4. ACQUISITION OF SUBSIDIARIES
WaveRider Communications (Canada) Inc. - On May 13, 1997, the Company acquired
all of the shares of WaveRider Communications (Canada) Inc. (formerly Major
Wireless Communications Inc.) in exchange for the issue of 4,000,000 Series B
voting convertible preferred shares having a par value of $0.001 per share. The
Series B preferred shares were convertible into common shares at a ratio of 10
common shares for each preferred share.
On April 15, 1998, the Company completed an agreement with the holders of the
Series B preferred shares to reduce their ratio to 2.5 common share for each
preferred share. At the same time, all Series B preferred shares were converted
to common shares. As specified in the original share exchange agreement, the
common shares issued upon conversion of the Series B preferred shares are held
in escrow and will be released upon achievement of certain levels of
performance. In the event that all the shares are not released before May 13,
2002, the remaining escrowed shares will be cancelled. At the discretion of the
Company's Board of Directors, the cancellation date may be extended for a
maximum of two years.
During the third quarter of 1999, and prior to any release of the escrow shares,
two of the shareholders agreed to donate back to the Company 500,000 shares
each. These shares have been received by the Company and returned to treasury.
The first milestone related to the release of the common shares held in escrow
was met with the delivery of prototype product on August 18, 1999. As a result,
the first 5% of the shares held under the Escrow Agreement, valued at $534,375,
were released. The valuation was based on the closing price of the common stock
on August 18, 1999 of $1.1875 per share.
At the time, there was no reasonable assurance of future revenue to allocate a
portion of the value of this share release to acquired in process research and
development or to acquired core technology. Accordingly, the cost of $534,375
was charged to goodwill in the third quarter of 1999.
The balance of the shares will be considered to be issued when the performance
events contemplated in the Escrow Agreement have occurred and the shares will be
valued and recorded at that date.
33
WaveRider Communications Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. dollars)
Years ended December 31, 1999, 1998 and from inception on August 6, 1987 to
December 31, 1999
Jetstream Internet Services Inc. - On August 1, 1997, Jetstream Internet
Services Inc., a newly created subsidiary, acquired as a going concern all of
the assets and liabilities of an internet service provider in the Province of
British Columbia, Canada. The acquisition was accounted for using the purchase
method of accounting with the purchase price assigned as follows:
Current assets .... $ 9,869
Current liabilities (76,989)
Equipment ......... 27,315
Goodwill .......... 78,656
--------
Cash consideration $ 38,851
========
WaveRider Communications (USA) Inc. - Effective June 11, 1999, the Company
acquired, through a merger with the Company's newly formed subsidiary, TTI
Merger Inc., all of the issued and outstanding shares of Transformation
Techniques, Inc. ("TTI"). Subsequently the subsidiary changed its name to
WaveRider Communications (USA) Inc.
TTI was a designer and manufacturer of wireless radio frequency communications
systems, offering wireless data, bridging and LAN connectivity systems in both
licensed and unlicensed frequencies. It had product design, manufacturing and
head office facilities in Cleveland, Ohio as well as sales and support
operations in California and Louisiana.
The transaction, accounted for as a purchase, is summarized as follows:
Other current assets ........................................ $ 345,265
Bank indebtedness ........................................... (401,303)
Accounts payable and accrued liabilities .................... (593,582)
Deferred tax liability ...................................... (504,000)
-----------
Net liabilities assumed ..................................... (1,153,620)
Goodwill .................................................... 504,000
Acquired core technologies .................................. 1,444,605
-----------
Total consideration received ................................ $ 794,985
===========
Cash paid on closing ........................................ $ 253,985
Issuance of shares, including reset shares
issued pursuant to certain market value
share performance provisions -
384,588 shares of common stock .............................. 442,000
Note payable, included in accounts payable
and accrued liabilities ..................................... 99,000
-----------
Total consideration given ................................... $ 794,985
===========
The cash effect of this transaction is summarized as follows:
Bank indebtedness acquired .................................. $ 401,303
Cash paid on closing ........................................ 253,985
-----------
Net cash paid ............................................... $ 655,288
===========
34
WaveRider Communications Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. dollars)
Years ended December 31, 1999, 1998 and from inception on August 6, 1987 to
December 31, 1999
The following summarizes certain supplementary pro forma disclosure assuming
that the acquisition had occurred at the beginning of 1998:
1999 1998
-----------------------------------
(unaudited) (unaudited)
Pro forma consolidated revenue $ 2,369,510 $ 2,506,709
===================================
Pro forma consolidated net loss $ (7,755,009) $ (4,611,154)
===================================
Pro forma consolidated basic and
fully diluted loss per share $ (0.23) $ (0.18)
===================================
5. ACCOUNTS RECEIVABLE
1999 1998
-----------------------------------
Accounts receivable - trade $665,525 $ 52,281
Other receivables 108,410 22,237
Allowance for doubtful accounts ( 66,316) (3,261)
-----------------------------------
$ 707,619 $ 71,257
===================================
6. INVENTORIES
1999 1998
-----------------------------------
Finished products $ 161,350 $ 128,740
Raw materials 448,013 21,754
-----------------------------------
$ 609,363 $ 150,494
===================================
7. FIXED ASSETS
Accumulated Net Book Accumulated Net Book
Depreciation/ Value Depreciation/ Value
Cost Amortization 1999 Cost Amortization 1998
-----------------------------------------------------------------------------------
Computer software $ 520,254 $ 275,933 $ 244,321 $ 326,079 $ 139,187 $ 186,892
Computer equipment 411,122 121,688 289,434 259,405 53,597 205,808
Lab equipment and tools 445,023 139,773 305,250 370,043 56,501 313,542
Equipment and fixtures 142,977 33,406 109,571 99,755 14,335 85,420
Leasehold improvements 73,113 43,529 29,584 40,242 23,373 16,869
-----------------------------------------------------------------------------------
$ 1,592,489 $ 614,329 $ 978,160 $ 1,095,524 $ 286,993 $ 808,531
===================================================================================
Computer software includes $6,346 (1998 - Nil) net of accumulated depreciation
of $3,935 (1998 - Nil), Computer equipment includes $11,584 (1998 - Nil) net of
accumulated depreciation of $3,838 (1998 - Nil), Lab Equipment and tools
includes $144,329 (1998 - $ 119,787) net of accumulated depreciation of $53,052
(1998 - $15,145) and Equipment and fixtures includes $29,933 (1998 - Nil) net of
accumulated depreciation of $2,112 (1998 - Nil) related to capital leases.
35
WaveRider Communications Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. dollars)
Years ended December 31, 1999, 1998 and from inception on August 6, 1987 to
December 31, 1999
8. ACQUIRED CORE TECHNOLOGIES
1999 1998
----------------------------------
Cost (Note 4) $ 1,444,605 $ -
Less: accumulated amortization (240,768) -
----------------------------------
$ 1,203,837 $ -
==================================
9. GOODWILL
1999 1998
----------------------------------
Cost (Note 4 and 12B(iv) $ 1,117,031 $ 78,656
Less: accumulated amortization (204,862) (36,091)
-----------------------------------
$ 912,169 $ 42,565
==================================
10. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
1999 1998
----------------------------------
Accounts payable - trade $ 1,082,733 $ 121,339
Accrued liabilities - trade 262,489 332,191
Accrued salaries and benefits 309,179 270,243
Accrued cost of private share placement - 218,419
----------------------------------
$ 1,654,401 $ 942,192
==================================
11. COMMITMENTS
Obligation under Capital Lease
1999 1998
----------------------------------
Gross Lease commitments:
1999 $ - $ 63,517
2000 95,820 13,640
2001 24,919 -
2002 273 -
----------------------------------
121,012 77,157
Less: imputed interest (34,314) (10,441)
----------------------------------
86,698 66,716
Less: current portion (68,073) (54,161)
----------------------------------
Long-term obligation under capital lease $ 18,625 $ 12,555
==================================
36
WaveRider Communications Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. dollars)
Years ended December 31, 1999, 1998 and from inception on August 6, 1987 to
December 31, 1999
Operating Leases
2000 $ 214,399
2001 181,503
2002 177,795
2003 177,795
2004 60,067
12. SHARE CAPITAL
A Authorized share capital
Preferred shares issuable in series, par value of $0.001 - 5,000,000
shares Common shares, par value of $0.001 - 100,000,000 shares
B Issued share capital
i) Common share units - On February 3, 1997, the Company issued 1,785,000
common share units at a price of $0.05 per unit for cash proceeds of
$89,250. Each unit consisted of one common share and four Series A
warrants. Based on the fair value of the underlying instruments within
the common share unit, $50,208 of the total proceeds was allocated to
common shares and the balance of $39,042 was allocated to the Series A
warrants. Each Series A warrant entitled the holder to purchase one
common share at $0.0625 per share on or before August 3, 1997. In July
and August 1997, all the warrants were exercised for cash proceeds of
$446,250.
ii) Series A preferred share units - On February 6, 1997, the Company
issued 298,125 preferred share units at a price of $0.65 per unit for
cash proceeds of $193,782. Each unit consisted of one Series A voting
preferred share, convertible immediately into 10 common shares for no
additional consideration, and three warrants (Series B, C and D). Based
on the fair value of the underlying instruments within the preferred
share unit, $130,934 of the total proceeds was allocated to preferred
shares and $26,239, $20,426 and $16,183 was allocated to the Series B
warrants, Series C warrants and Series D warrants, respectively. As the
preferred shares were immediately convertible into common shares, the
$62,848 difference between the proceeds allocated to preferred shares
and the fair value of the underlying common shares has been recorded as
a dividend in 1997. Each warrant entitled the holder to purchase one
common share at the following respective exercise prices of $0.085
(Series B), $0.105 (Series C) and $0.125 (Series D) on or before
February 6, 1998.
Immediately after the units were sold, the preferred shares were
converted into 2,981,250 common shares. During the 3rd quarter of 1997,
2,238,750 warrants were exercised for cash proceeds of $235,068. During
the 4th quarter of 1997, 5,213,822 warrants were exercised for cash
proceeds of $547,452. During the 1st quarter of 1998, the remainder of
the warrants, 1,491,178, were exercised for cash proceeds of $156,573.
iii) Common share units - On February 16, 1998, the Company issued 500,000
common share units at a price of $1.00 per unit for cash proceeds of
$500,000. Each unit consisted of one common share and a Series E
warrant. Based on the fair value of the underlying instruments within
the common share unit, $404,713 of the total proceeds was allocated to
common shares and the balance of $95,287 was allocated to the Series E
warrants. The Series E warrants entitled the holder to purchase one
common share at $1.25 per share on or before February 16, 1999.
37
During the 2nd quarter of 1998, 410,000 of the warrants were exercised
for cash proceeds of $512,500. During the 4th quarter of 1998, 60,000
warrants were exercised for cash proceeds of $75,000. The remaining
30,000 were exercised during the 1st quarter of 1999 for cash proceeds
of $37,500.
iv) Series B preferred shares - 4,000,000 Series B preferred shares were
issued upon the acquisition of Major Wireless Communication Inc. (note
4). The shares were voting and convertible into common shares at a
ratio of ten common shares for each preferred share. Each preferred
share entitled the holder to 10 votes.
The shares were held in escrow to be released upon occurrence of
certain performance related events. If the events had not occurred by
May 13, 2002, the remaining shares held in escrow would be cancelled.
On April 15, 1998, the Company and the Series B preferred shareholders
agreed to amend the terms of the preferred shares. The conversion ratio
was amended to a ratio of 2.5 common shares for each preferred share.
On the same date, the preferred shares were converted into 10,000,000
common shares. These common shares are held in escrow and will be
released upon the occurrence of certain performance related events. If
the specified criteria have not been met by May 13, 2002, the remaining
common shares held in escrow will be cancelled. The Board of Directors
may extend the escrow period by up to two years.
During the third quarter of 1999, and prior to any release of the
escrow shares, two of the shareholders agreed to donate back to the
Company 500,000 shares each. These shares have been received by the
Company and returned to treasury.
The first milestone related to the release of the common shares held in
escrow was met with the delivery of prototype product on August 18,
1999. As a result, the Company requested and the Escrow Agent released
the first 5% of the shares held under the Escrow Agreement, valued at
$534,375. The valuation was based on the closing price of the common
stock on August 18, 1999, of $1.1875 per share.
As the remainder of the shares are held in escrow, the number of shares
outstanding and the par value ascribed is not recorded in the
respective share capital accounts. The shares will be considered to be
issued when the respective performance events have occurred and the
value of the shares will be measured and recorded at that date.
v) 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 4, 1999, the Company issued 1,660,945 common share in the
Second Tranche 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.
During 1999, the Company issued 1,002,441 common shares pursuant to the
reset provisions of the First Tranche and 1,753,812 common shares
pursuant to the reset provisions of the Second Tranche. In addition,
the Company issued 70,198 common shares pursuant to an agreement to
amend the timing of the resets of the Second Tranche. The $92,100 fair
value of this transaction was included in share issue costs for the
year. The $1,050,000 value of the 17.5% premium over the Reset Price
has been recorded as a dividend in 1999. During the third quarter of
1999, the Company informed the investors that it would not be taking up
its option to sell the Third and Final Tranche of shares to the
investors.
38
WaveRider Communications Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. dollars)
Years ended December 31, 1999, 1998 and from inception on August 6, 1987 to
December 31, 1999
In 1998, as part of the agreement, the Company issued to the investors
four groups of warrants as follows: 225,000 with an exercise price of
$2.00, 225,000 with an exercise price of $2.61, 225,000 with an
exercise price of $3.00 and 225,000 with and exercise price of $4.00.
Each warrant entitles the holder to acquire one common share at the
specified exercise price. The warrants expire on December 29, 2003.
Cost of the transactions included fees of $142,508 related to the
Second Tranche and $298,419 related to the First Tranche. In addition,
150,000 warrants with a fair value of $103,686 were issued, in 1998, to
a placement agent. Each warrant entitles the holder to acquire one
common share at an exercise price of $3.00 per share. The warrants
expire on December 29, 2003.
The initial proceeds less costs of the First Tranche have been
allocated between common stock and warrants, based on the respective
relative fair values, as follows:
Common stock $2,136,846
$2.00 warrant 124,980
$2.61 warrant 117,662
$3.00 warrant 113,607
$4.00 warrant 104,800
None of the warrants were exercised during the year.
vi) Series C Preferred share units - On June 11, 1998, the Company issued
800,000 preferred share units at a price of $2.50 per unit for cash
proceeds of $2,000,000, less costs of $50,000. Each unit consisted of
an 8% voting, convertible preferred share and one Series F warrant.
Each preferred share may be converted at the option of the holder into
one common share for no additional consideration on or before April 30,
2000. Based upon the fair value of the underlying instruments within
the preferred share unit, $1,536,343 of the total proceeds, net of
costs, was allocated to preferred shares and $413,657 was allocated to
the Series F warrants. As the preferred shares were immediately
convertible into common shares, the $712,265 difference between the
proceeds allocated to preferred shares and the fair value of the
underlying common shares has been recorded as a dividend in 1998.
Each Series F warrant entitles the holder to purchase one common share
at the exercise price of $2.50 on or before June 11, 2000.
During the year, 36,000 share of preferred stock were converted to
common shares and none of the warrants were exercised.
vii) Series G Warrants - As a commitment fee for the right to issue up to
$2,000,000 in convertible debentures to certain investors, the Company
issued the investors warrants to purchase 500,000 common shares at an
exercise price of $1.50 per share. The warrants expire on December 15,
2003. The warrants have been recorded at their fair value of $313,325
with the costs charged to the consolidated statement of loss in 1998.
The Company terminated the debenture agreement on January 8, 1999
without drawing any funds.
viii) Common Stock issued upon 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.
39
As part of the consideration, WaveRider issued 256,232 shares of common
stock, having a market value of $442,000 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.
Pursuant to the Acquisition Agreement, WaveRider was required to issue
additional shares to Mr. Peter Bonk if the average bid price for the
common stock for 5 days prior to certain future dates ("Reset Price")
fell below the original price of the shares at acquisition. During the
third quarter the Company issued 57,463 common shares pursuant to the
first reset. During the fourth quarter, the Company issued a further
70,893 common shares pursuant to the second and the third resets. The
additional shares issued do not affect the cost of the acquired
company. WaveRider has now satisfied this requirement and there are no
further resets (Note 4).
ix) Series H Warrants - On June 29, 1999, the Company issued, for services
rendered, warrants to purchase 500,000 common shares at an exercise
price of $2.00 per share, up to June 29, 2004. The warrants have been
recorded at their fair value of $295,120 with the costs charged to the
consolidated statement of loss in 1999.
x) Loan Agreement - On October 15, 1999, the Company entered into a loan
agreement with AMRO International, S.A. ("AMRO") under which the
Company borrowed from AMRO $1,500,000 payable on or before May 23,
2000. Under the terms of the agreement, the Company paid interest at
10% per annum and was subject to a repayment premium of 5% of the
outstanding balance if the loan was repaid within 120 days or a 10%
premium if paid after 120 days.
Pursuant to a loan agreement the Company issued warrants to purchase
180,000 common shares at an exercise price of $1.01 per share, up to
October 31, 2003. The warrants have been recorded at their fair value
of $64,978 with the costs charged to the consolidated statement of loss
in 1999.
The loan was repaid in full on December 23, 1999. None of the warrants
were exercised in 1999.
xi) Common Stock Purchase Agreement - Under a Common Stock Purchase
Agreement, dated October 18, 1999, the Company agreed to sell and the
investor to buy up to $5,000,000 in common shares of the Company.
Pursuant to the agreement the Company issued warrants to purchase
200,000 common shares at an exercise price of $1.01 per share, up to
October 31, 2003. The warrants have been recorded at their fair value
of $72,198 with the costs charged against the investment made in
December.
In December, the investor purchased 400,000 shares of common stock at
$1.35 per share, for cash proceeds of $540,000 less fees $33,400.
In connection with the public underwriting completed on December 23,
1999, the investor agreed to the termination of the Common Stock
Purchase Agreement and committed to purchase $4,000,000 in common stock
units. During 1999, the investor purchased 1,525,926 common share
units, consisting of one common share and a half of a common share
purchase warrant, at $1.35 per unit, for cash proceeds of $2,060,000,
less fees of $125,600. Based on the fair value of the underlying
instruments within the common share unit, $1,625,815 of the total
proceeds was allocated to common shares and the balance of $308,585 was
allocated to the warrants.
xii) Public Underwriting - On December 20, 1999, the Company entered into an
Underwriting Agreement with Groome Capital.com Inc. ("Groome"). Under
the terms of the agreement, the Company sold 4,444,444 common stock
units, consisting of one common share and one-half common share
purchase warrant, for $1.35 per unit. The sale of units was completed
on December 23, 1999 and the Company received cash proceeds of
$6,000,000 less fees of $607,500. In addition, the Company issued to
Groome with 444,444 Underwriter warrants which provide Groome with the
right to purchase 444,444 common share units at $1.35 per unit for up
to 2 years after the offering. Based on the fair value of the
underlying instruments within the common share unit, $4,069,664 of the
total proceeds was allocated to common shares, $898,792 was allocated
to the share purchase warrants and the balance of $424,044 was
allocated to the Underwriter warrants
40
WaveRider Communications Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. dollars)
Years ended December 31, 1999, 1998 and from inception on August 6, 1987 to
December 31, 1999
xiii) Issued for services rendered - In the first and second quarter of 1997,
the Company issued 908,000 common shares to individuals for services
rendered. The fair value of the service, in the amount of $58,250, has
been charged to the consolidated statement of loss in 1997.
C Warrants
The Company has several series of warrants outstanding at December 31,
1999 as follows:
Number Weighted-Average
Exercise Prices Outstanding Remaining Life
$1.01 380,000 46 months
$1.35 444,444 24 months
$1.50 500,000 48 months
$2.00 3,710,185 30 months
$2.50 800,000 6 months
$2.61 225,000 48 months
$3.00 375,000 48 months
$4.00 225,000 48 months
--------------
$1.01 - $4.00 6,659,629
--------------
D Other Equity
1999 1998 1997
-----------------------------------
Stock options to non-employees $ 177,130 $ 206,348 $ 118,158
Stock options to employees that
vested on performance 32,763 - -
Warrants 3,355,434 1,297,434 10,479
-----------------------------------
$3,565,327 $1,503,782 $ 128,637
===================================
E Employee Stock Option Plans
1994 Compensatory Stock Option Plan-
In January 1997, the Company entered into employment and consulting agreements
with various parties. Under these agreements, the parties were granted options
to purchase 967,000 shares of the Company's common stock at $0.0625 per share.
93,200 of these options were exercised in the third quarter of 1997 with the
balance being exercised in the fourth quarter of 1997 for total cash proceeds of
$60,437. This plan was terminated in 1997.
41
WaveRider Communications Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. dollars)
Years ended December 31, 1999, 1998 and from inception on August 6, 1987 to
December 31, 1999
Employee Stock Option (1997) Plan -
During 1997, the Company authorized an Employee Stock Option Plan for a total of
5,000,000 common shares that may be awarded to employees and certain
consultants. During 1998, the Company amended the plan to authorize an
additional 1,250,000 common shares. Each option under the incentive plan allows
for the purchase of one common share and expires not later than three years from
the date granted. The options are subject to various vesting and performance
requirements as outlined in the plan and any unvested options may be cancelled
if employment is terminated. Generally, for employees the options vest at 5% per
complete month from date of award and for non-employees are earned out over
their contract period.
1999 Incentive and Nonqualified Stock Option Plan -
During 1999, the Company authorized a new option plan for a total of 3,000,000
common shares that may be awarded to the employees and certain consultants. Each
option under the incentive plan allows for the purchase of one common share
which expire not later than ten years from the date of grant. The options are
subject to various vesting and performance requirements as outlined in the plan
and any unvested options may be cancelled if employment is terminated.
Generally, for employees the options vest equally over a three year period
following the date of award.
Stock options to employees, directors and consultants are summarized as follows:
Weighted
Average
Granted to employees and directors Number Exercisable exercise price
Granted to employees & directors at $0.25 - $0.70 2,083,540 0.48
Cancelled on termination (265,288) 0.25
- -----------------------------------------------------------------------------------------------------
Balance at December 31, 1997 1,818,252 262,466 $ 0.48
Granted to employees & directors @ $0.94 - $3.44 2,709,400 1.32
Cancelled on termination (140,080) 0.99
Exercised (372,062) 0.46
- -----------------------------------------------------------------------------------------------------
Balance at December 31, 1998 4,015,510 2,596,641 0.92
Granted to employees & directors @ $0.78 - $2.66 2,754,610 1.82
Cancelled on termination (259,180) 2.61
Exercised (282,440) 0.49
- -----------------------------------------------------------------------------------------------------
Balance at December 31, 1999 6,228,500 3,196,447 $ 1.31
- -----------------------------------------------------------------------------------------------------
42
WaveRider Communications Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. dollars)
Years ended December 31, 1999, 1998 and from inception on August 6, 1987 to
December 31, 1999
Weighted
Average
Granted to consultants Number Exercisable exercise price
- -----------------------------------------------------------------------------------------
Granted to consultants at $0.25 - $0.50 2,560,000 0.44
Exercised (500,000) 0.30
- -----------------------------------------------------------------------------------------
Balance at December 31, 1997 2,060,000 390,000 $ 0.47
Granted to consultants @ $0.98 - $1.82 95,000 1.22
Cancelled by agreement (880,465) 0.50
Cancelled for non-performance (10,000) 1.82
Exercised (579,500) 0.49
- -----------------------------------------------------------------------------------------
Balance at December 31, 1998 685,035 189,125 0.51
Granted to consultants @ $2.09 6,000 2.09
Cancelled for non-performance (70,000) 0.44
Exercised (93,000) 0.45
- -----------------------------------------------------------------------------------------
Balance at December 31, 1999 528,035 154,102 $ 0.54
- -----------------------------------------------------------------------------------------
Number Weighted average Number Weighted average
Range of Outstanding at exercise price of Weighted average Exercisable at Exercise price
Exercise December 31 outstanding remaining life December 31, of exercisable
Prices 1999 options (months) 1999 options
- ----------------------- --------------------- -------------------- --------------------- ----------------- ---------------------
$0.25 - $0.50 621,535 $ 0.45 8 270,477 $ 0.38
$0.56 1,000,000 $ 0.56 11 50,000 $ 0.56
$0.70 - $1.07 1,922,750 $ 1.03 84 1,653,063 $ 1.05
$1.14 - $1.91 1,107,900 $ 1.48 72 946,125 $ 1.47
$2.00 - $3.44 2,104,350 $ 2.11 58 430,884 $ 2.35
The fair value of each stock option granted to consultants was estimated on the
date the consultant earned the option using the Black-Scholes option-pricing
model. The following weighted average assumptions were used in the model: nil
annual dividends (1998 - nil, 1997 - nil), expected volatility of 90% (1998 -
90%, 1997 - 90%), risk-free interest of 5.76% (1998 - 5.47%, 1997 - 5.76%) and
expected life of 3 years (1998 - 3 years, 1997 - 3 years). The weighted average
fair value of the stock options granted in 1999 was $1.41 (1998 - $0.71, 1997 -
$0.49). The resulting values have been charged to the consolidated statement of
loss over the contract period of the consultant. The amount charged to the
consolidated statement of loss in 1999 was $70,412 (1998 - $341,809, 1997 -
$289,830)
For disclosure purposes, the fair value of each stock option granted to
employees was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions used for
stock options granted in 1999: nil annual dividends (1998 - nil, 1997 - nil),
expected volatility of 90% (1998 - 90%, 1997 - 90%), risk-free interest of 5.76%
(1998 - 5.36%, 1997 - 5.77%) and expected life of 2 years (1998 - 2 years, 1997
- - 2 years). The weighted average fair value of the stock options granted in 1999
was $1.08 (1998 - $0.53, 1997 - $0.15).
43
WaveRider Communications Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. dollars)
Years ended December 31, 1999, 1998 and from inception on August 6, 1987 to
December 31, 1999
Under the above model, the total value of stock options granted to employees and
directors in 1999 was $2,612,610 (1998 - $1,397,068), which would be amortized
on a pro forma basis over the option vesting period. Had the Company determined
compensation cost for these plans in accordance with SFAS No. 123, the Company's
loss and loss per share would have been $10,086,384 and $0.29 respectively (1998
- - $5,662,881 and $0.20, 1997 - $1,344,584 and $0.11).
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's stock option plans have characteristics significantly different
from those of traded options, and because change in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
Shareholder option agreement -
In November 1997, certain shareholders agreed to provide the Company's President
with a private option to purchase 1,000,000 common shares directly from the
shareholders. These options vested at the rate of 150,000 options per month of
employment.
For disclosure purposes, the fair value of this private option was estimated on
the date of grant using the Black-Scholes option-pricing model with the
following weighted average assumptions used for stock options granted in 1999:
nil annual dividends (1998 - nil, 1997 - nil), expected volatility of 90% (1998
- - 90%, 1997 - 90%), risk-free interest of 5.76% (1998 - 5.36%, 1997 - 5.71%) and
expected life of 2 years (1998 - 2 years, 1997 - 2 years). Had the Company
determined compensation cost for these options in accordance with SFAS No. 123,
the Company's 1999 pro forma loss and pro forma loss per share would not have
changed (1998 -increased by $238,000 and $0.01, 1997 - increased by $42,000 and
$0.01)
F. Employee Stock Compensation (1997) Plan - During 1997, the Company authorized
an Employee Stock Compensation Plan for a total of 2,500,000 common shares that
may be awarded to employees and certain consultants. During 1999, the Company
authorized the issuance of 267,870 (1998 - 2,500, 1997 - Nil ) shares pursuant
to the plan. The value of these shares at the date of the award was recorded in
the Statement of Loss during the year.
13. NET CHANGES IN NON-CASH WORKING CAPITAL ITEMS RELATING TO OPERATIONS
1999 1998 1997
--------------------------------------------------
Accounts receivable $ (502,714) $ (10,932) $ (47,176)
Prepaid and other assets (98,027) (18,602) 12,802
Inventory (250,946) (136,664) (19,656)
Accounts payable and accrued liabilities (955) 708,658 47,805
Deferred revenue 1,477 17,684 24,155
---------------------------------------------------
$ (851,165) $ 560,144 $ 17,930
===================================================
14. RELATED PARTY TRANSACTIONS
During the year, a total of $ 29,093 was paid or payable to directors and
officers or to companies related to them for the fair value of their management
and administrative services.
44
15. PRIOR PERIOD ADJUSTMENTS
During the year ended December 31, 1998, it was determined that the Company had
not accounted for stock options issued for services rendered by outside
consultants, nor for the purchase of Major Wireless Communications Inc., as
required by generally accepted accounting principles. As a result, the 1997
consolidated financial statements have been restated to include the fair value
of options issued to consultants. These changes, which had no net impact on the
Company's cash flow results, have affected the prior reported financial results
as follows:
Year Ended December 31, 1997 Inception to Dec. 31, 1997
----------------------------------------------------------------
Restated Originally Restated Originally
Information Reported Information Reported
Sales, general and administration $ 962,346 $ 702,492 $ 3,429,558 $ 3,169,704
Research and development 405,705 379,729 491,403 465,427
Depreciation and amortization 12,570 12,570 80,427 80,427
Total expenses 1,380,621 1,094,791 4,001,388 3,715,558
----------------------------------------------------------------
NET LOSS $ (1,324,960) $(1,039,130) $ (3,922,159) $ (3,636,329)
BASIC AND FULLY DILUTED
LOSS PER SHARE $ (0.11) $ (0.08) $ (1.62) $ (1.48)
================================================================
SHAREHOLDERS' EQUITY
Share Capital $ 4,506,289 $ 4,286,248
Other Equity 128,637 -
Deficit accumulated during
development stage (3,985,007) (3,636,329)
---------------------------
$ 649,919 $ 649,919
===========================
In addition, note disclosure has been modified for the 1997 comparative figures
to conform with generally accepted accounting principles.
16. INCOME TAXES
The Company's income tax provision has been determined as follows:
1999 1998 1997
----------------------------------------------
Net loss before taxes $ 7,951,850 $ 4,477,518 $ 1,324,960
==============================================
Income taxes at 36.00% (1998 - 42.54%, 1997 - 42.54%) $ 2,863,000 $ 1,904,740 $563,600
Decrease resulting from permanent non-tax
deductible expense (67,300) (144,000) -
Tax benefit of losses not recognized in the accounts,
included in valuation allowance (2,795,700) (1,760,740) (563,600)
----------------------------------------------
$ - $ - $ -
==============================================
45
WaveRider Communications Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. dollars)
Years ended December 31, 1999, 1998 and from inception on August 6, 1987 to
December 31, 1999
At December 31, 1999, the Company had approximately $14,197,000 of non capital
losses available for income tax purposes. These losses are available to reduce
taxable income in future and expire as follows:
2009 $ 847,000
2010 316,000
2011 64,000
2012 181,000
2017 769,000
2018 4,339,000
2019 7,681,000
----------------
$ 14,197,000
================
1999 1998
------------------------------------
Tax benefit of losses carried forward for income tax purposes $ 5,111,000 $ 2,772,000
Carrying amount of acquired core technologies in excess of
value for tax purposes (420,000) -
------------------------------------
4,691,000 2,772,000
Less: timing difference amount recognized by drawdown/recording
of deferred taxes (420,000) -
Less: Valuation allowance (4,271,000) (2,772,000)
------------------------------------
$ - $ -
====================================
17. LOSS PER SHARE
Year ended December 31, 1999
Loss Shares Per share
(Numerator) (Denominator) Amount
Net Loss $ 7,447,850
Add: Cash dividends paid on Preferred shares in year 158,144
Deemed dividend on share resets (Note 12B(v)) 1,050,000
Convertible Preferred Shares -
-----------
Basic LPS
Loss attributable to common shareholders $ 8,655,994 34,258,565 $0.25
==========================================
Year ended December 31, 1998
Loss Shares Per share
(Numerator) (Denominator) Amount
Net Loss $ 4,477,518
Add: Dividends paid in year 80,000
Convertible Preferred Shares [Note 12 B(vi)] 712,265
-----------
Basic LPS
Loss attributable to common shareholders $ 5,269,783 29,485,320 $0.18
===========================================
46
WaveRider Communications Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. dollars)
Years ended December 31, 1999, 1998 and from inception on August 6, 1987 to
December 31, 1999
Year ended December 31, 1997
Loss Shares Per share
(Numerator) (Denominator) Amount
Net Loss $ 1,324,960
Add: Dividends paid in year -
Convertible Preferred Shares [Note 12 B(ii)] 62,848
-----------
Basic LPS
Loss available to common shareholders $ 1,387,808 12,299,522 $0.11
============================================
The warrants, options and convertible preferred shares outstanding at the end of
each year [Note 12] have not been included in the loss per share calculation as
they are anti-dilutive. The shares held in escrow pertaining to the Major
Wireless transaction [Note 4] have not been included from the loss per share
calculation as they are contingently issuable shares.
18. SEGMENTED INFORMATION
The Company's operates in two segments: wireless data communications and
Internet services.
Year ended December 31, 1999
Wireless Data Internet Services Total
REVENUE $ 1,566,587 $ 197,554 $ 1,764,141
COST OF SALES 1,225,194 69,621 1,294,815
--------------------------------------------------------
GROSS MARGIN 341,393 127,933 469,326
--------------------------------------------------------
EXPENSES
Selling, general and administration 5,240,945 116,642 5,357,587
Research and development 3,028,555 - 3,028,555
Depreciation and amortization 35,034 35,034
--------------------------------------------------------
8,269,500 151,676 8,421,176
--------------------------------------------------------
NET LOSS BEFORE TAXES (7,928,107) (23,743) (7,951,850)
DEFERRED TAX RECOVERY 504,000 - 504,000
--------------------------------------------------------
NET LOSS $ (7,424,107) $ (23,743) $ (7,447,850)
=========================================================
47
WaveRider Communications Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. dollars)
Years ended December 31, 1999, 1998 and from inception on August 6, 1987 to
December 31, 1999
Year ended December 31, 1998
Wireless Data Internet Services Total
REVENUE $ 90,238 $ 164,749 $ 254,987
COST OF SALES 13,445 62,022 75,467
--------------------------------------------------------
GROSS MARGIN 76,793 102,727 179,520
--------------------------------------------------------
EXPENSES
Selling, general and administration 2,721,525 85,656 2,807,181
Research and development 1,814,617 - 1,814,617
Depreciation and amortization 35,240 35,240
--------------------------------------------------------
4,536,142 120,896 4,657,038
--------------------------------------------------------
NET LOSS $(4,459,349) $(18,169) $ (4,477,518)
========================================================
Year ended December 31, 1997
Wireless Data Internet Services Total
REVENUE $ - $ 77,459 $ 77,459
COST OF SALES - 21,798 21,798
--------------------------------------------------------
GROSS MARGIN - 55,661 55,661
--------------------------------------------------------
EXPENSES
Selling, general and administration 906,661 55,685 962,346
Research and development 405,705 - 405,705
Depreciation and amortization - 12,570 12,570
--------------------------------------------------------
1,312,366 68,255 1,380,621
--------------------------------------------------------
NET LOSS $(1,312,366) $ (12,594) $ (1,324,960)
========================================================
The total assets for the Internet Service segment was less than $50,000 in each
of the periods. All Internet Service revenue was generated in Canada.
Wireless Data revenue in 1999 was $836,000 in the United States and $731,000 for
the rest of the world. All long lived assets of the Company are located in
Canada.
19. COMPARATIVE FIGURES
Certain comparative amounts have been reclassified to correspond with the
current year's presentation.
48
WaveRider Communications Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. dollars)
Years ended December 31, 1999, 1998 and from inception on August 6, 1987 to
December 31, 1999
20. SUBSEQUENT EVENTS
Share Transactions
As at February 14, 2000, the Company had issued 6,528,239 common shares
for cash consideration of $11,129,334, net of fees of $117,400, 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.
b) Conversion of Series C Preference Shares - holders of 132,000 shares of
Series C preference stock converted to 132,000 shares of common stock.
c) Exercise of Options - employees and former employees exercised 1,015,850
options to purchase common stock for cash proceeds of $1,041,734 and
non-employees exercised 88,625 options to purchase common stock for cash
proceeds of $53,684
d) Warrants - the following warrants and options were exercised
Number Cash
Exercise Prices Exercised Received
$1.35 444,444 $ 600,000
$2.00 2,677,035 5,354,070
$2.50 92,000 230,000
$2.61 225,000 587,250
$3.00 225,000 675,000
$4.00 191,249 764,996
---------------------------------------------------------------
$1.01 - $4.00 3,854,728 $ 8,211,316
---------------------------------------------------------------
In addition, warrants to purchase 150,000 shares of common stock at $2.00 were
exercised 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.
Memorandum of Understanding
On February 2, 2000, the Company entered into a memorandum of understanding
(MOU) with VoIP International S.A. de C.V. ("VoIP"), a company incorporated in
Mexico, pending a formal agreement. When the terms of the MOU are ratified by
formal agreement, WaveRider will grant 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 would issue to
VoIP 4,500,000 Common Stock Purchase Warrants which VoIP will earn based on
achievement of the minimum commitments.
49
SIGNATURES
In accordance with Section 13 or 15 (d) of the Securities Exchange Act
of 1934, the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: March 9, 2000 WAVERIDER COMMUNICATIONS INC.
By /s/ D. Bruce Sinclair
---------------------------------------------
D. Bruce Sinclair, President, Chief Executive
Officer and Director
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Company and in the capacities and on
the dates indicated.
Name Title Date
/s/ D. Bruce Sinclair President, Chief Executive March 9, 2000
- ---------------------
D. Bruce Sinclair Officer and Director
/s/ T. Scott Worthington Chief Financial Officer March 9, 2000
- ------------------------
T. Scott Worthington
/s/ Cameron A. Mingay Secretary/Director March 9, 2000
- ---------------------
Cameron A. Mingay
/s/ Gerry Chastelet Director March 9, 2000
- -------------------
Gerry Chastelet
/s/ John Curry Director March 9, 2000
- --------------
John Curry
/s/ Guthrie Stewart Director March 9, 2000
- -------------------
Guthrie Stewart
/s/ Dennis R. Wing Director March 9, 2000
- ------------------
Dennis R. Wing