SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
Of The Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, Use of the Commission Only (as permitted by Rule 14aB6(e)
(2)) Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ~240.14aB11(c) or ~ 240.14aB12
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WAVERIDER COMMUNICATIONS INC.
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
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Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ___ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on
which the filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ___ ] Fee paid previously with preliminary materials.
[ ___ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date of
its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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Notice of 2002 Annual Meeting of Shareholders
and Proxy Statement
Proxy Statement
Description of Business
Management's Discussion and Analysis
2001 Consolidated Finanacial Statements and Notes
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held July 9, 2002
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To our Shareholders:
You are cordially invited to attend the annual meeting of Shareholders of
WaveRider Communications Inc. (the "Company") to be held in Room 4 of the Le
Parc Conference and Banquet Centre, 8432 Leslie Street, Thornhill, Ontario
Canada L3T 7M6, on Tuesday, July 9, 2002, at 2:00 p.m. The purpose of the annual
meeting is to consider and vote upon the following matters, as more fully
described in the accompanying proxy statement:
(1) To elect five members of the board of directors, each
to serve until the next annual meeting of shareholders or
until his respective successor has been duly elected and
qualified.
(2) To approve the Company's Employee Stock Option (2002) Plan.
(3) To approve an amendment to the Company's Restated
Certificate of Incorporation to increase the authorized number
of shares of common stock from 200,000,000 to 400,000,000.
(4) To consider such other matters as may properly come before the
meeting.
The board of directors has fixed the close of business on May 7, 2002 as the
record date for the determination of shareholders entitled to receive notice of
and to vote at the annual meeting or any adjournment or postponement thereof.
YOUR VOTE IS IMPORTANT!
Please date, sign and return the accompanying proxy card promptly so
that we can be assured of having a quorum at the meeting and so that your shares
may be voted in accordance with your wishes. Doing so will assist the Company in
reducing the expenses of additional proxy solicitation.
Signing and returning the proxy card does not affect your right to vote
in person if you attend the meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Cameron A. Mingay
Cameron A. Mingay
Secretary
DATED: May 28, 2002
IMPORTANT
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING IN PERSON, TO ASSURE THAT
YOUR SHARES WILL BE REPRESENTED, PLEASE DATE, FILL IN, SIGN AND MAIL THE
ENCLOSED PROXY TO THE ADDRESS PROVIDED. YOUR PROXY WILL NOT BE USED IF YOU ARE
PRESENT AT THE ANNUAL MEETING AND DESIRE TO VOTE YOUR SHARES PERSONALLY.
May 28, 2002
Dear Fellow Stockholders:
The year 2001 was a challenging year - one of the most challenging that
I have experienced in 25 years of growing technology companies. WaveRider's
performance was impacted by the severe downturn in the telecommunications market
which combined with the struggles of the dot-com industry and the terrible world
events that occurred in 2001, has slowed the growth of the wireless broadband
sector.
To meet these challenges, WaveRider shifted its focus in the last half
of 2001 and the start of 2002 towards improving our cost structure, instituting
new efficiencies and improving our balance sheet. These initiatives have helped
to strengthen WaveRider and put us in a better position to emerge as a leader in
the turnaround of the broadband wireless market, which we hope will occur in
late 2002 and 2003.
While the 2001 results did not meet our expectations, WaveRider has
made great strides forward. At a time when the telecom sector faced massive
revenue declines, WaveRider saw revenue growth of 89%. More importantly, after
several years of development, WaveRider has completed development and started
the sales and deployments of our LMS non-line-of-sight (NLOS) wireless Internet
network. This product addresses two critical requirements to ensure that the
high-speed wireless Internet market achieves its potential of high growth and
wide usage, namely, non-line-of-sight capability and user-installation.
We recognize that our financial performance has not been what we, and
our shareholders, would have liked and we have taken what we believe are the
necessary steps to become a leaner, more focused and more fiscally sound
company. Throughout these tough times we have been heartened by the support of
our stakeholders and I would like to thank you for your continued support of
WaveRider.
You are invited to attend the 2002 Annual Meeting to be held on
Tuesday, July 9, in Markham, Ontario. In addition to electing 5 members of our
Board of Directors, we are asking shareholders to consider two important
proposals for our 2002 Annual Meeting.
First, we are asking your approval for a new Employee Stock Option
plan. The use of stock options to compensate employees remains widely prevalent
among technology companies. The Board is recommending the 2002 plan in order to
maintain the flexibility we need to keep pace with our competitors and
effectively recruit, motivate and retain the caliber of employees essential for
our company's success. The 2002 plan is integral to WaveRider's compensation
strategies and programs in 2002 and going forward.
Second, we are asking for your approval of an amendment to our Articles
of Incorporation to increase our authorized number of shares of common stock
from 200,000,000 to 400,000,000. The Board is recommending approval of this
amendment in order to provide the Company with the flexibility to consider
various business and financial alternatives, including: establishing strategic
relations with other companies; mergers with or acquisition of other companies;
and, raising capital. In order to fully take advantage of the future potential
growth in our sector, we believe this flexibility is necessary.
Each of these proposals is discussed in greater detail in the enclosed
Proxy Statement. I would appreciate your support of these proposals and thank
you for your continued support of WaveRider.
Yours truly,
/s/ D. Bruce Sinclair
D. Bruce Sinclair
President and Chief Executive Officer
TABLE OF CONTENTS
PAGE
ANNUAL MEETING PROCEDURES 1
o Introduction 1
o Solicitation of Proxies 1
o Purpose of the Annual Meeting 1
o Record Date 1
o Proxies 1
o Quorum 2
o Vote Required 2
o Revocation of Proxies 2
o Interests Of Certain Persons In Matters To Be Acted Upon 2
o Proposals Of Security Holders For 2002 Annual Meeting 2
o Miscellaneous 2
PROPOSAL NO. 1-- ELECTION OF DIRECTORS FOR A ONE-YEAR TERM 3
o Nominees 3
o Board and Committees Meetings of the Board of Directors 3
o Director Compensation 4
o Certain Relationships And Related Transactions 4
PROPOSAL NO. 2-- PROPOSED EMPLOYEE STOCK OPTION (2002) PLAN 4
o Equity Compensation Plan Information 5
o Certain U.S. Federal Income Tax Consequences 5
PROPOSAL NO. 3-- APPROVAL OF INCREASE IN NUMBER OF AUTHORIZED SHARES
OF COMMON STOCK 6
AUDIT COMMITTEE
o Report 7
o Independent Accountants 7
o Fees for Professional Services 8
COMPENSATION COMMITTEE
o Report 8
o Compensation Committee Interlocks and Insider Participation 9
o Executive Officers 9
EXECUTIVE OFFICER COMPENSATION
o Summary Compensation Table 10
o Options Granted in 2001 10
o Aggregated Option Exercises in Last Fiscal Year and Year End Option Values 11
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 12
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE 12
PERFORMANCE MEASUREMENT COMPARISON 13
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 13
ADDITIONAL INFORMATION 13
APPENDIX A - Employee Stock Option (2002) Plan 14
APPENDIX B - Certificate of Amendment of Articles of Incorporation 21
ATTACHMENTS
Description Of Business B-1
Management's Discussion And Analysis Of Financial Condition And Results Of Operations F-1
Financial Statements And Notes F-12
Proxy Statement-1
WAVERIDER COMMUNICATIONS INC.
255 Consumers Road, Suite 500
Toronto, Ontario, Canada M2J 1R4
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PROXY STATEMENT
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ANNUAL MEETING OF SHAREHOLDERS
To be held on July 9, 2002
Introduction
This proxy statement is being furnished to the shareholders of WaveRider
Communications Inc., a Nevada corporation, in connection with the solicitation
by our board of directors of proxies from holders of outstanding shares of our
common stock, $0.001 par value, for use at our annual meeting of shareholders to
be held in Room 4 of Le Parc Conference and Banquet Centre, 8432 Leslie Street,
Thornhill, Ontario Canada L3T 7M6, on Tuesday, July 9, 2002, at 2:00 p.m., and
at any adjournment or postponement thereof. This proxy statement, the notice of
annual meeting of shareholders and the accompanying form of proxy are first
being mailed to our shareholders on or about May 7, 2002.
Solicitation of Proxies
We will bear all costs and expenses relating to the solicitation of
proxies, including the costs of preparing, printing and mailing to shareholders
this proxy statement and accompanying material. In addition to the solicitation
of proxies by use of the mails, our directors, officers and employees, without
receiving additional compensation therefor, may solicit proxies personally or by
telephone or telegram. Arrangements will be made with brokerage firms and other
custodians, nominees and fiduciaries for the forwarding of solicitation
materials to the beneficial owners of the shares of common stock held by such
persons, and we will reimburse such brokerage firms, custodians, nominees and
fiduciaries for reasonable out-of-pocket expenses incurred by them in connection
therewith.
Purpose of the Annual Meeting
At the annual meeting, we will submit three proposals to the stockholders:
Proposal One:To elect five directors;
Proposal Two:To approve our Employee Stock Option (2002) Plan; and
Proposal Three: To approve an amendment to our Restated Certificate of
Incorporation to increase the authorized number of shares of
common stock from 200,000,000 to 400,000,000.
Record Date
The board of directors has fixed the close of business on May 7, 2002 as
the record date for determination of shareholders entitled to notice of and to
vote at the annual meeting. As of the record date, there were issued and
outstanding **** shares of common stock. The holders of record of the shares of
common stock on the record date entitled to be voted at the annual meeting are
entitled to cast one vote per share on each matter submitted to a vote at the
annual meeting.
Proxies
Shares of the common stock which are entitled to be voted at the annual
meeting and which are represented by properly executed proxies will be voted in
accordance with the instructions indicated on such proxies. If no instructions
are indicated, such shares will be voted FOR the election of each of the five
director nominees; FOR the approval of the Employee Stock Option (2002) Plan;
FOR the approval of the increase in our authorized capital; and in the
discretion of the proxy holder as to any other matters which may properly come
before the annual meeting.
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Proxy Statement-2
Quorum
The presence of a majority of the issued and outstanding shares of common
stock entitled to vote, represented in person or by properly executed proxy, is
required for a quorum at the annual meeting. Abstentions and broker non-votes,
which are indications by a broker that it does not have discretionary authority
to vote on a particular matter, will be counted as "represented" for the purpose
of determining the presence or the absence of a quorum.
Vote Required
Under Nevada corporate law, once a quorum is established, shareholder
approval with respect to a particular proposal is generally obtained when the
votes cast in favor of the proposal exceed the votes cast against such proposal.
Accordingly, abstentions and broker non-votes will not affect the outcome of the
election of directors or any other matter presented for approval by the
shareholders.
In the election of directors, shareholders will not be allowed to cumulate
their votes. The five nominees receiving the highest number of votes will be
elected.
Approval of the amendment to our Articles of Incorporation requires a vote
in favor by the majority of the total shares outstanding.
We do not intend to submit any other proposals to the stockholders at the
annual meeting. The board of directors was not aware, a reasonable time before
mailing of this proxy statement to stockholders, of any other business that may
properly be presented for action at the annual meeting. If any other business
should properly come before the annual meeting, shares represented by all
proxies that we receive will be voted with respect thereto in accordance with
the best judgment of the persons named as attorneys in the proxies.
Revocation of Proxies
A shareholder who has executed and returned a proxy may revoke it at any
time prior to its exercise at the annual meeting by executing and returning a
proxy bearing a later date, by filing with our Secretary, at the address set
forth above, a written notice of revocation bearing a later date than the proxy
being revoked, or by voting the common stock covered thereby in person at the
annual meeting.
Interests of Certain Persons in Matters to be Acted Upon
No person who has been a director or executive officer since January 1,
2001 has any interest in the adoption of any of the proposals submitted to the
stockholders except for Proposal No. 1 relating to the election of directors.
Proposals of Security Holders for 2002 Annual Meeting
It is contemplated that the next annual meeting of stockholders will be
held on or about June 30, 2003. Shareholders desiring to submit proposals for
the proxy statement for our 2003 annual meeting of shareholders will be required
to submit them to Scott Worthington, our Vice President and Chief Financial
Officer, at our executive offices, 255 Consumers Road, Suite 500, Toronto,
Ontario, Canada M2J 1R4, in writing on or before December 31, 2002. Any
shareholder proposal must also be proper in form and substance, as determined in
accordance with the Securities Exchange Act of 1934, as amended and the rules
and regulations promulgated thereunder. In order to avoid controversy as to the
date on which we received a proposal, we suggest that stockholders desiring to
submit proposals do so by certified mail, return receipt requested.
Miscellaneous
The board of directors does not know of any matter to be presented at the
annual meeting that is not listed in the Notice of annual meeting and discussed
above. If other matters should properly come before the annual meeting, however,
the proxy holders will vote in accordance with their best judgment.
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Proxy Statement-3
PROPOSAL NO. 1 -- ELECTION OF DIRECTORS
At the annual meeting, five directors will be elected to serve until the
next annual meeting of shareholders and until their successors are duly elected
and qualified. Each of the nominees for director identified below is currently a
director.
Shareholders do not have cumulative voting rights in the election of
directors (each shareholder is entitled to vote one vote for each share held for
each director). Unless authority is withheld, it is the intention of the persons
named in the enclosed form of proxy to vote FOR the election of each of the
persons identified as nominees for directors below. If the candidacy of any one
or more of such nominees should, for any reason, be withdrawn, the proxies will
be voted FOR such other person or persons, if any, as may be designated by the
board of directors. The board has no reason to believe that any nominee herein
named will be unable or unwilling to serve.
The following sets forth information about each nominee for election as a
director:
Name Age Position
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D. Bruce Sinclair 51 Chief Executive Officer, President, Director
Cameron A. Mingay (1) 50 Secretary, Director
Gerry Chastelet (1) (2) 55 Director
John E. Curry (2) 55 Director
Dennis R. Wing (2) 53 Director
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(1) Member of the compensation committee.
(2) Member of the audit committee.
Gerry Chastelet has been one of our directors since April 1999. From
December 1998 to January 2002, Mr. Chastelet was the President, Chairman and
Chief Executive Officer of Digital Lightwave, Inc., a leading provider of fiber
optic network analysis equipment. From December 1995 to October 1998, he served
as President and Chief Executive Officer of Wandel and Goltermann Technologies,
Inc., a global supplier of communication test and measurement equipment. He is
currently on the boards of Technology Research Corporation and Feberspace Inc.
Mr. Chastelet holds a degree in Electronics Engineering from Devry Institute of
Technology and is a graduate of the University of Toronto Executive MBA program.
John E. Curry has been a director since October 1999. His company,
Hydrovane Self Steering Inc. (formerly Karina Ventures Inc.), recently acquired
a business based in the UK that manufacturers and markets internationally a
yacht self steering device. He is also a Director of Garuda Capital Corp. (OTC:
GRUA). From 1985 to 1999 Mr. Curry was a partner with Bedford Curry & Co.,
Chartered Accountants, a Vancouver based firm specializing in public companies
and business financing, which he co-founded. Mr. Curry is a member of the
British Columbia Institute of Chartered Accountants and has a BA from the
University of Western Ontario.
Cameron A. Mingay, has been one of our directors since April 1999 and
our Secretary since May 1999. Since July 1999, Mr. Mingay has been a partner at
Cassels Brock & Blackwell LLP, Toronto, Ontario, Canada, specializing in the
areas of securities and corporate commercial law, with an emphasis on public
offerings, mergers and acquisitions, and corporate reorganizations. Prior to
July 1999, Mr. Mingay was a partner at Smith Lyons LLP, Toronto, Ontario,
Canada. He is currently on the board of Kinross Gold Corporation and is the
Corporate Secretary of Nextair Inc. He completed his undergraduate degree at the
University of Wisconsin and York University and his law degree from Queen's
University.
D. Bruce Sinclair, has been a director and our President since December
1997 and our Chief Executive Officer since November 1997. Mr. Sinclair is an
experienced management professional with a Masters of 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 1995 until November 1997, he operated his own independent consulting
business. From 1988 to 1995, Mr. Sinclair was with Dell Computer Corporation, a
computer manufacturing company, where he held numerous positions including
President of the Canadian subsidiary, Vice-President of Europe and head of Dell
in Europe.
Dennis R. Wing, has been one of our directors since November 1999. Mr.
Wing is President and CEO for Fahnestock Canada Inc., an investment bank.
Previously, he was a founding partner and board Member of First Marathon
Securities Inc. and was its Director of International Operations for 18 years.
He is also on the board of directors of Cryptologic Inc., Vengold Inc. and the
University of Waterloo. He holds a Bachelor of Arts degree in Economics from
University of Waterloo.
3
Proxy Statement-4
Board and Committee Meetings of the Board of Directors
During the year ended December 31, 2001, the board of directors held seven
meetings. Each member attended at least 75% of all board meetings during their
term as a Director in 2001.
During 1999, the board established an audit committee and a compensation
committee. The board does not have a nominating committee or any committee that
functions as a nominating committee.
The audit committee meets with our independent auditors at least annually
to review the results of the annual audit and discuss the financial statements,
recommends to the board the independent auditors to be retained, and receives
and considers the accountants' comments as to controls, adequacy of staff and
management performance and procedures in connection with audit and financial
controls. During fiscal 2001, the audit committee was composed of three
non-employee directors: Messrs. Chastelet, Curry, and Wing. The audit committee
charter was field as an appendix to the proxy statement for our 2001 annual
meeting of stockholders. The audit committee met four times during the fiscal
year ended December 31, 2001.
The compensation committee makes recommendations concerning salaries and
incentive compensation, awards stock options to employees and consultants under
our stock option plans and otherwise determines compensation levels and performs
such other functions regarding compensation as the board may delegate. During
fiscal 2001, the compensation committee was composed of two non-employee
directors: Messrs. Chastelet and Mingay. It met four times during fiscal 2001.
Director Compensation
Our non-employee directors received $1,000, plus expenses, per meeting
attended in person during the year and in total were awarded 25,000 options
under the Employee Stock Option (2000) Plan for their participation in the board
of directors and each of its subcommittees.
Certain Relationships and Related Transactions
We incurred legal expenses in excess of $60,000 from Cassels Brock &
Blackwell LLP. Cameron A. Mingay, one of our directors, is a partner at this law
firm.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE FIVE
NOMINEES FOR DIRECTORS.
PROPOSAL NO. 2 - PROPOSED EMPLOYEE STOCK OPTION (2002) PLAN
Our board of directors has adopted the Employee Stock Option (2002) Plan
subject to approval by the stockholders. Under the United States Internal
Revenue Code, stockholder approval of the Employee Stock Option (2002) Plan is
necessary for stock options to qualify as incentive stock options under Section
422 of the Internal Revenue Code. In addition, Nasdaq Rules require stockholder
approval of a stock option plan. Approval for purposes of the Internal Revenue
Code and the Nasdaq Rules will require the affirmative vote of a majority of the
shares of common stock present or represented at the meeting and voting on the
stock option plan. The full text of the Employee Stock Option (2002) Plan as
adopted by the board of directors is set forth in EXHIBIT B to this proxy
statement.
A total of 6,000,000 shares of common stock are reserved for issuance under
the Employee Stock Option (2002) Plan. The Employee Stock Option (2002) Plan
authorizes: (i) the grant of options to purchase common stock intended to
qualify as incentive option and (ii) the grant of non-qualified options.
The Employee Stock Option (2002) Plan shall terminate on the tenth
anniversary of its adoption unless earlier terminated by the board of directors.
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Proxy Statement-5
We intend that the Employee Stock Option (2002) Plan will be administered
by a committee, consisting of at least two outside directors, as defined in the
Employee Stock Option (2002) Plan. The committee will select the individuals to
whom awards will be granted and determine the option exercise price and other
terms of each award, subject to the provisions of the Employee Stock Option
(2002) Plan.
Incentive options may be granted under the Employee Stock Option (2002)
Plan to our employees and officers, including members of the board of directors
who are also employees. Nonqualified options may be granted under the Employee
Stock Option (2002) Plan to our employees, officers, individuals providing
services to us and members of our board of directors, whether or not they are
our employees.
No options may extend for more than ten years from the date of grant (five
years in the case of employees or officers holding 10% or more of the total
combined voting power of all classes of our stock or any subsidiary or parent).
The exercise price for incentive options may not be less than the fair market
value of the common stock on the date of grant or, in the case of a
greater-than-ten-percent stockholder, no less than 110% of the fair market
value. The aggregate fair market value (determined at the time of grant) of
shares issuable pursuant to incentive options, which first become exercisable by
an employee or officer in any calendar year may not exceed $100,000.
Nonqualified options are non-transferable except with the written consent
of the board, by will or by the laws of descent or distribution. Incentive
options may only be transferred by will or by the laws of descent or
distribution. Options generally will cease to be exercisable: (i) immediately if
the optionee is terminated for cause, (ii) sixty days after the optionee ceases
to be employed by us other than for cause, or (iii) twelve months following an
optionee's death.
Payment of the exercise price for shares subject to options may be made
with cash, or, with the consent of the committee: (i) with shares of common
stock, (ii) by reducing the number of option shares otherwise issuable by a
number of shares having a fair market value equal to the aggregate exercise
price, (iii) by personal recourse note, or (iv) by such other means as is
authorized by the committee. Full payment for shares exercised must be made at
the time of exercise.
EQUITY COMPENSATION PLAN INFORMATION (1)
Number of securities remaining
Number of securities to Weighted-average available for future issuances
be issued upon exercise exercise price of under equity compensation
of outstanding options, outstanding options, plans (excluding securities
Plan category warrants and rights warrants and rights reflected in column (a))
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Equity compensation plans approved
by security holders 9,298,600 $3.06 5,223,255 (2)
Equity compensation plans not - - -
approved by security holders
Total 9,298,600 $3.06 5,223,255
(1)As at December 31, 2001. Does not include 1,475,000 options awarded during
the first quarter of 2002.
(2) Includes 2,831,602 shares of common stock available for purchase under the
Company's Employee Stock Purchase Plan.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The grant of an incentive option or a nonqualified option would not result
in income for the grantee or in a deduction for us.
The exercise of a nonqualified option would result in ordinary income for
the grantee and a deduction for us measured by the difference between the option
price and the fair market value of the shares received at the time of exercise.
Income tax withholding would be required.
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Proxy Statement-6
The exercise of an incentive option would not result in income for the
grantee if the grantee: (i) does not dispose of the shares within two years
after the date of grant and one year after the transfer of shares upon exercise
and (ii) is our employee from the date of grant until three months before the
exercise date. If these requirements are met, the basis of the share upon later
disposition would be the option price. Any gain will be taxed to the employee as
long-term capital gain and we would not be entitled to a deduction. The excess
of the market value on the exercise date over the option price is an item of tax
preference, potentially subject to the alternative minimum tax.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO
APPROVE THE EMPLOYEE STOCK OPTION (2002) PLAN.
PROPOSAL NO. 3 - APPROVAL OF INCREASE IN NUMBER OF AUTHORIZED
SHARES OF COMMON STOCK
The board of directors has adopted, subject to stockholder approval, an
amendment to our Restated Certificate of Incorporation to increase the
authorized number of shares of capital stock from 205,000,000 shares to
405,000,000 shares of capital stock and to increase our authorized number of
shares of common stock from 200,000,000 to 400,000,000.
The additional common stock to be authorized by adoption of the amendment
would have rights identical to our currently outstanding common stock. Adoption
of the proposed amendment and issuance of the common stock would not affect the
rights of current stockholders, except for the effects incidental to increasing
the number of shares of our common stock outstanding, such as dilution of the
earnings per share and voting rights of current stockholders. If the amendment
is adopted, it will become effective upon filing of a Certificate of Amendment
to our Restated Certificate of Incorporation with the Secretary of State of the
State of Nevada.
In addition to the ***** shares of common stock outstanding at ****, 2002,
the board has reserved an aggregate of approximately ***** shares of common
stock for issuance upon: (a) exercise of outstanding options granted under our
stock option plans, (b) exercise of outstanding warrants, and (c) exercise of
rights under our employee stock purchase plan.
Although, at present, the board of directors has no other plans to issue
the additional shares of common stock, we desire to have such shares available
to provide additional flexibility to use our capital stock for business and
financial purposes in the future. The additional shares may be used, without
further stockholder approval, for various purposes including, without
limitation, raising capital, providing equity incentives to employees, officers
or directors, establishing strategic relationships with other companies and
expanding our business or product lines through the acquisition of other
businesses or products.
The additional shares of capital stock that would become available for
issuance if this proposal were adopted could also be used by us to oppose a
hostile takeover attempt or delay or prevent our change in control or our
management. For example, without further stockholder approval, the board of
directors could adopt a "poison pill" which would, under certain circumstances
related to an acquisition of shares not approved by the board, give certain
holders the right to acquire additional shares of capital stock at a low price,
or the board could strategically sell shares of capital stock in a private
transaction to persons or entities that would oppose a takeover or favor the
current board. Although this proposal to increase the authorized capital stock
has been prompted by business and financial considerations and not by the threat
of any hostile takeover attempt (nor is the board currently aware of any such
attempts directed at us), nevertheless, stockholders should be aware that
approval of the proposal could facilitate future efforts by us to deter or
prevent our change in control, including transactions in which the stockholders
might otherwise receive a premium for their shares over then current market
prices.
Vote Required
A copy of the Amendment to the Restated Certificate, as approved by the
board of directors, is attached to this proxy statement as Appendix B.
Stockholders are requested in this proposal to approve the amendment to the
Restated Certificate, as amended. The affirmative vote of the holders of a
majority of the outstanding shares of common stock, voting as a single class,
will be required to approve this amendment to our Restated Certificate of
Incorporation. As a result, abstentions and broker non-votes will have the same
effect as negative votes.
6
Proxy Statement-7
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO
INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK. COMMITTEE REPORTS
REPORT OF THE AUDIT COMMITTEE
The board of directors appointed an audit committee to monitor the
integrity of WaveRider's consolidated financial statements, its system of
internal controls and the independence and performance of its internal and
independent auditors. The audit committee also recommends to the board of
directors the selection of independent auditors. The audit committee is governed
by a written charter adopted by the board of directors. A copy of the charter
was attached to the proxy statement for the 2001 annual meeting stockholders.
The audit committee currently consists of three non-employee directors.
Each member of the audit committee is "independent" within the meaning of the
Nasdaq Stock Market's marketplace rules.
WaveRider's management is responsible for the financial reporting process,
including the system of internal controls, and for the preparation of
consolidated financial statements in accordance with generally accepted
accounting principles. WaveRider's independent auditors are responsible for
auditing those financial statements. WaveRider's responsibility is to monitor
and review these processes. However, WaveRider is not professionally engaged in
the practice of accounting or auditing and are not experts in the fields of
accounting or auditing, including with respect to auditor independence. We have
relied, without independent verification, on the information provided to us and
on the representations made by WaveRider's management and independent auditors.
In fulfilling our oversight responsibilities, we discussed with
representatives of PricewaterhouseCoopers LLP, WaveRider's independent auditors
for fiscal 2001, the overall scope and plans for their audit of WaveRider's
consolidated financial statements for fiscal 2001. We met with them, with and
without WaveRider's management present, to discuss the results of their
examinations and their evaluations of WaveRider's internal controls and the
overall quality of WaveRider's financial reporting.
We reviewed and discussed the audited consolidated financial statements for
fiscal 2001 with management and the independent auditors.
We discussed with the independent auditors the matters required to be
discussed by Statement of Auditing Standards No. 61, Communication with Audit
Committees, as amended, including a discussion of their judgments as to the
quality, not just the acceptability, of WaveRider's accounting principles and
the other matters required to be discussed with audit committees under generally
accepted auditing standards.
In addition, we received from the independent auditors a letter containing
the written disclosures required by Independence Standards board Standard No. 1,
Independence Discussions with Audit Committees, and discussed the disclosures
with them, as well as other matters relevant to their independence from
management and WaveRider. In evaluating the independence of WaveRider's
auditors, we considered whether the services they provided to WaveRider beyond
their audit and review of WaveRider's consolidated financial statements was
compatible with maintaining their independence. We also considered the amount of
fees they received for audit and non-audit services.
Based on our review and these meetings, discussions and reports, and
subject to the limitations on our role and responsibilities referred to above
and in the audit committee charter, we recommended to the board of directors
that WaveRider's audited consolidated financial statements for fiscal 2001 be
included in WaveRider's annual report on Form 10-K.
Submitted by the audit committee of the board of directors
John E. Curry (Chairman)
Gerry Chastelet
Dennis R. Wing
Independent Auditors
The board of directors has selected PricewaterhouseCoopers LLP to serve as
independent auditors for the fiscal year ended December 31, 2002.
PricewaterhouseCoopers LLP served as our independent auditors for the fiscal
year ended December 31, 2001. We expect that PricewaterhouseCoopers LLP will be
present at the meeting with the opportunity to make a statement if so desired
and will be available to respond to appropriate questions.
7
Proxy Statement-8
Fees for Professional Services
The following table provides the fees we paid to PricewaterhouseCoopers LLP
for professional services rendered for fiscal 2001.
Audit fees............................................$250,045
All other fees .......................................$111,398
The audit committee has determined that PricewaterhouseCoopers LLP's
provision of services to us not related to its audit of our financial statements
was at all relevant times compatible with that firm's independence.
REPORT OF THE COMPENSATION COMMITTEE
The compensation committee has general responsibility for WaveRider's
executive compensation policies and practices, including making specific
recommendations to the board of directors concerning salaries and incentive
compensation for WaveRider's executive officers. The following report is made by
Messrs. Chastelet and Mingay, as the members of the compensation committee
during fiscal 2001, and summarizes WaveRider's executive officer compensation
policies for fiscal 2001.
Compensation objectives. WaveRider's executive compensation programs are
generally designed to relate to a substantial part of executive compensation to
improvements in WaveRider's financial performance and corresponding increases in
shareholder value. Decisions concerning executive compensation are intended to:
o establish incentives that will link executive officer compensation to
WaveRider's financial performance and that will motivate executives to
attain WaveRider's annual financial targets;
o establish incentives to encourage long-term strategic planning; and
o provide a total compensation package that is competitive among
comparable companies and that will assist WaveRider in attracting and
retaining executives who will contribute to WaveRider's long-term
financial success.
The Securities and Exchange Commission requires that this report comment
upon the compensation committee's policy with respect to Section 162(m) of the
Internal Revenue Code, which limits WaveRider's tax deduction for compensation
in excess of $1.0 million paid to WaveRider's chief executive officer and
WaveRider's four other most highly compensated executive officers at the end of
any fiscal year unless the compensation qualifies as "performance-based
compensation." The compensation committee's policy with respect to Section
162(m) is to make every reasonable effort to cause compensation to be deductible
by WaveRider while simultaneously providing executive officers of WaveRider with
appropriate rewards for their performance.
Executive compensation programs. WaveRider's compensation package consists of
three principal components:
o salary;
o discretionary bonuses; and
o stock options
WaveRider's executive officers are also eligible to participate in other
employee benefit plans, including health and life insurance plans and a stock
purchase plan, on substantially the same terms as other employees who meet
applicable eligibility criteria, subject to any legal limitations on the amounts
that may be contributed or the benefits that may be payable under these plans.
In establishing base salaries for executives, the compensation committee
monitors salaries at other companies, particularly companies in the same
industry and companies located in the same geographic area as WaveRider. In
addition, for each executive the compensation committee considers historic
salary levels, work responsibilities and base salary relative to other
executives at WaveRider. To some extent, the compensation committee also
considers general economic conditions, WaveRider's financial performance and
each individual's performance. The compensation committee decreased the base
salaries of WaveRider's executive officers in 2001.
WaveRider's executive officer compensation policy emphasizes bonuses and
stock options which align the interests of management with the shareholders'
interest in the financial performance of WaveRider for the fiscal year and the
longer term. Consistent with this approach, in fiscal 2001, a substantial part
of the cash compensation that the executive officers were eligible to earn was
tied to WaveRider's performance.
8
Proxy Statement-9
In fiscal 2001, stock options were a component of WaveRider's approach to
compensation for all executive officers. We recommended that WaveRider grant
stock options to Messrs. Sinclair, Brown, Chinnick and Worthington in order to
provide them additional long-term incentives to act in the best interests of
WaveRider's shareholders. See "Option grants in last fiscal year." In
determining the size of the stock option grants recommended for these executive
officers, we emphasized the seniority, responsibilities and performance of the
executives, as well as the number and exercise price of outstanding stock
options previously granted to the executive officers. The compensation committee
believes that stock options provide a significant incentive to executive
officers to continue their employment with WaveRider and create long-term value
for its shareholders.
Chief executive officer compensation. Consistent with WaveRider's overall
executive officer compensation policy, WaveRider's approach to the chief
executive officer's compensation package in 2001 was to be competitive with
other companies in the industry. The compensation committee believes that this
approach provided additional incentive to Mr. Sinclair to achieve WaveRider's
performance goals and enhance shareholder value. Mr. Sinclair's salary was
designed to give him assurance of a base level of compensation commensurate with
his position and duration of employment with WaveRider and competitive with
salaries for officers holding comparable positions in the industry.
Submitted by the compensation committee of the board of directors
Cameron A. Mingay (Chairman)
Gerry Chastelet
Compensation Committee Interlocks and Insider Participation
Our compensation committee is currently composed of Messrs. Chastelet and
Mingay. Messrs. Chastelet and Mingay are both non-employee directors. In 2001,
none of our officers or employees participated in the deliberations of the
compensation committee concerning the compensation of our executive officers. No
interlocking relationship existed between our board or compensation committee
and the board of directors or compensation committee of any other company in
2001.
Executive Officers
In addition to D. Bruce Sinclair, certain information is furnished with
respect to our executive officers:
Name Age Position
- ------------------------------------ --- --------------------------------------------
D. Bruce Sinclair......................... 51 Chief Executive Officer, President, Director
Charles W. Brown.......................... 46 Vice President, Sales and Marketing
James H. Chinnick......................... 55 Vice President, Engineering
T. Scott Worthington...................... 47 Vice President, Chief Financial Officer
Executive officers are appointed by the board of directors and serve at the
discretion of the board or until their respective successors have been duly
elected and qualified. There are no family relationships among the executive
officers and directors.
Charles W. Brown has been our Vice President of Marketing since February
1998. From 1994 until 1998, Mr. Brown was the CIO and Vice President at Clearnet
Communications. From 1993 until 1994, he was Vice President of Sales and
Marketing for Trillium Communications and from 1990 until 1993, he was a
Director of Strategic Planning and Marketing for BCE Mobile. Mr. Brown has a
Masters in Business Administration from the University of Western Ontario.
James H. Chinnick has been our Vice President of Engineering since January
1999. From 1995 until 1998, he was vice president and general manager of Harris
Corporation's Wireless Access Division in Calgary, AB. From 1988 until 1995, Mr.
Chinnick held several senior positions with NovAtel, from 1985 until 1988, he
held senior positions with Northern Telecom, from 1980 until 1984, he held
senior positions with Foundation Electronic Instruments and from 1971 until
1980, he held several senior positions with Communications Research Centre in
Ottawa. In addition to a B.Sc. Engineering (Physics) from Queens University, he
has an M.Sc. in Electrical Engineering (Communications) from Queens University
and a Diploma in Business Administration from the University of Ottawa. He is a
member of the Association of Professional Engineers, Geologists and
Geophysicists of Alberta.
9
Proxy Statement-10
T. Scott Worthington has been our Vice President and chief financial
officer since January 1998. From 1988 to 1996, he worked at Dell Computer
Corporation in Canada where he held numerous positions including CFO of Dell's
Canadian subsidiary. After leaving Dell, he was a financial and business
consultant. Mr. Worthington is a Chartered Accountant.
Executive Officer Compensation
The following table describes the compensation earned in fiscal 2001 by our
Chief Executive Officer and all executives officer who received compensation in
excess of $100,000 in 2001, 2000 and 1999.
Summary Compensation Table
Long-Term
Annual Compensation Compensation
Name and Principal Position Year Salary Bonus Stock Options
- --------------------------- ---- ------ ----- -------------
Bruce Sinclair 2001 $ 174,387 $ 0 375,000
President, Chief Executive Officer, 2000 235,627 67,322 500,000
Director 1999 204,730 134,617 100,000
Charles Brown 2001 117,943 0 225,000
Vice President of Sales and Marketing 2000 138,683 42,692 200,000
1999 128,156 50,885 535,000
James Chinnick 2001 104,218 0 225,000
Vice President of Engineering 2000 97,482 71,631 200,000
1999 87,748 76,732 630,000
Scott Worthington 2001 89,800 0 225,000
Vice President and Chief Financial Officer 2000 111,665 25,784 200,000
1999 103,863 26,923 450,000
Options Granted in Fiscal 2001
The following table summarizes option grants during 2001 to the
executive officers named in the Summary Compensation Table (the "Named Executive
Officers").
Potential Realizable
Number of Percent of Value at Assumed Annual
Securities Total Options Exercise Market Rates of Stock Price
Underlying Granted to or Base Price on Appreciation for
Options Employees in price Date of Expiration Option Term
Name Granted (#) Fiscal Year ($/sh) Grant Date 0% 5%($) 10%($)
- ---- ---------- ----------- ------- ------- ----------- --- ------ -----
Bruce Sinclair ....... 25,000(1) 1.1% $1.63 1.63 2/28/11 0 $2,038 $ 4,075
350,000(2) 15.0% 0.43 0.43 10/10/11 0 7,525 15,050
Charles Brown ........ 25,000(1) 1.1% 1.63 1.63 2/28/11 0 2,038 4,075
200,000(2) 8.6% 0.43 0.43 10/10/11 0 4,300 8,600
James Chinnick ....... 25,000(1) 1.1% 1.63 1.63 2/28/11 0 2,038 4,075
200,000(2) 8.6% 0.43 0.43 10/10/11 0 4,300 8,600
Scott Worthington .... 25,000(1) 1.1% 1.63 1.63 2/28/11 0 2,038 4,075
200,000(2) 8.6% 0.43 0.43 10/10/11 0 4,300 8,600
- --------------------
(1) Options vest at a rate of one third per year from date of award.
(2) Options vest during fiscal 2002.
10
Proxy Statement-11
Option Exercises and Fiscal Year-End Values
The following table sets forth the aggregate value of unexercised options
to acquire shares of the common stock held by the Named Executive Officers on
December 31, 2001. None of our Named Executive Officers exercised options during
the year ended December 31, 2001.
Aggregated Option Exercises in Last Fiscal Year and Year End Option Values
Number of Unexercised Value of Unexercised In-the-Money
Options at FY-End Options at FY-End(1)
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
D. Bruce Sinclair................... 1,565,000 1,185,000 $0 $0
Charles Brown....................... 553,600 746,000 0 0
James Chinnick...................... 354,000 731,000 0 0
T. Scott Worthington................ 782,400 595,000 0 0
- -------------------
(1) Calculated based on the difference between the exercise price and the price
of a share of common stock on December 31, 2001. The closing sale price of the
common stock was $0.25 on December 31, 2001.
Employment Arrangements
D. Bruce Sinclair. On November 18, 1997, we entered into an employment
agreement for an initial term of one year subject to annual extensions
thereafter. Under this employment agreement, Mr. Sinclair serves as our
President and Chief Executive Officer. Mr. Sinclair may participate in our
employee fringe benefit plans or programs generally available to employees of
comparable status and position. In the event that we terminate Mr. Sinclair
without cause, we will pay his base compensation, bonus and health benefits to
which he was entitled on the date of his termination for 36 months. Upon
termination of Mr. Sinclair's employment for cause, we will have no obligation
to Mr. Sinclair. Under his employment agreement, Mr. Sinclair is subject to
restrictive covenants, including confidentiality provisions. Also, during his
employment and for 12 months after termination of employment with us, Mr.
Sinclair is subject to a non-competition provision.
Charles W. Brown. On February 16, 1998, we entered into an employment
agreement with Mr. Brown in substantially the same form as that described for
Mr. Sinclair. Mr. Brown serves as our Vice President of Marketing. In the event
that we terminate Mr. Brown without cause, we will pay his base compensation,
bonus and health benefits to which he was entitled on the date of his
termination for 12 months.
James H. Chinnick. On January 4, 1999, we entered into an employment
agreement with Mr. Chinnick in substantially the same form as that described for
Mr. Sinclair. Mr. Chinnick serves as our Vice President of Technology. In the
event that we terminate Mr. Chinnick without cause, we will pay his base
compensation, bonus and health benefits to which he was entitled on the date of
his termination for 12 months. Mr. Chinnick is subject to a non-competition
provision during his employment and for any period of continued compensation
pursuant to the termination of employment without cause by us.
T. Scott Worthington. On January 5, 1998, we entered into an employment
agreement with Mr. Worthington in substantially the same form as that described
for Mr. Sinclair. Mr. Worthington serves as our Vice President of Finance and
Administration. In the event that we terminate Mr. Worthington without cause, we
will pay his base compensation, bonus and health benefits to which he was
entitled on the date of his termination for 12 months.
11
Proxy Statement-12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of April ****, 2002, information with
respect to our common stock owned beneficially by each director or nominee for
director, by our Chief Executive Officer, by all officers and directors as a
group and by each person known by us to be a beneficial owner of more than 5% of
the outstanding shares of common stock. Except as otherwise indicated below,
each person named has sole voting and investment power with respect to the
shares indicated.
Amount of Common Stock % of Common Stock
- ---------------------------------------------------------------- Beneficially Owned(1) Outstanding
---------------------- -----------------
Name and Address of Beneficial Owner
- ------------------------------------
D. Bruce Sinclair (2) 4,767,888 4.11%
Cameron A. Mingay (3) 249,000 0.22%
Gerry Chastelet (4) 200,000 0.18%
John Curry (5) 170,000 0.15%
Dennis Wing (4) 150,000 0.13%
Charles Brown (6) 897,296 0.79%
Jim Chinnick (7) 613,156 0.54%
T. Scott Worthington (8) 1,125,469 0.98%
------------- ---------
All Directors and Executive Officers (8 persons) 8,172,809 7.99%
------------- ---------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission (the "SEC") that deem shares to be
beneficially owned by any person who has voting or investment power
with respect to such shares. Unless otherwise indicated below, the
persons and entities named in the table have sole voting and sole
investment power with respect to all shares beneficially owned, subject
to community property laws where applicable. Shares of common stock
subject to options that are currently exercisable or exercisable within
60 days of March 21, 2002 are deemed to be outstanding and to be
beneficially owned by the person holding such options for the purpose
of computing the percentage ownership of such person but are not
treated as outstanding for the purpose of computing the percentage
ownership of any other person.
(2) Consists of 1,090,611 shares of common stock, 1,200,000 shares, which
are subject to an Escrow Agreement, dated March 16, 1998, as amended
September 27, 1999, 505,611 shares issuable upon exercise of warrants
and 1,573,333 shares issuable upon exercise of options that are
currently exercisable or exercisable within 60 days of March 21, 2002.
(3) Consists of 25,000 shares of common stock, 46,500 shares issuable upon
exercise of warrants and 152,500 shares issuable upon exercise of
options that are currently exercisable or exercisable within 60 days of
March 21, 2002.
(4) Consists of shares issuable upon exercise of options that are currently
exercisable or exercisable within 60 days of March 21, 2002.
(5) Consists of 20,000 shares of common stock and 125,000 shares issuable
upon exercise of options that are currently exercisable or exercisable
within 60 days of March 21, 2002.
(6) Consists of 75,628 shares of common stock, 126,402 shares issuable upon
exercise of warrants and 561,933 shares issuable upon exercise of
options that are currently exercisable or exercisable within 60 days of
March 21, 2002.
(7) Consists of 43,090 shares of common stock, 74,400 shares issuable upon
exercise of warrants and 362,333 shares issuable upon exercise of
options that are currently exercisable or exercisable within 60 days of
March 21, 2002.
(8) Consists of 75,001 shares of common stock, 126,402 shares issuable upon
exercise of warrants and 790,733 shares issuable upon exercise of
options that are currently exercisable or exercisable within 60 days of
March 21, 2002.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
officers, directors and persons who beneficially own more than 10% of a class of
our equity securities registered under the Securities Exchange Act of 1934 to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission. Based solely on a review of the forms we have received and
on representation from certain reporting persons, we believe that, during the
year ended December 31, 2001, all Section 16(a) filing requirements applicable
to its officers, directors and 10% beneficial owners were complied with by such
persons. Subsequent to year-end, the Annual Statements of Beneficial Ownership
of Securities, on Form 5, were filed 11 days late by D. Bruce Sinclair, Charles
W. Brown, James H. Chinnick, T. Scott Worthington, Cameron A. Mingay, Gerry
Chastelet, John E. Curry and Dennis R. Wing.
12
Proxy Statement-13
PERFORMANCE MEASUREMENT COMPARISON(1)
The following table shows the total stockholder return of an investment of
$100 in cash on December 31, 1995 for: (a) our common stock, (b) the Nasdaq
Stock Market (U.S.) Index, and (c) the Nasdaq Telecommunications Index. All
values assume reinvestment of the full amount of all dividends and are
calculated as of December 31 of each year:
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN*
AMONG WAVERIDER COMMUNICATIONS INC., THE NASDAQ STOCK
MARKET (U.S.) INDEX AND THE NASDAQ TELECOMMUNICATIONS INDEX
WAVERIDER NASDAQ STOCK MARKET (U.S.) NASDAQ TELECOMMUNICATIONS
Dec '96 $ 100.00 $ 100.00 $ 100.00
Dec.'97 $ 1,777.78 $ 123.65 $ 146.00
Dec.'98 $ 4,166.67 $ 172.65 $ 238.53
Dec.'99 $ 3,571.43 $ 320.42 $ 483.52
Dec.'00 $ 2,331.43 $ 194.53 $ 220.69
Dec.'01 $ 396.83 $ 153.57 $ 112.68
* $100 Invested on 12/31/96 in stock or index, including reinvestment of
dividends. Fiscal year ending December 31.
(1) The material in this section is not "soliciting material", is not deemed
"filed" with the SEC, and is not to be incorporated by reference into any of our
filings the Securities Act of 1933, as amended, or the Securities Exchange Act
of 1934, as amended, whether made before or after the date hereof and
irrespective of any general incorporation language contained in such filing.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common shares are quoted under the symbol "WAVC" on the OTC
Bulletin Board. The Company had approximately 1,000 common shareholders of
record as of May 21, 2002. 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.
ADDITIONAL INFORMATION
The Company will mail, without charge, a copy of the Annual Report on Form
10-K,if requested to do so by a stockholder. Direct requests should be directed
to Investor Relations, WaveRider Communications Inc., 255 Consumers Road, Suite
500, Toronto, Ontario, Canada M2J 1R4.
13
Proxy Statement-14
APPENDIX A
WAVERIDER COMMUNICATIONS INC.
EMPLOYEE stock option (2002) plan
SECTION 1. Purpose of the Plan
1.1 This Employee Stock Option (2002) Plan, (the "Plan") is intended to
further the growth and advance the best interests of WAVERIDER COMMUNICATIONS
INC. (the "Company"), and affiliated companies, by supporting and increasing the
Company's ability to attract and retain persons of experience and ability, and
whose services are considered valuable, to encourage the sense of proprietorship
in such persons, and to stimulate the active interest of such persons in the
development and success of the Company and affiliated companies.
SECTION 2. Definitions
2.1 Whenever used in this plan, except where the context might clearly
indicate otherwise, the following terms shall have the meanings ascribed to
them:
(1) "Act" means the U.S. Securities Act of 1933, as amended.
(2) "Affiliate" means any Parent or Subsidiary of the Company.
(3) "Award" or "Grant" means any grant of an Option made under this Plan.
(4) "Board" means the Board of Directors of the Company and where
applicable includes any Committee to whom any powers of the Board have
been delegated in accordance with this Plan.
(5) "Code" means the Internal Revenue Code of 1986, as amended.
(6) "Date of Grant" means the day the Board authorizes the grant of an
Option or such later date as maybe specified by the Board as the date a
particular grant will become effective.
(7) "Employee" means and includes the following persons:
(i) executive officers, officers and directors, (including
advisory and other special directors), of the Company or an
Affiliate;
(ii) full-time and part-time employees of the Company or an
Affiliate;
(iii) any person or entity engaged by the Company or an Affiliate,
as a consultant, advisor or agent; and,
(iv) a lawyer, law firm, accountant, accountant firm, or other
professional or professional firm, engaged by the Company or
an Affiliate.
(8) "Incentive Option" means any Option designated and qualified as an
"incentive stock option" within the meaning of Section 422 of the Code.
The Company intends that Incentive Options will qualify as "incentive
stock options" within the meaning of Section 422 of the Code, and the
terms of this Plan shall be interpreted in accordance with this
intention; the Company makes no warranty, however, as the qualification
of any Option as an Incentive Option.
(9) "Nonqualified Option" means any Option that is not an Incentive Option.
(10) "Optionee" means an Employee to whom an Option has been granted.
(11) "Outside Director" means any director who (i) is not an employee of the
Company or of any "affiliated group," as such term is defined in
Section 1504(a) of the Code, which includes the Company (an
"Affiliate"), (ii) is not a former employee of the Company or any
Affiliate who is receiving compensation for prior services (other than
benefits under a tax-qualified retirement plan) during the Company's or
any Affiliate's taxable year, (iii) has not been an officer of the
Company or any Affiliate and (iv) does not receive remuneration from
the Company or any Affiliate, either directly or indirectly, in any
capacity other than as a director. "Outside Director" shall be
determined in accordance with Section 162(m) of the Code and the
Treasury regulations issued thereunder.
14
Proxy Statement-15
(12) "Parent" means any corporation owning 50% or more of the total combined
voting stock of all classes of the Company or another company
qualifying as a Parent within this definition.
(13) "Participant" means an Employee to whom an award of Stock has been
made.
(14) "Plan Shares" means shares of Stock from time to time subject to this
Plan.
(15) "Subsidiary" means a company more than 50% of whose total combined
capital stock of all classes is held by the Company or another company
qualifying as a Subsidiary within this definition.
SECTION 3. Term
3.1 This Plan shall be effective as of the 9th day of July, 2002, and
no Options shall be granted pursuant to this Plan after its expiration. This
Plan shall expire on the 8th day of July, 2012, unless sooner terminated in
accordance with the terms herein, with the exception of any Options then
outstanding which shall remain in effect until they have expired or have been
exercised.
SECTION 4. Administrator of the Plan
4.1 This Plan shall be administered by the Board; however, the Board
intends to delegate the administration to a Stock Incentive Plan Committee (the
"Committee") consisting of all members of the Compensation Committee of the
Company who qualify as Outside Directors. The Committee shall have at least two
(2) members at all times. It is the intention of the Company that the Plan shall
be administered to comply with the provisions of Rule 16b-3 under the Securities
Exchange Act of 1934 (the "Exchange Act"), but the authority and validity of any
act taken or not taken by the Committee shall not be affected if any person
administering the Plan is not a Non-Employee Director as defined in the Rule.
Except as specifically reserved to the Board under the terms of the Plan, the
Committee shall have full and final authority to operate, manage and administer
the Plan on behalf of the Company.
4.2 If the administration of this Plan is delegated to the Committee,
the Committee shall have, in connection with the administration of the Plan, the
powers possessed by the Board. The Board may abolish or change the Committee at
any time and revest in the Board the administration of the Plan.
4.3 A majority of the members of the Committee shall constitute a
quorum. All decisions and selections made by the Committee pursuant to this
Plan's provisions shall be made by a majority of its members. Any decision
reduced to writing and signed by all of the members of the Committee shall be
fully effective as if it had been made by a majority at a meeting duly held.
4.4 Subject to the terms herein, "Administration" shall include the
full authority and sole and absolute discretion to designate Plan participants,
to determine the provisions, restrictions, conditions and terms of the Options,
(which need not be identical as to number of shares covered by any Option, the
method or exercise as related to exercise in whole or in installments, or
otherwise), including the Option price, and to interpret the provisions and
supervise the administration of this Plan. Administration shall also include the
authority to provide that certain Options not vest (that is, become
exercisable), until expiration of a certain period after issuance or until other
conditions are satisfied, so long as not contrary to this Plan.
4.5 In no event may any Plan participant be granted Awards with respect
to more than a million (1,000,000) shares of Stock in any calendar year. The
number of shares of Stock relating to an Award granted to a Plan participant in
a calendar year that is subsequently forfeited, canceled or otherwise terminated
shall continue to count toward the foregoing limitation in such calendar year.
In addition, if the exercise price of an Award is subsequently reduced, the
transaction shall be deemed a cancellation of the original Award and the grant
of a new one so that both transactions shall count toward the maximum shares
issuable in the calendar year of each respective transaction.
15
Proxy Statement-16
4.6 Each Option shall be evidenced by an agreement in writing
containing the provisions, terms and conditions of each such Option granted
consistent with the provisions of this Plan.
SECTION 5. Stock Subject to the Plan
5.1 A total of 10,000,000 Plan Shares shall be subject to this Plan.
The Plan Shares shall consist of unissued shares of Common stock or previously
issued shares of Common stock reacquired and held by the Company or any
Affiliate and such number of Plan Shares shall be and are hereby reserved for
such purpose. Any Plan Shares which may remain unsold and which are not subject
to outstanding Options at the termination of this Plan shall cease to be
reserved for the purpose of this Plan, but until termination of this Plan, the
Company shall at all times reserve a sufficient number of shares to meet the
requirements of this Plan. Should any Option expire or be cancelled prior to its
exercise in full, the unexercised Plan Shares subject to such Option may again
be subjected to an Option under this Plan.
SECTION 6. Persons Eligible to Participate
6.1 Grants of Incentive Stock Options shall be made only to persons who
are, on the effective date of the grant, employees of the Company or any
Subsidiary. The Board, (or the Committee, as the case may be), shall have the
full power to designate from among the eligible parties, those to whom Options
may be granted. A person who has been granted an Option hereunder may be granted
an additional Option or Options. Persons eligible under this Plan additionally
may be granted one or more options under any other compensatory or stock option
plan or awarded shares under any other benefit plan of the Company. No Option
shall confer any right upon the Optionee with respect to the continuation of his
employment (or his position as an officer, director, employee, agent or
consultant), with the Company or any Affiliate, and shall not interfere with the
right of the Company or any Affiliate to terminate such relationship(s) at any
time in accordance with law and any other agreements in force.
6.2 Annual Limit on Incentive Stock Options. To the extent required for
"incentive stock option" treatment under Section 422 of the Code, the aggregate
Fair Market Value (determined as of the time of grant) of the Stock with respect
to which Incentive Stock Options granted under this Plan and any other plan of
the Company or its Subsidiaries become exercisable for the first time by an
optionee during any calendar year shall not exceed $100,000. Notwithstanding the
foregoing, to the extent that the aggregate Fair Market Value (determined as of
the time of grant) of the Stock with respect to which Incentive Stock Options
granted under this Plan and any other plan of the Company or its Subsidiaries
become exercisable for the first time by an optionee during any calendar year
exceeds $100,000 said excess shall be treated as a Non-Qualified Stock Option.
SECTION 7. Option Exercise Price
7.1 The exercise price per share under each Option shall be determined
by the Board, (or the Committee, as the case may be), at the time the Option is
granted and shall not be less than the par value of the Common Stock obtainable
upon the exercise thereof; provided, however, that the exercise price of any
Incentive Option shall not, unless otherwise permitted by the Code, be less than
the fair market value of the Common Stock on the date the Option is granted
(110% of the fair market value in the case of a Greater-Than-Ten-Percent
Stockholder). For these purposes, the "fair market value" of the Common Stock
shall equal (a) the closing price per share on the date of grant of the Option
as reported by a nationally recognized stock exchange, (b) if the Common Stock
is not listed on such an exchange, as reported by the National Market System or
another automated quotation system of the National Association of Securities
Dealers, Inc., or (c) if the Common Stock is not quoted on any such system, the
fair market value as determined by the Committee.
SECTION 8. Exercise Period; Vesting
8.1 The Option exercise period shall be a term of not more than ten
years from the date of granting of each Option and shall automatically
terminate:
(i) immediately following termination of the Optionee's employment
for cause; or
(ii) 60 days following termination of the Optionee's employment
with the Company, without cause, for any reason other than
death, provided that if the Optionee dies within such period,
subclause (ii) below shall apply; or
16
Proxy Statement-17
(iii) at the expiration of 12 months after the date of death of the
Optionee.
8.2 "Employment with the Company" as used in this Plan shall include:
(i) employment with, or
(ii) as to a consultant, advisor, or agent, engagement by, or;
(iii) service as a director of
the Company or any Affiliate, in any such capacity, even if employment or
engagement in another capacity ceases, and Options granted under this Plan shall
not be affected by an Employee's transfer of employment within the Company or
between it and any Affiliate or between any Affiliates. An Optionee's employment
shall not be deemed interrupted or terminated by a bona fide leave of absence,
such as sabbatical leave, military or other services required by the Government,
or sick leave.
8.3 The Board (or Committee, as the case may be), may determine at the
time of grant that the Option granted shall not vest immediately, but over a
specified time, in specified amounts, per time period, or subject to other
restrictions or limitations. Unless otherwise set forth in the granting
resolution, an Option shall vest immediately upon grant.
SECTION 9. Exercise of Options
9.1 The Board (or Committee as the case may be), in granting Options
shall have discretion to determine the terms upon which the Options shall be
exercisable, subject to applicable provisions of this Plan. Once available for
purchase, unpurchased Plan Shares shall remain subject to purchase until the
Option expires or terminates in accordance with the terms herein. Unless
otherwise stipulated in an Option, an option may be exercised in whole or in
part, one or more times, but no Option may be exercised for a fractional share.
Resulting fractions shall be rounded up or down as appropriate.
9.2 Options may be exercised solely by the Optionee or a permitted
transferee during his lifetime or by a spouse or former spouse pursuant to a
qualified domestic relations order, or after his death (with respect to the
number of shares which the Optionee could have purchased at the time of death)
by the person or persons entitled thereto under the decedent's Will or the laws
of descent and distribution.
9.3 The purchase price of the Plan Shares to which an Option is
exercised shall be paid in full at the time of exercise and no Plan Shares shall
be issued until full payment is made therefor. Payment shall be made either
(i) in cash, represented by a bank or cashier's check,
certified check or money order, or made by bank wire transfer;
(ii)by delivering shares of the Company's Common stock which
have been beneficially owned by the Optionee, the Optionee's
spouse or both of them for a period of at least six months
prior to the time of exercise (the "Delivered Stock"), in a
number equal to the number of Plan Shares being purchased upon
exercise of the options;
(iii) a combination of cash and delivered stock;
(iv) by delivery of shares of corporate stock which are freely
tradable without restriction and which are part of a class of
securities which has been listed for trading on the NASDAQ
system or a national securities exchange, with an aggregate
fair market value equal to or greater than the exercise price
of the Plan Shares being purchased under the Option, (the
"Other Shares"), or v) a combination of cash, Delivered Stock
and Other Shares. An Option shall be deemed exercised when
written notice thereof, accompanied by the appropriate payment
in full, is received by the Company. No holder of an Option
shall be or have any of the rights and privileges of a
shareholder of the Company, in respect of any Plan Shares
purchased upon exercise of an Option unless and until
certificates representing such shares have been issued by the
Company to him or her. The Board (or Committee as the case may
be), shall have absolute discretion whether to accept Other
Shares offered and in valuing such shares.
17
Proxy Statement-18
(v) a personal recourse note issued by the Optionee to the Company
in a principal amount equal to such aggregate exercise price
and with such other terms, including interest rate and
maturity, as the Company may determine in its discretion;
provided, however, that the interest rate borne by such note
shall not be less than the lowest applicable federal rate, as
defined in Section 1274(d) of the Code.
(vi)If permitted by the Board (or Committee, as the case may be),
in its discretion, by the Optionee delivering to the Company a
properly executed exercise notice together with irrevocable
instructions to a broker to promptly deliver to the Company
cash or a check payable and acceptable to the Company to pay
the purchase price; provided that in the event the Optionee
chooses to pay the purchase price as so provided, the Optionee
and the broker shall comply with such procedures and enter
into such agreements of indemnity and other agreements as the
Board shall prescribe as a condition of such payment
procedure. The Company need not act upon such exercise notice
until the Company receives full payment of the exercise price.
SECTION 10. Options in Substitution for Other Options
10.1 The Board (or Committee, as the case may be), may in its sole
discretion, at any time during the term of this Plan, grant new Options to an
Employee under this Plan or any other stock option plan of the Company, on the
conditions that such Employee shall surrender for cancellation one or more
outstanding Options which represent the right to purchase (after giving effect
to any previous partial exercise thereof), a number of shares, in relation to
the number of shares to be covered by the new conditional grant hereunder. No
such new conditional grant shall become exercisable in the absence of such
Employee's consent to the condition, surrender and cancellation, as appropriate.
New conditional Options shall be treated in all respects under this Plan as
newly granted Options. Options may be granted under this Plan from time to time
in substitution for similar rights held by Employees of other corporations who
are about to become Employees of the Company or an Affiliate as a result of a
merger or consolidation of the employing corporation with the Company or an
Affiliate, or the acquisition by the Company or an Affiliate of the assets of
the employing corporation, or the acquisition by the Company or an Affiliate, of
stock of the employing corporation as the result of which such other corporation
becomes an Affiliate.
SECTION 11. Assignability
11.1 Except with the express written consent of the Board, Options for
Plan Shares may not be assigned nor otherwise transferred except by Will or by
operation of law, pursuant to a qualified domestic relations order (as defined
in Rule 16B-3 of the Securities and Exchange Commission, or any successor rule).
Except with the express written consent of the Board, no Option shall be pledged
or hypothecated in any manner, whether by operation of law or otherwise, and no
Options shall be subject to execution, attachment or similar process. Plan
Shares themselves may be assigned only after such shares have been awarded,
issued and delivered, and only in accordance with law and any transfer
restrictions imposed at the time of Option.
SECTION 12. Reorganizations and Recapitalizations of the Company
12.1 (a) The existence of this Plan and Options granted hereunder shall
not affect in any way the right or power of the Company or its shareholders to
make or authorize any and all adjustments, recapitalizations, reorganizations,
or other changes in the Company's capital structure or its business, or any
merger or consolidation of the Company or any issue of bonds, debentures or
other indebtedness, or any preferred or prior preference stocks senior to or
affecting the Company's Common stock or the rights thereof, or the dissolution
or liquidation of the Company, or any sale, exchange or transfer of all or any
part of its assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise.
(b) The Plan Shares in respect to which Options may be granted
hereunder are shares of Common stock currently constituted. If, and whenever,
prior to delivery by the Company of all of the Plan Shares which are subject to
Options granted hereunder, the Company shall effect a subdivision or
consolidation of shares or other capital readjustment, a stock split,
combination of shares (reverse stock split), or recapitalization or other
increase or-reduction in the number of shares of the Common stock outstanding
18
Proxy Statement-19
without receiving compensation therefore in money, services or property, and
other than as a dividend, then the number of Plan Shares with respect to which
options granted hereunder may thereafter be exercised shall i) in the event of
an increase in the number of outstanding shares, be proportionately increased
and the cash consideration payable per share shall be proportionately reduced;
and ii) in the event of a reduction in the number of outstanding shares, be
proportionately reduced and the cash consideration payable per share shall be
proportionately increased.
(c) In the event of a consolidation or merger or sale of all or
substantially all of the assets of the Company in which outstanding shares of
common stock are exchanged for securities, cash or other property of any other
corporation or business entity, or in the event of a liquidation of the Company,
the Board, or the board of directors of any corporation assuming the obligations
of the Company, may, in its discretion, take any one or more of the following
actions, as to some or all outstanding Options (and need not take the same
action as to each such Option): (i) provide that such Options shall be assumed,
or equivalent Options shall be substituted, by the acquiring or succeeding
corporation (or an affiliate thereof), provided that any such Options
substituted for Incentive Stock Options shall meet the requirements of Section
424(a) of the Code, (ii) upon written notice to the Optionees, provide that all
unexercised Options will terminate immediately prior to the consummation of such
transaction unless exercised by the Optionee (to the extent otherwise then
exercisable) within a specified period following the date of such notice, (iii)
in the event of a merger under the terms of which holders of the common stock of
the Company will receive upon consummation thereof a cash payment for each share
surrendered in the merger (the "Merger Price"), make or provide for a cash
payment to the Optionees equal to the difference between (A) the Merger Price
times the number of shares of common stock subject to such outstanding Options
(to the extent then exercisable at prices not in excess of the Merger Price) and
(B) the aggregate exercise price of all such outstanding Options, in exchange
for the termination of such Options, and (iv) provide that all or any
outstanding Options shall become exercisable in full immediately prior to such
event.
(d) Except as expressly provided above, the Company's issuance of
shares of capital stock of any class, or securities convertible into shares of
capital stock of any class, as dividends or for cash, property, labor or
services, either upon direct sale or upon the exercise of rights or warrants to
subscribe therefor, or upon conversion of shares or obligations of the Company
convertible into or exchangeable for shares of capital stock or other
securities, shall not affect, and no adjustment by reason thereof shall be made
with respect to the number of Plan Shares subject to Options granted hereunder
or the purchase price of such shares.
SECTION 13. Purchase for Investment
13.1 Unless the Plan Shares covered by this Plan have been registered
under the Act prior to issuance, each person exercising an Option under this
Plan may be required by the Company to give a representation in writing that he
is acquiring shares for his or her own account for investment and not with a
view to or for sale in connection with the distribution of any part thereof.
SECTION 14. Laws and Regulations
14.1 This Plan and the granting and exercise of Options hereunder, and
the obligation of the Company to sell and deliver Plan Shares under such
Options, shall be subject to all applicable laws, rules and regulations and to
such approvals by any governmental agencies or national securities exchanges as
may be required.
SECTION 15. Withholding of Taxes
15.1 If subject to withholding tax, the Company may be required to
collect withholding taxes upon the exercise of an Option. The Company may
require, as a condition to the exercise of an option that the Optionee
concurrently pay to the Company the entire amount or a portion of any taxes
which the Company is required to withhold by reason of such exercise, in such
amount as the Company in its discretion may determine. In lieu of part or all of
any such payment, the Optionee may elect to have the Company withhold from the
Plan Shares to be issued hereunder, a sufficient number of shares to satisfy
withholding obligations.
SECTION 16. Reservation of Shares
16.1 The stock subject to this Plan, shall, at all times, consist of
authorized but unissued Common shares, or previously issued shares of Common
stock reacquired or held by the Company or an Affiliate, equal to the maximum
number of shares the Company may be required to issue under this Plan, and such
number of Common shares is hereby reserved for such purpose. The Board, (or
Committee, as the case may be), may decrease the number of shares subject to
this Plan, but an increase in such number may only occur as a consequence of a
stock split or other reorganization or recapitalization affecting all Common
shares.
19
Proxy Statement-20
SECTION 17. Termination of the Plan
17.1 The Board may suspend or terminate this Plan at any time or from
time to time, but no such action shall adversely affect the rights of a person
granted an Option under this Plan prior to that date. Otherwise, this Plan shall
terminate on the earlier of the date previously specified herein, or the date
when all the Plan shares have been issued.
SECTION 18. Amendment of the Plan
18.1 The Board may amend or alter this Plan at any time in such
respects as it shall deem advisable in order to conform to any change in any
other applicable law, or in order to comply with the provisions of any rule or
regulation of the Securities and Exchange Commission required to exempt this
Plan or any Options granted hereunder from the operation of Section 16(b) of the
Securities Exchange Act of 1934, as amended, (the "Exchange Act"), or in any
other respect not inconsistent with Section 16(b) of the Exchange Act; provided
that no amendment or alteration shall be made which would impair the rights of
any participant under any Option theretofore granted, without his consent
(unless made solely to conform such Option to and necessary because of changes
in the foregoing laws, rules or regulations).
SECTION 19. Delivery of a Copy of the Plan
19.1 A copy of this Plan shall be delivered to every person to whom an
Option is granted.
SECTION 20. Liability
20.1 No member of the Board of Directors, the Committee (where
applicable), or any other committee of Directors, Officers, Employees, or agents
of the Company or any Affiliate, shall be personally liable for any action,
omission or determination made in good faith in connection with this Plan.
SECTION 21. Miscellaneous Provisions
21.1 The place of administration of this Plan shall be wherever the
Company's principal executive offices are located and the validity,
construction, interpretation and effect of this Plan and of its rules,
regulations and rights relating to it, shall be determined solely in accordance
with the laws of the State of Nevada. Without amending this Plan, the Board, (or
Committee as the case may be), may issue Plan Shares to employees who are
foreign nationals or employed outside the United States or both, on such terms
and conditions different from those specified in this Plan but consistent with
the purpose of this Plan, as it deems necessary and desirable to create
equitable opportunities, given the difference in tax laws in such other
countries. All expenses of administering this Plan and issuing Plan Shares shall
be borne by the Company.
By signature below, the undersigned officers of the Company hereby
certify that the foregoing is a true and correct copy of the Employee Stock
Option (2002) Plan of the Company.
Dated: July 9, 2002. WAVERIDER COMMUNICATIONS INC.
By:
-------------------------------------
D. Bruce Sinclair, President
-------------------------------------
Cameron A. Mingay, Secretary
20
Proxy Statement-21
APPENDIX B
TEXT OF PROPOSED AMENDMENT
RESOLVED: The shareholders of this corporation have, at an annual
general meeting of shareholders held Tuesday July 9, 2002, duly adopted an
amendment to the Articles of Incorporation of the corporation, consisting of
amendment to the first paragraph of Article FIFTH, to among other things,
increase the number of authorized shares of common stock. The amendment thus
adopted is as follows:
"FIFTH, The aggregate number of shares of capital stock of all classes
which the Corporation shall have authority to issue is FOUR HUNDRED AND
FIVE MILLION (405,000,000), of which FOUR HUNDRED MILLION (400,000,000)
shares having a par value of $0.001 per share shall be of a class
designated "Common Stock" (or "Common Shares") and FIVE MILLION
(5,000,000) shares having a par value of $0.001 per share shall be of a
class designated "Preferred Stock" (or "Preferred Shares"). All shares
of the Corporation shall be issued for such consideration or
considerations as the Board of Directors may from time to time
determine. The designations, voting powers, preferences, optional or
other special rights and qualifications, limitations, or restrictions
of the above classes of stock shall be as follows:
21
Description of Business B-1
DESCRIPTION OF BUSINESS
Background
We commenced activities in the wireless industries through the 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 a business combination with
Channel i Inc., pursuant to which Channel i Inc., a company trading on the OTC
Bulletin Board, issued stock to the stockholders of Major Wireless. Major
Wireless became a subsidiary of Channel i Inc., and Channel i Inc. changed its
name to WaveRider Communications Inc. WaveRider then completed a private
placement of common and preferred share units for $1.5 million.
On June 11, 1999, WaveRider acquired Transformation Techniques, Inc. or TTI
through a merger with our newly created subsidiary WaveRider Communications
(USA) Inc. On October 1, 2000, we acquired ADE Network Technology Pty Ltd. or
ADE of Melbourne, Australia, a privately held wireless infrastructure company.
Subsequently, we changed the name of ADE to WaveRider Communications (Australia)
Pty Ltd.
We were originally incorporated under the laws of the State of Nevada on
August 6, 1987, as Athena Ventures Inc. From 1987 until the acquisition 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 the acquisition of Major Wireless
Communications Inc. (which is now known as WaveRider Communications (Canada)
Inc.) in May 1997, Channel i Inc. had become inactive.
Our executive offices are located at 255 Consumers Road, Suite 500,
Toronto, Ontario, Canada, M2J 1R4. Our telephone number is (416) 502-3200 and
our Web Site address is www.waverider.com.
WaveRider Communications Inc. - Our Business
We design, develop, market and support fixed wireless Internet access
products. Our products are designed to deliver efficient, reliable, and
cost-effective solutions to bringing high-speed Internet access to markets
around the world.
We are focused on providing the solution to the "last mile" problem faced
by traditional wired telecommunications services: how to profitably build out a
network that provides the level of services demanded by end users. In medium to
small markets, and in areas of the world with limited or no existing
telecommunications infrastructure, the cost to install or upgrade wired services
to provide the level of access customers expect can be prohibitive.
We believe that our fixed wireless Internet access products are faster and
less expensive to deploy than traditional wired services, with a lower
cost-per-user to install, deploy and manage.
Our wireless network products are designed to operate in the license-free
ISM radio spectrum, which facilitates a more rapid and low-cost market
introduction for service providers than for licensed or hardwire solutions. Our
products utilize direct sequence spectrum or DSS communications, which ensures
reliable, secure, low-interference communications.
Our Products
Our current product portfolio includes the Last Mile Solution or LMS
product line and the Network Communications Links or NCL product line. These
product families are designed to deliver scalable, high-speed, fixed wireless
Internet access to all sizes of businesses, home offices and residential users.
Both our LMS and NCL product families include our proprietary technologies
developed at our research and development facility.
B-1
Description of Business B-2
Last Mile Solution
The LMS product family includes the LMS2000, LMS3000and LMS4000 wireless
networks. The LMS family is designed to enable service providers to deliver
high-speed Internet access to both business and residential customers. The LMS
series supports a variety of services including Internet access for e-mail,
large file transfers, web browsing, and streaming audio and video. All LMS
products are optimized for Internet Protocol or IP networks. Connectivity is
provided to the end-users via a LMS end-user modem designed specifically for
business or residential use.
The Last Mile Solution wireless networks include a Network Management System or
NMS which features subscriber management, data distribution and bandwidth
management, interface to the service provider's network, user authentication and
network security management. The NMS enables service providers to offer varying
levels of services to their customers via a single network, monitor their
network from a single location and implement detailed customer billing systems.
The network is designed to be highly scalable, allowing service providers to
begin with a small initial network and gradually build out a larger network with
more users over time.
LMS2000
The LMS2000 was the first of our Last Mile Solution products to be released
and enables service providers to deliver high-speed Internet access to business
customers. Operating in the license-free 2.4 GHz spectrum, the LMS2000 delivers
raw data throughput speeds of up to 11 megabits per second (Mbps) via
line-of-sight connectivity.
LMS3000
Our LMS3000 is designed to deliver high-speed wireless Internet access to
small business and residential users. The LMS3000 operates in the license-free
900 MHz spectrum and delivers data throughput speeds up to 1.4 Mbps. The LMS3000
delivers non-line-of-sight communication between the communications access point
and the end-user modem, which eliminates the need for an external antenna. The
LMS3000 modem has its own antenna and can be easily set up by the end-user.
LMS4000
We also offer the combined capabilities of the LMS2000 and the LMS3000 in a
single network called the LMS4000. A fully deployed LMS4000 network can connect
more than 10,000 users in a combination of 2.4 GHz line-of-sight and 900 MHz
non-line-of sight.
NCL Products
The NCL product family is a series of wireless bridges and routers designed
specifically for use by internet service providers, network managers and
information technology managers. Offering point-to-point and point-to-multipoint
line of sight wireless connectivity in the 2.4 to 2.485 GHz license-free
frequency band, our NCL products can be used to establish wide area networks and
building-to-building links. The NCL can connect a single computer or computer
network to other single computers or computer networks.
The operating system built into the NCL products incorporates a complete
Simple Network Management Protocol or SNMP compliant managed routing solution,
which facilitates the installation and use of these products. The operating
system also integrates Internet Protocol or IP, which provides a variety of
network routing capabilities.
We launched our first product, the NCL135, during the first quarter of
1999. The latest product in our NCL family, the NCL1170 bridge/router, was
launched in May 2001. The NCL1170 delivers high-speed wireless connections for
LAN-to-LAN and LAN-to-Internet connectivity. The NCL1170 delivers throughput
speeds up to 7.75 mbps, using our proprietary radio technology that uses an 11
mbps radio. The product can be used for point-to-point and point-to-multipoint
applications and to extend Ethernet networks without additional telephone lines.
B-2
Description of Business B-3
Our Market
The market for our fixed wireless access products is driven by the
worldwide demand for Internet access as well as the increasing demand for high
speed Internet access. Our target market in North America is comprised of cities
with a population of fewer than 150,000, suburban areas of larger cities and
industrial parks. In this potential market, our products address the demands of
organizations and consumers who require broadband access to the Internet, but do
not have access to cable or digital subscriber line connections from traditional
service providers. We believe this market includes 40% of North American homes
and businesses.
The growth in the number of Internet users in the United States is slowing
due to a high level of penetration, nevertheless the Internet population is
expected to grow from 166 million users in 2002 to 208 million in 2005 according
to eTForecasts. The greatest growth potential is provided by the demand for
broadband Internet access. According to a study released by eMarketer in July
2001, there will be nearly 10 million broadband households by the end of 2001.
They further project that this figure will rise to over 31 million households by
2004. We estimate that our addressable market for wireless broadband access will
account for over 10 percent of all broadband subscribers.
In many international markets, the telecommunications infrastructure is
inadequate or unavailable for basic Internet access. In these markets, our
wireless products have a significant cost advantage over wired technologies.
Accordingly, our international target markets are broader than our North
American target market, and we believe have an even greater revenue potential as
large parts of less developed regions such as China, India, Africa, South East
Asia and South America have only limited and high cost Internet access. To tap
these markets, we have focused significant sales and marketing efforts
internationally. This has proven particularly advantageous given the current
North American economic slowdown and curtailment of telecommunications related
capital expenditures. During 2001 our revenue from international markets
exceeded that from North America and we expect this trend to continue.
Internet access prices can be broken down into three components: access
equipment, Internet access provision and telephone service charges. In relative
terms, the costs to get connected are much higher in developing countries. While
prices may not differ drastically in absolute terms, there is a large gap
between high and low income countries when costs relative to per capita income
are considered. In our view, fixed wireless access technology is well positioned
to bridge the gap between those who have access to high-speed services and those
who do not, and could also provide the means to overcome the obstacles gaining
basic access to the Internet. We believe there are significant advantages, such
as reduced cost and faster deployment, to our fixed wireless access technology
over traditional wired access.
In summary, the key demand drivers for fixed wireless access include:
o Growth in the number of Internet users world wide,
o Growing demand for high speed Internet access,
o Scarcity of access technologies that are capable of
efficiently and economically delivering more than 1 Mbps,
Lack of wireline infrastructures in developing countries, and
o Lack of suitable broadband access technologies in rural and
suburban areas in North America.
In meeting these market requirements, our fixed wireless access product
line offers several benefits as a communications technology:
o Instant blanket coverage without digging up streets or leasing
capacity from competitors,
o A pay-as-you-grow deployment model, which allows for low-cost
market entry with incremental costs matched to incremental
revenues,
o Bandwidth increments that address the requirements of
small/mid-size businesses,
o Point-to-multipoint technology allows for burstable, bandwidth
on demand services, which are specially suited towards a
data-centric environment,
o Wireless technology enables those who do not have access to
copper, coaxial or fiber optic wire to participate in the
high-speed Internet access market,
B-3
Description of Business B-4
o Significant cost advantages through the use of license-free
radio frequencies, and
o Easy to set up, non-line-of-sight modems result in further
significant cost savings by avoiding expensive truck rolls to
install customer premise equipment.
There are a number of different forecasts for fixed wireless access
users that predict steady growth in the next few years. ARC Group, for example,
projects that in the United States users that access the Internet using fixed
wireless access modems will increase from 180,000 in 2000 to 6.76 million in
2005. Rapid growth is also predicted for Europe, the Far East and China.
Globally, fixed wireless access users are projected to grow from a total of
240,000 in 2000 to more than 28 million in 2005.
Also, in a study published by Allied Business Intelligence Inc in July
2001, wireless Internet subscribers in the unlicensed frequency are projected to
approach 7 million by year-end 2006. According to the study the use of
unlicensed frequencies is growing faster than other fixed wireless because of
lower costs and reduced barriers to entry into the market.
The industry projections presented above were provided in studies performed
by two industry sources:
o ARC Group provides a range of analysis, research and
consultancy services to leading clients around the world, with
a team of full time consultants based in the UK supported by a
global network of associates and analysts; and
o Allied Business Intelligence Inc., a New York based technology
research think tank specializing in communications and
emerging technology markets. Allied publishes strategic
research on the broadband, wireless, electronics, networking
and energy industries.
The studies contain forward-looking information which is based on
expectations and projections about future events in the wireless industry.
Actual results in the industry could differ materially from the results of these
studies. We have done nothing to verify the accuracy of the underlying sources
of the studies or the assumptions used in the studies.
Currently, our products operate in the unlicensed spectrum,
specifically 900 MHz and 2.4 GHz. We believe that our 900 MHz products in
particular could enjoy wide acceptance because of their non-line-of-sight and
easy to set up features. Deployments that combine business and consumer
subscribers can be shown to offer a viable and profitable business case for
service operators.
Our Market Strategy
We believe that we are in a position to meet the Internet access needs
of organizations and consumers in North America and abroad. In North America,
our products address the demands of users who require broadband access to the
Internet, but do not have access to cable or digital subscriber line connections
from traditional service providers. These customers are typically found in
smaller cities in North America, and in most suburban and semi-rural areas where
there are few Internet access options other than traditional telephone dial-up
connections.
In many international markets, the basic telecommunications
infrastructure is inadequate or unavailable for basic Internet access. In these
markets, our wireless products have a significant cost advantage over wired
technologies. In addition, they can be deployed rapidly and be maintained
easily.
Our approach to the market uses a direct and indirect sales model
consisting of strategic industry partnerships and key relationships: direct to
strategic partners such as carriers and Internet service providers and indirect
to channel partners including distributors, value added resellers and system
integrators.
For the LMS product family, we market directly to Internet service
providers, telephone companies (including competitive local exchange carriers,
independent local exchange carriers and independents) cellular providers and
emerging carriers. In some international markets, we will form alliances with
local partners who will provide sales, support and installation services for LMS
systems.
The LMS system provides an attractive and profitable business model for
operators. Our system enables the operator to provide high-speed wireless
Internet access to both the business and consumer/residential markets. Also, the
system's scalability allows an operator to launch a wireless network with a
relatively small investment and grow the network as the number of subscribers
increase.
B-4
Description of Business B-5
Target Customers
Wireless Carriers - Internet access provides wireless carriers with the
opportunity to expand their service offerings and revenue base. Wireless
carriers are an attractive target market for us because they have wireless
expertise and an existing infrastructure that can be used to build a wireless
Internet access service using our equipment.
Rural cellular providers in the United State provide the largest
potential in this segment. There are approximately 428 Rural Service Areas in
the United States. The cost to develop and build an advanced rural communication
network infrastructure is substantial. Our systems enable the rural cellular
providers to establish a wireless Internet access service to meet the demand for
broadband services at a relatively low cost per subscriber.
Wireline Carriers (Independent Telephone Companies) - Independent
regional telephone companies offer a significant potential market for our
wireless service package. This target is attractive for us because of the market
serviced by these companies where there is an unmet need for broadband services,
and because the challenges they face in expanding the range of services to
customers.
In the United States there are nearly 1,000 independent telephone
companies ranging in size from fewer than 50 customers to more than 50,000.
These companies provide telephone service to nearly 5 million rural Americans.
In Canada there are approximately 50 independent telephone companies of which 9
are municipally owned and the rest are privately owned. In addition to basic
telephone service, many independents offer other communications services
including cellular, paging, cable television, and Internet access services.
Several characteristics make rural communities different from urban
areas. Greater distances between centers and smaller more scattered populations
make single lines more expensive given the longer cable loops required which
reduce the advantage of volume concentration. Because of this and regulatory
changes, much less upgrading and modernization has been done in rural areas.
Internet Service Providers - ISPs fall into three categories: national
backbone providers, regional networks and independent service providers.
Independent and regional providers act as intermediaries between the owners of
the transmission networks over which Internet traffic is passed and the owners
of the traffic that is available on the World Wide Web. For this reason, in the
internet service provider market, we are targeting national and regional
operators who understand the value of incorporating a wireless strategy to
enhance their position in the marketplace by lessening their dependence on
independent local exchange carriers.
The demand for high-speed access has provided additional challenges,
opportunities and threats to internet service providers. As telephone companies
roll out digital subscriber line services and cable companies offer their own
Internet access services, the independent internet service provider has an
opportunity to partner with us to remain a competitive player in the high-speed
access market. In regions that lack a communications infrastructure for
high-speed access, our solution provides independent and regional internet
service providers with an opportunity to satisfy the demand for high-speed
Internet access. We offer additional benefits to internet service providers in
that by implementing a wireless Internet access system, an internet service
provider can go beyond just being an access provider to becoming a
communications provider with control over their own infrastructure.
From our standpoint, internet service provider targets should occupy
markets with a high demand for higher speed connections but lack the
infrastructure to deliver high-speed services. These operators should also have
a good mixture of home offices and business customers who require high-speed
access to the Internet.
B-5
Description of Business B-6
International Sales Strategies
Our target markets outside of North America are predicated on spectrum
availability. Our LMS3000 product uses the 900 MHz spectrum and can operate only
in parts of South America. The LMS2000 operates in the 2.4 GHz spectrum and can
be deployed in most international markets except for Europe.
We believe that the revenue potential for our products in international
markets are even larger than in North America because the telecommunications
infrastructure required for Internet access is underdeveloped in countries such
as China, India, parts of South America and South East Asia. From the outset, we
have focused significant sales and marketing efforts internationally.
We recognize that international business has longer sales cycles and
requires a local presence for major LMS deals. As a result, we have begun to
develop our global infrastructure by establishing field sales and support
offices in key strategic regions. In 2000, we acquired ADE Network Technology
Pty, LTD. in Australia, a wireless product integrator. This acquisition has
provided a strong base of customers and staff to exploit the market
opportunities in Australia and South East Asia.
Over the past 24 months, contracts have been established with strategic
distribution partners in China, India, and the Middle East. In 2001, the Asia
Pacific region represented over 45% of our revenues. Details of geographic sales
and assets can be seen in note 22 of the attached financial statements.
Professional Services
Our professional services group is an important component in our sales
and marketing strategy and in our opinion, provides an important competitive
advantage.
Our professional services strategy is to deliver flexible, cost
effective and market driven service offerings that exceed our customer's
expectations. We are positioned to deliver this support strategy globally.
During the last few months a number of key programs have been launched to meet
the time to market requirements of our products.
We have formed key global partnerships with General Dynamics' Worldwide
Telecommunications Systems (an ISO 9001 company) and Comsearch-SCIENTECH to
provide global engineering design and installation services of our LMS and NCL
products. These two global service partners work under our program management
office. This office is staffed with our program managers and systems engineers
and is responsible to contract directly with our customers for these services.
The program management office, coupled with our global service
partners, has the international capabilities to provide:
Application engineering; System and program planning and
implementation management;
Path survey, design and engineering; Network engineering, operations
and wireless services
Permitting; Civil works (engineering and
construction);
Line of sight verification; Backhaul;
Site inspection and audit; Installation, testing and acceptance;
Structured cable installation; and Final documentation.
Manufacturing and Distribution
We have entered into long term manufacturing agreements with Solectron
Corporation or Solectron and Electronic Manufacturing Group or EMG to
manufacture, package and distribute our products.
B-6
Description of Business B-7
Solectron (www.solectron.com) provides a full range of global manufacturing and
supply-chain management services to the world's premier high-tech electronics
companies. Solectron's offerings include new-product design and introduction
services, materials management, high-tech product manufacturing, and product
warranty and end-of-life support. Solectron, the first two-time winner of the
Malcolm Baldrige National Quality Award, has a full range of industry-leading
capabilities on five continents. Its headquarters are in Milpitas, California.
Electronics Manufacturing Group - EMG is an ISO 9002 registered Electronics
Manufacturing Services company that provides a complete range of integrated
product development and delivery services to the global technology and
electronics industry. Such services include design, rapid prototyping,
manufacturing and assembly, testing, product assurance, supply chain management,
worldwide distribution and after-sales service. Located in Markham, Ontario,
Canada, EMG's manufacturing facility employs 200 people. EMG brings extensive
insight to the principles of wireless manufacturing and production.
Through our association with Solectron and EMG, we have the capability
to meet the demands of a rapidly growing Internet market, with high quality
products which are efficiently manufactured.
We provide our contract manufacturers with ongoing production forecasts to
enable them to forecast and procure required parts. Under the terms of the
Agreements with the contract manufacturers, we have committed to assume
liability for all parts required to manufacture our forecast products for the
next 13 weeks and all final assembly costs for the forecast products for the
next 4 weeks, on a rolling basis.
Competition
There is intense competition in the data communications industry. We
compete not only with other fixed wireless Internet companies, but also with
companies that deliver hard-wired technologies (wire or fiber optic cable).
Competition is based on design and quality of the products, product performance,
price and service, with the relative importance of each factor varying among
products and markets.
We compete against companies of various sizes in each of the markets we
serve. Many of these companies have much greater financial and other resources
available to help them withstand adverse economic or market conditions. These
factors, in addition to other influences such as increased price competition and
market and economic conditions could potentially impair our ability to compete.
Our major competitors include Alvarion, Cisco/Aironet and Agere/Orinoco.
Regulation of Wireless Communications
Currently, our technology is deployed in the highly regulated license
free frequency bands. As such, our products are not subject to any wireless or
transmission licensing in the United States, Canada and many other jurisdictions
worldwide. The products do, however, have to be approved by the Federal
Communications Commission, for use in the United States, Industry Canada, for
use in Canada, and other regulator bodies for use in other jurisdictions, to
ensure they meet the rigorous requirements for use of these bands.
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 our products in the 902 to 928 MHz and the 2.4 GHz bands are
subordinate to certain licensed and unlicensed uses of the bands and our
products must not cause harmful interference to other equipment operating in the
bands and must accept interference from any of them. If we should be unable to
eliminate any such harmful interference, or should our products be unable to
accept interference caused by others, we or our customers could be required to
cease operations in the bands in the locations affected by the harmful
interference. Additionally, in the event the 902 to 928 MHz or the 2.4 GHz bands
becomes unacceptably crowded, and no additional frequencies are allocated, our
business could be adversely affected.
B-7
Description of Business B-8
Research and Development
With the commercial release of the LMS 4000 in Q4 of 2001, we have moved
our attention to sustaining engineering and product enhancement in three
development areas:
o increasing the speed and user capacity of the networks to
allow more users at greater throughput speeds;
o expanding the product offerings into other licensed and
unlicensed bands, to address additional international markets;
and
o further enhancing the network capabilities of the systems to
support new developing applications.
In September 2001, we announced the lay off of over half of our staff,
including a significant number of engineering and development staff. Over 2002,
we intend to integrate our Research and Development facilities with our sales,
marketing and support organization in Toronto. As such, our Research and
Development spending declined significantly in Q4 of 2001 and we expect it to
stay at this reduced level until the integration is completed in the second half
of 2002.
Research and Development expenditures in 2001, excluding depreciation,
amortization and non-cash stock based compensation amounted to $4,471,567
compared with $6,127,360 in 2000 and $2,319,707 in 1999.
Summary
We are a wireless technology company that develops, manufactures and
markets products to take advantage of the world-wide growth of the Internet,
increasing acceptance of wireless technology, and the demand for high speed,
Internet access.
We believe that providing the "last mile solution" is the key to
capitalize on the opportunities presented by today's rapidly changing
telecommunications market place. The ability to provide a full suite of products
and services that will quickly enable all types of users to conduct business,
access services and communication is key to securing a dominant market position.
The demands of the customer are growing beyond traditional voice communication,
as today's end user wants access to a growing set of services that require
high-speed access. As a result, we have developed a family of fixed wireless
access products capable of providing wireless high-speed Internet access to
businesses, organizations and consumers.
With an early-to-market family of products that include the world's
first non-line-of-sight, easy to set up, wireless Internet network available
today, we are well positioned to take a leadership position in the fixed
wireless access market. Further, cost advantages are derived from operating in
the unlicensed frequencies and result in one of the only viable and profitable
wireless Internet networks available to service providers today.
Employees
We currently have approximately 56 employees located in our head office
in Toronto, Ontario, our Research and Development facility in Calgary, Alberta
and our sales offices and subsidiaries in the United States, Canada and
Australia, as well as at our subsidiary, JetStream Internet Services in Salmon
Arm, British Columbia.
In March 2002, we announced plans to close our Calgary facility and
integrate the operations in our Toronto location. It is our expectation that the
Calgary based employees will be relocated or replaced as part of this
transition. The majority of these employees are involved in the design,
development and marketing of our line of wireless data communications products.
B-8
Management Discussion and Analysis F-1
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" on the OTC Bulletin Board.
Subsequent to year-end, during March 2002, we raised $4,497,000, less cash
expenses of $134,750, through the sale of 30,096,666 shares common stock
registered by us on our S-3 shelf registration statement.
On December 14, 2001, we completed a shareholders' rights offering selling
10,675,919 units, consisting of one common share and one warrant per unit, for
cash proceeds of $3,132,976 and the extinguishment of debts and warrants, in the
principal amount of $1,017,000, less cash expenses of $935,102 and $50,459 of
expenses paid in warrants.
On October 19, 2001, we sold promissory notes in an aggregate principal
amount of $834,500 and on November 5, 2001, we sold an additional amount of
$165,000. The notes have a one year term and bear interest at an annual rate of
8% plus a repayment premium of 15%. The notes are secured by a security interest
in all our assets. Also, in connection with the sale of the notes we issued
2,148,925 common stock purchase warrants which are exercisable for a term of
five years at a per share exercise price of $.50 per share.
On December 14, 2001, promissory notes in the principal amount of $567,000 were
returned for cancellation in exchange for the holders participation in the
Shareholders' Rights offering. The holders of the remaining notes may demand
repayment of the notes, including the principal, all accrued interest and the
repayment premium at any time up until maturity.
On June 4, 2001, we raised $2,576,715 through the sale to Crescent
International Ltd. of 30,000 shares of Series D convertible preferred stock and
877,193 Series N warrants. In connections with this transaction, we issued
61,404 Series M-2 warrants as a finders' fee. We have filed a registration
statement (Registration No. 333-67634) to register the shares of common stock
issuable upon conversion of the Series D convertible preferred stock. This
registration statement was declared effective on September 18, 2001. As of
December 31, 2001, Crescent International Ltd. had converted 1,000 shares of
Series D convertible preferred stock into 317,317 shares of common stock.
During 2001, we also raised $132,000 through the sale of common stock
registered by us on our S-3 shelf registration statement and $194,350 through
exercises of employee stock options and purchases under the Company's employee
stock purchase plan.
In 2000, we raised $16,757,800, net of cash expenses, through the sale of
10,318,753 shares of common stock and 940,740 common stock purchase warrants. Of
those shares of common stock, we issued 6,423,872 shares pursuant to exercises
of warrants, net of 42,478 warrants that were cancelled through a cashless
exercise. The private and public sale of shares and attached warrants accounted
for the issue of 1,437,036 shares of common stock and 940,740 common stock
purchase warrants. We issued 1,693,845 shares of common stock pursuant to
exercises under our employee option plans. In addition, we issued 764,000 shares
of common stock pursuant to the conversion of shares of Series C preferred
stock.
In 2000, we also raised $4,818,000, net of cash expenses, through the sale
of convertible promissory notes and warrants to Capital Ventures International
or CVI. On March 14, 2001, CVI converted notes in the principal amount of
$4,550,000, plus interest, for 3,101,249 shares of our common stock and on
December 14, 2001 converted the balance of the notes through participation in
the Shareholders' Rights offering. Included with the promissory notes were
2,461,538 Series J warrants, originally exercisable at$ 3.35 per share for 5
years and repriced to be exercisable at $2.80, and 5,907,692 Series K warrants,
originally exercisable at $2.539 for one year and subsequently repriced at
$2.48. CVI returned 1,500,000 Series J warrants for cancellation as additional
consideration for their participation of the Shareholders' Rights offering, on
December 14, 2001, and all of the Series K warrants expired unexercised. As part
of the agreement, we also issued 25,000 Series M warrants, exercisable at $3.05
for five years, as a finder's fee.
F-1
Management Discussion and Analysis F-2
In 1999, we raised $10,909,353, net of cash expenses, through the sale of
11,951,664 shares of common stock and 4,309,629 common stock purchase warrants.
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. We issued 375,440 shares of common stock pursuant to exercises under
our employee option plans, 30,000 shares through the exercise of warrants and
36,000 shares pursuant to the conversion of shares of Series C preferred stock.
In addition, we issued 384,588 shares of common stock pursuant to the
acquisition of Transformation Techniques, Inc. and 267,870 shares of common
stock pursuant to our 1997 employee stock compensation plan.
The details of these offerings were disclosed 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.
General
We incurred a net loss for the year ended December 31, 2001, of $21.5 million on
revenues of $7.8 million, compared to a net loss for the year ended December 31,
2000, of $31.5 million on revenues of $4.1 million and a net loss for the year
ended December 31, 1999 of $7.4 million on revenues of $1.7million. Our reported
results for 2001 included non-cash expenses in the amount of $10.8 million (2000
- - $17.9 million, 1999 - $1.2 million).
On September 24, 2001, we reduced our staff by 56% and our executive staff
waived all salaries, bonuses and other cash payments and other key management
personnel agreed to a 25% pay reduction for the period October 1, 2001 until
December 14, 2001, the date the shareholder rights offering was completed.
In March 2002, we announced that we will be shutting our Calgary facility and
consolidating Research and Development into our Toronto location. It is
anticipated that the integration will improve communications and efficiency
within the organization and as a result increase our ability to assist customers
to plan, install and deploy our LMS products.
Our cash balance decreased to $2.2 million compared to $7.7 million at December
31, 2000 and $5.5 million at December 31, 1999. See "Liquidity and Capital
Resources" for fuller discussion of our equity financings.
Revenue
Total revenue increased 89% in 2001, compared to 2000, primarily due to the
commercial release of our LMS3000 network system and to the continued expansion
of our sales and marketing. Revenues increased 141% in 2000, compared to 1999,
primarily due to the commercial release of our LMS 2000 network system and to
the expansion of our sales and marketing.
Cost of Product and Internet Sales
We recorded a gross margin of $1,847,522 in 2001 compared to a gross margin
deficiency in 2000 of $1,106,056 and a gross margin of $421,230 in 1999. Cost of
Product and Internet Sales in 2000 was adversely affected by the $1,568,739
write-off of TTI technology related inventories and warranty provisions.
Costs for service sales include third party service contracts and direct
purchased costs for provision of the services. The costs do not include salaries
and overheads for our employees or indirect costs of providing services. These
costs are included in selling, general and administrative expenses.
F-2
Management Discussion and Analysis F-3
Over the past year, we have continued to see pricing pressures on our NCL
product line as telecom spending remains weak. In addition, with the
introduction of the new non-line of sight products, the EUM3000 modems,
economies of scale and design simplification had not been reached during 2001.
These factors combined to result in lower margins than would be expected over
the product lives.
Expenses
Selling, general and administrative expenses, excluding non-cash stock related
charges, declined to $8,239,747 in 2001 (2000 - $8,605,887, 1999 - $4,634,505).
In September 2001, we reduced our staff by 56%, our executive staff waived all
salaries, bonuses and other cash compensation for a period from October 1 to
December 14 and other senior managers accepted a 25% pay decrease for the same
period. We anticipate that we will continue to curtail expenditures through
2002. During 2000, we expanded our sales operations in the United States and
internationally and, in the fourth quarter, acquired ADE Technologies in
Australia. The additions were put in place to provide us with the trained sales
and support representatives required to sell and service the LMS network
products.
We moved to a level of sustaining engineering in the second half of 2001 for our
NCL and LMS product families, with Research and Development costs, excluding
stock related expenses, depreciation and amortization, in 2001 amounting to
$4,471,567 (2000 -$6,127,360, 1999 - $2,319,707). Further, in early 2002, we
announced that we intend to close our Calgary facility during the second half of
2002 and transition the operations to our Toronto location. We anticipate that
we will continue to maintain our 2001 level expenditures through 2002 as we
consolidate our Research and Development activities into our Toronto location.
The final costs of this transition have not been determined but due to the
relatively long transition period we believe that costs will not have a
significant impact on our ongoing expense levels.
When the current operations of the WaveRider were established in May 1997, the
initial founders chose to put their shares into an escrow agreement, which would
only release the shares to them upon achievement of certain milestones. This
display of commitment to the Company was viewed as necessary to allow us to
raise the funds needed to develop our products and markets. In September
2001, in recognition of the ongoing commitment of the founders, the Board of
Directors authorized a two year extension of the escrow agreement, as was
contemplated in the original agreement. With the extension of the escrow
agreement, any charges resulting from future releases in escrow shares will be
charged directly to the consolidated statement of loss and not recorded as
goodwill.
As the Company reached each of the milestones under the escrow agreement, we
released a specific percentage of the shares and the value of those shares, at
the time of release was included in goodwill or compensation expense. Depending
on the price of the common shares at the time of release the value assigned
varied dramatically. During 2001, we released 2,250,000 common shares from the
escrow agreement (2000 - 900,000, 1999 - 450,000). This resulted in a charge of
$629,000 to compensation expense (2000 - $ 712,500, 1999 - nil) and an increase
of goodwill in the amount of $2,201500 (2000 - $2,493,750, 1999 - $534,375). As
of December 31, 2001, we had achieved the first three performance events in the
escrow agreement resulting in the release of 3,600,000 shares of Common Stock or
40% of the escrow shares. We expect that the remaining 5,400,000 shares will be
released from escrow during 2002 and the value of the shares will be recorded at
the date the respective performance events occur. The release of the escrow
shares and the resulting goodwill has resulted in a significant increase in
depreciation and amortization expense to $3,533,438 in 2001 (2000 - $2,164,638,
1999 - $736,875).
Our financing activities in 2001 have resulted in a significant number of
non-cash accounting charges amounting to $5,410,846. This resulted in financing
expenses increasing to $5,493,373 in 2001 (2000 - $274,347, 1999 - $184,371).
During 2000, the extension of our 1997 Option Plan resulted in non-cash
accounting charges in the amount of $11,099,858.
F-3
Management Discussion and Analysis F-4
Supplementary financial information (unaudited)
Three Months Ended
March June September December
-----------------------------------------------------------
Fiscal 2001
Net revenues $ 1,830,403 $ 2,473,418 $ 1,689,209 $ 1,810,987
Gross profit 441,001 834,674 437,090 134,757
Loss before extraordinary item (8,984,708) (5,243,205) (4,489,006) (2,577,731)
Extraordinary item - - - (198,300)
Net loss (8,984,708) (5,243,205) (4,489,006) (2,776,031)
Loss before extraordinary item
per common share (0.16) (0.10) (0.07) (0.04)
Weighted average shares outstanding 55,757,444 60,240,772 61,365,893 63,609,949
Stock Prices - High $2.69 $1.81 $1.28 $0.50
Low $1.25 $1.03 $0.31 $0.21
Fiscal 2000
Net revenues $ 806,152 $ 715,620 $ 1,206,854 $ 1,404,366
Gross profit 158,668 109,245 83,312 (1,457,281)
Loss before extraordinary item (2,544,861) (5,071,757) (15,758,357) (8,097,640)
Net loss (2,544,861) (5,071,757) (15,758,357) (8,097,640)
Net loss per common share (0.05) (0.09) (0.29) (0.15)
Weighted average shares outstanding 49,263,629 53,434,117 54,992,503 55,113,848
Stock Prices - High $15.84 $10.25 $9.81 $5.37
Low $2.00 $3.31 $4.12 $1.03
F-4
Management Discussion and Analysis F-5
CRITICAL ACCOUNTING POLICIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses the Company's consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period.
On an ongoing basis, management evaluates its estimates and judgments, including
those related to bad debts, inventories, investments, intangible and other
long-lived assets, income taxes, warranty obligations, product returns,
restructuring costs, litigation and contingencies. Management bases its
estimates and judgments on historical experience, current economic and industry
conditions and on various other factors that are believed to be reasonable under
the circumstances. This forms the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under different
assumptions or conditions. Management believes the following critical accounting
policies affect its more significant judgments and estimates used in the
preparation of its consolidated financial statements.
Allowance for Losses on Receivables
The Company has historically provided financial terms to certain customers in
connection with purchases of the Company's products. Financial terms, for
credit-approved customers, are generally on a net 30 day basis.
Total trade receivables at December 31, 2001 and 2000 were $1,370,805 and
$2,453,565, respectively, with an allowance for losses on these receivables of
$635,410 and $591,877, respectively.
Management periodically reviews customer account activity in order to assess the
adequacy of the allowances provided for potential losses. Factors considered
include economic conditions, collateral values and each customer's payment
history and credit worthiness. Adjustments, if any, are made to reserve balances
following the completion of these reviews to reflect management's best estimate
of potential losses.
Inventory Valuation Reserves
The Company records valuation reserves on its inventory for estimated
obsolescence or unmarketability. The amount of the writedown is equal to the
difference between the cost of inventory and the estimated market value based
upon assumptions about future demand and market conditions. In addition to
normal excess and obsolescence provisions for inventory the Company recorded
charges for abandonment of acquired TTI technology in 2000. As a result, the
Company recorded inventory write-downs and additional warranty provisions of
$1,568,739 in 2000.
Net Inventories consisted of the following:
December 31 2001 2000
------------------------------------------------------------------
Finished goods $ 1,329,090 $ 1,278,580
Raw materials 681,769 1,373,018
-----------------------------
2,010,859 2,651,598
Less inventory reserves (327,644) (458,096)
-----------------------------
$ 1,402,703 $ 2,193,502
=============================
The Company provides its contract manufacturers with ongoing production
forecasts to enable them to forecast and procure required parts. Under the terms
of the Agreements with the contract manufacturers, the Company has committed to
assume liability for all parts required to manufacture the Company's forecast
products for the next 13 weeks and all final assembly costs for the forecast
products for the next 4 weeks, on a rolling basis.
F-5
Management Discussion and Analysis F-6
The Company balances the need to maintain strategic inventory levels to ensure
competitive lead times with the risk of inventory obsolescence due to rapidly
changing technology and customer requirements. If actual future demand or market
conditions are less favorable than those projected by management, additional
inventory write-downs may be required.
Valuation of Investments and Long-Lived Assets
The Company assesses the impairment of investments and long-lived assets, which
includes identifiable intangible assets, goodwill and plant and equipment
whenever events or changes in circumstances indicate that the carrying value may
not be recoverable. Factors considered important which could trigger an
impairment review include the following:
o underperformance relative to expected historical or projected
future operating results;
o changes in the manner of use of the assets or the strategy for
our overall business;
o negative industry or economic trends;
o declines in stock price of an investment for a sustained
period; and
o our market capitalization relative to net book value.
When the Company determines that the carrying value of intangible assets,
goodwill and long-lived assets may not be recoverable an impairment charge is
recorded. Impairment is measured based on a projected discounted cash flow
method using a discount rate determined by our management to be commensurate
with the risk inherent in our current business model or prevailing market rates
of investment securities, if available.
In late 2000, management determined that various long-lived and intangible
assets, relating to the Company's acquisition of Transformation Techniques, Inc.
during 1999, had been impaired and impairment charges were recorded totaling
$1,028,430 in 2000. In September 2001, the Company announced a restructuring
plan, which included the reduction of approximately half of the staff in
WaveRider Communications (Australia) Pty Ltd. As a result, the Company wrote
down the acquired labor force, resulting from the acquisition of WaveRider
Communications (Australia) Pty Ltd. in the amount of $155,000.
In 2002, Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill
and Other Intangible Assets" became effective and as a result, the Company will
cease to amortize approximately $4 million of unamortized goodwill. The Company
had recorded approximately 2.4 million of amortization on these amounts during
2001. In lieu of amortization, the Company is required to perform an initial
impairment review of our goodwill in 2002 and an impairment review at least
annually thereafter. The Company has completed its review and does not expect to
record an impairment charge based on these results.
At December 31, 2001 the net value of these assets were as follows:
Property, plant and equipment $ 1,671,088
Notes receivable 32,801
Acquired labor force 98,949
Goodwill 3,898,528
------------
Total $ 5,701,366
===========
The Company cannot predict the occurrence of future impairment
triggering events nor the impact such events might have on these reported asset
values. Such events may include strategic decisions made in response to the
economic conditions relative to product lines, operations and the impact of the
economic environment on our customer base.
F-6
Management Discussion and Analysis F-7
Certain factors that may affect future results.
Following are certain risk factors associated with our Company and with
ownership of our stock.
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 beginning of the year 2000, our company had been mainly focused on the
research and development of our products and as a result had limited sales or
revenues. There can be no assurance that the products that we offer will meet
with wide market acceptance. In addition, there is no guarantee that even if
there proves to be a wide 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. Although, some of our products have passed the development stage, we
have not yet established a commercially viable market for them. Although we
believe that we have the expertise to commercialize our products and establish a
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. We have experienced significant
operating losses every year since incorporation. We incurred a net loss of
$21,492,950 for the year ended December 31, 2001 (2000 - $31,472,615 and 1999 -
$7,447,850) and reported an accumulated deficit at that date of $71,951,290
(2000 - $49,414,508). We expect to continue to incur losses until at least the
fourth quarter of 2002.
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.
Our sales have been adversely affected by recent events and may be adversely
affected by future events.
We are subject to general economic conditions to a similar extent as other
companies who export products all over the world. Our sales have been adversely
affected by recent world events and could be adversely affected if similar
events occur in the future.
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 withstand adverse economic or
market conditions better than we can.
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.
F-7
Management Discussion and Analysis F-8
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 affect our business, financial condition and results of
operations.
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. 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 cannot 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.
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 policies 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 product liability insurance and there can be
no assurance that 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, would 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.
F-8
Management Discussion and Analysis F-9
We depend upon third party manufacturers and there is risk that, if these
suppliers become unavailable for any reason, we may for an unknown period of
time have no product to sell.
We depend upon a limited number of third party manufacturers to make our
products. If our suppliers are not able to manufacture for us for any reason, we
would, for an unknown period of time, have difficulty finding alternate sources
of supply. Inability to obtain manufacturing capacity would have a material
adverse effect on our business, financial condition and results of operations.
We may suffer dilution if we issue substantial shares of our common stock:
o upon conversion of shares of the Series D 5% convertible preferred
stock; and,
o upon exercise of the outstanding warrants and options.
We are obligated to issue a substantial number of shares of common stock upon
the conversion of our Series D 5% convertible preferred stock and exercise of
our outstanding warrants and options. The price, which we may receive for the
shares of common stock, that are issuable upon conversion or exercise of such
securities, may be less than the market price of the common stock at the time of
such conversions or exercise. Should a significant number of these securities be
exercised or converted, the resulting increase in the amount of the common stock
in the public market could have a substantial dilutive effect on our outstanding
common stock.
The conversion and exercise of all of the aforementioned securities or the
issuance of new shares of common stock may also adversely affect the terms under
which we could obtain additional equity capital.
If our common stock is delisted from the Nasdaq National Market, you may find it
more difficult to sell your shares of our common stock.
Our common stock is currently listed on the Nasdaq National Market. On
March 21, 2002, the last reported sale price of our common stock was $0.18 per
share. Since our minimum bid price has been below $1.00 for 30 consecutive
trading days, we may not be able to maintain the standards for continued listing
on the Nasdaq National Market and our common stock could be delisted. Delisting
from the Nasdaq National Market could result in a less liquid market for our
common stock than would otherwise exist. As a result, our shares may be more
difficult to sell because potentially smaller quantities of shares could be
bought and sold, transactions could be delayed and security analyst and news
coverage of our company may be reduced. These factors could result in lower
prices and larger spreads in the bids and ask prices for our shares.
If our common stock were subject to the penny stock rules, our market liquidity
could be adversely affected.
The SEC's regulations define a "penny stock" to be an equity security
that has a market price less than $5.00 per share, subject to certain
exceptions. If our shares are delisted from the Nasdaq National Market, they are
likely to become subject to the SEC penny stock rules which could adversely
affect the market liquidity of our common stock. These rules impose additional
sales practice requirements on broker dealers that sell low-priced securities to
persons other than established customers and institutional accredited investors;
and require the delivery of a disclosure schedule explaining the nature and
risks of the penny stock market. As a result, the ability or willingness of
broker-dealers to sell or make a market in our common stock might decline.
No dividends anticipated.
We intend to retain any future earnings to fund the operation and
expansion of our business. We do not anticipate paying cash dividends on our
shares in the foreseeable future.
F-9
Consolidated Financial Statements F-10
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
Management is responsible for the preparation, integrity and objectivity of
the consolidated financial statements and other financial information presented
in this report. The accompanying consolidated financial statements were prepared
in accordance with accounting principles generally accepted in the United States
of America, applying certain estimates and judgments as required. In support of
its responsibility, management maintains a system of internal controls designed
to provide reasonable assurance as to the integrity and reliability of the
financial statements and to adequately safeguard, verify and maintain
accountability of assets.
PricewaterhouseCoopers LLP, independent accountants, are retained to audit
WaveRider's financial statements. Their accompanying report is based on audits
conducted in accordance with auditing standards generally accepted in the United
States of America.
The Board of Directors exercises its responsibility for these financial
statements through its Audit Committee, which consists entirely of independent
non-management Board members. The Audit Committee meets periodically with the
independent accountants, both privately and with management present, to review
accounting, auditing, internal controls and financial reporting matters.
/s/ D. Bruce Sinclair /s/ T. Scott Worthington
D. Bruce Sinclair T. Scott Worthington
President and Chief Executive Officer Vice President and
Chief Financial Officer
F-10
Consolidated Financial Statements F-11
Report of Independent Accountants
To the Shareholders of WaveRider Communications Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of loss and comprehensive loss, shareholders' equity and
cash flows present fairly, in all material respects, the financial position of
WaveRider Communications Inc. (the "Company") as at December 31, 2001 and 2000
and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion,
the financial schedule listed in the index appearing under Item 14(b) on page 30
presents fairly, in all material respects, the information set forth herein when
read in conjunction with the related consolidated financial statements. These
financial statements and the financial statement schedule 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 auditing standards generally accepted in the
United States of America, 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.
/s/PricewaterhouseCoopers LLP
February 15, 2002 (except for Note 24 which is March 26, 2002)
F-11
Consolidated Financial Statements F-12
WaveRider Communications Inc.
CONSOLIDATED BALANCE SHEETS
December 31
2001 2000
ASSETS
Current
Cash and cash equivalents $ 2,244,625 $ 7,720,902
Accounts receivable 898,432 1,996,473
Due from contract manufacturers 41,295 1,127,792
Inventories 1,402,703 2,193,502
Current portion of notes receivable 32,800 -
Prepaid expenses and other assets 297,282 983,361
-------------------------------
4,917,137 14,022,030
Notes receivable 32,801 -
Property, plant and equipment 1,671,088 2,395,373
Acquired labor force 98,949 400,659
Goodwill 3,898,528 4,114,983
-------------------------------
$ 10,618,503 $ 20,933,045
===============================
LIABILITIES
Current
Accounts payable and accrued liabilities $ 2,314,920 $ 4,372,365
Consideration payable on business combination 105,256 1,621,917
Promissory notes 168,893 -
Deferred revenue 265,505 423,677
Current portion of obligation under capital lease 131,145 272,851
-------------------------------
2,985,719 6,690,810
Convertible promissory notes - 1,835,299
Obligation under capital lease 36,312 224,347
-------------------------------
3,022,031 8,750,456
SHAREHOLDERS' EQUITY
Preferred Stock, $0.001 par value per share:
issued and outstanding 29,000 shares in 2001 and nil shares in 2000. 290 -
Common Stock, $0.001 par value per share:
issued and outstanding - 72,973,681 shares in 2001 and 55,121,898
shares in 2000 72,974 55,122
Additional paid-in capital 65,830,352 46,014,398
Other equity 13,748,732 15,482,719
Accumulated other comprehensive income (loss) (104,586) 44,858
Accumulated deficit (71,951,290) (49,414,508)
--------------------------------
7,596,472 12,182,589
$ 10,618,503 $ 20,933,045
===============================
Commitments and Contingencies (Note 16)
Approved by the Board
/s/ D.B. Sinclair
- -----------------
D.B. Sinclair, Director
/s/ John E. Curry
- ------------------
John E. Curry, Director
REFER TO ACCOMPANYING NOTES
F-12
Consolidated Financial Statements F-13
WaveRider Communications Inc.
CONSOLIDATED STATEMENTS OF LOSS
Years ended December 31
2001 2000 1999
REVENUE
Product sales $ 6,005,653 $ 3,592,253 $ 1,519,469
Service sales 1,798,364 540,739 196,576
-----------------------------------------------
7,804,017 4,132,992 1,716,045
COST OF PRODUCT AND INTERNET SALES
Product sales 5,519,604 4,983,048 1,225,194
Service sales 436,891 256,000 69,621
-----------------------------------------------
5,956,495 5,239,048 1,294,815
-----------------------------------------------
GROSS MARGIN 1,847,522 (1,106,056) 421,230
-----------------------------------------------
EXPENSES
Selling, general and administration 8,239,747 8,605,887 4,634,505
Employee stock-based compensation 812,200 10,386,498 482,763
Research and development 4,471,567 6,127,360 2,319,707
Employee stock-based compensation - 1,978,679 7,007
Depreciation and amortization 3,533,438 2,164,638 736,875
Bad debt expense 532,842 539,379 55,948
Write-down of acquired labor force 155,050 - -
Impairment of assets - 1,028,430 -
Interest expenses 5,493,373 274,347 184,371
Interest income (96,045) (581,614) (48,096)
-----------------------------------------------
23,142,172 30,523,604 8,373,080
-----------------------------------------------
NET LOSS BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM (21,294,650) (31,629,660) (7,951,850)
DEFERRED INCOME TAX RECOVERY - 157,045 504,000
-----------------------------------------------
NET LOSS BEFORE EXTRAORDINARY ITEM (21,294,650) (31,472,615) (7,447,850)
LOSS ON EXTINGUISHMENT OF DEBT (198,300) - -
-----------------------------------------------
NET LOSS $ (21,492,950) $ (31,472,615) $ (7,447,850)
===============================================
BASIC AND DILUTED LOSS PER SHARE
BEFORE EXTRAORDINARY ITEM $ (0.371) $ (0.59) $ (0.25)
===============================================
BASIC AND DILUTED LOSS PER SHARE
FOR EXTRAORDINARY ITEM $ (0.003) $ - $ -
===============================================
BASIC AND DILUTED LOSS PER SHARE $ (0.374) $ (0.59) $ (0.25)
===============================================
Weighted Average Number of Common Shares 60,269,617 53,203,750 34,258,565
===============================================
REFER TO ACCOMPANYING NOTES
F-13
Consolidated Financial Statements F-14
WaveRider Communications Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31
2001 2000 1999
OPERATING
Net loss $ (21,492,950) $(31,472,615) $ (7,447,850)
Items not involving cash
Amortization of goodwill and acquired labor force 2,385,495 1,455,305 409,539
Depreciation 1,147,943 709,333 327,336
Write down of acquired labor force 155,050 - -
Extension of Employee Stock Option (1997) plan - 11,099,858 -
Charges for issuance of options and warrants 385,940 645,120 463,273
Non-cash financing expenses 5,410,846 255,387 -
Compensatory shares released from escrow to employee 629,000 712,500 -
Compensatory shares issued to employees - 457,007
Write-off of acquired core technologies and goodwill - 1,028,430 -
Write-off of inventories - 1,568,739 -
Bad debt expense 532,842 539,379 55,948
Deferred income tax recovery (157,045) (504,000)
Unrealized foreign exchange (gain) loss (46,781) 19,150 22,044
Loss on extinguishments of debt 198,300 - -
Net changes in non-cash working capital items 345,826 (3,671,541) (907,113)
-----------------------------------------------
(10,348,489) (17,268,000) (7,123,816)
-----------------------------------------------
INVESTING
Acquisition of property, plant and equipment (301,843) (1,474,040) (376,767)
Purchase of notes (65,601) - -
Purchase of Transformation Techniques Inc. - - (655,288)
Purchase of ADE Network Technology Pty. Ltd. (567,372) (492,082) -
---------------------------------------------
(934,816) (1,966,122) (1,032,055)
----------------------------------------------
FINANCING
Proceeds from sale of shares and warrants (net of issue fees) and
exercise of options and warrants 5,100,939 16,757,800 10,909,353
Proceeds from sale of promissory notes 999,500 - -
Proceeds from sale of convertible promissory notes (net of issue fees) - 4,818,000 -
Dividends on preferred shares - (31,109) (158,144)
Payments on capital lease obligations (295,056) (132,753) (105,848)
----------------------------------------------
5,805,383 21,411,938 10,645,361
---------------------------------------------
Effect of exchange rate changes on cash 1,645 2,169 4,170
---------------------------------------------
Increase in cash and cash equivalents (5,476,277) 2,179,985 2,493,660
Cash and cash equivalents, beginning of year 7,720,902 5,540,917 3,047,257
---------------------------------------------
Cash and cash equivalents, end of year $ 2,244,625 $ 7,720,902 $ 5,540,917
=============================================
REFER TO ACCOMPANYING NOTES
F-14
Consolidated Financial Statements F-15
WaveRider Communications Inc.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE LOSS
Years ended December 31
Additional
Common Shares Preferred Shares Paid-in Share
Number Par Value Number Par Value Capital Capital
---------------------------------------------------------------------------------
December 31, 1998 31,501,481 $ 31,501 800,000 $ 800 10,817,075 $ 10,849,376
Issuances (Notes 15B(iv), (vii), (viii), (ix)
(x) 10,857,766 10,858 10,026,885 10,037,743
Conversions & exercises (Notes 15B(i), (iii),
15E 441,440 441 (36,000) (36) 322,933 323,338
Release of shares from escrow (Note 15B(ii)) 450,000 450 533,925 534,375
Issue for purchase of subsidiary (Note 15B(vi)) 384,588 385 441,615 442,000
Issued as compensation (Note 15F) 267,870 268 456,739 457,007
Compensatory options to employees (Note 15E)
Options to non-employees (Note 15E) -
Dividends on preferred shares -
Net loss -
---------------------------------------------------------------------------------
December 31, 1999 43,903,145 $ 43,903 764,000 $ 764 $22,599,172 $ 22,643,839
Extension of option plan (Note 15E)
Issuances (Notes 14, 15B(ix), (x)) 1,437,036 1,437 1,495,031 1,496,468
Conversions & exercises (Notes 15B(iii), (iv), 8,881,717 8,882 (764,000) (764) 18,714,845 18,722,963
(vii), (viii), (ix), (x), 15E)
Release of shares from escrow (Note 15B(ii)) 900,000 900 3,205,350 3,206,250
Compensatory options to employees (Note 15E)
Options to non-employees (Note 15E)
Dividends on preferred shares
Beneficial conversion (Note 14)
Cumulative Translation Adjustments
Net loss
Comprehensive net loss
---------------------------------------------------------------------------------
December 31, 2000 55,121,898 $ 55,122 - $ - $46,014,398 $ 46,069,520
Issuances (Notes 13, 15B(xii), (xiii), (xiv),
(xv), 15G) 8,300,837 8,301 30,000 300 5,287,540 5,296,141
Conversions & exercises (Notes 13, 14, 15B(xiii)
(xv), 15E) 6,300,946 6,301 (1,000) (10) 8,367,836 8,374,127
Release of shares from escrow (Note 15B(ii)) 2,250,000 2,250 2,828,250 2,830,500
Issue for purchase of subsidiary (Note 3) 1,000,000 1,000 972,161 973,161
Expiration of warrants (Notes 14, 15B(x)) 772,818 772,818
Compensatory options to employees (Note 15E) -
Options to non-employees (Note 15E) -
Amendment to conversion price (Note 14) 1,144,654 1,144,654
Beneficial conversion (Notes 13, 14, 15B(xiii)) 442,695 442,695
Cumulative Translation Adjustments -
Net loss
Comprehensive net loss -
---------------------------------------------------------------------------------
December 31, 2001 72,973,681 $ 72,974 29,000 $ 290 $65,830,352 $ 65,903,616
=================================================================================
F-15
Consolidated Financial Statements F-15 (con't)
WaveRider Communications Inc.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE LOSS
Years ended December 31 (con't)
Accumulated
Other
Warrants Other Comprehensive
Number Amount Other equity Deficit Income (Loss) Total
----------------------------------------------------------------------------------
December 31, 1998 2,380,000 $1,297,434 $ 206,348 $ 1,503,782 $ (9,254,790) $3,098,368
Issuances (Notes 15B(iv), (vii), (viii), (ix)
(x)) 4,309,629 2,063,717 2,063,717 (1,050,000) 11,051,460
Conversions & exercises (Notes 15B(i),
(iii), 15E) (30,000) (5,717) (99,630) (105,347) 217,991
Release of shares from escrow (Note 15B(ii)) 534,375
Issue for purchase of subsidiary (Note 15B(vi)) 442,000
Issued as compensation (Note 15F) 457,007
Compensatory options to employees (Note 15E) 32,763 32,763 32,763
Options to non-employees (Note 15E) 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
Extension of option plan (Note 15E) 11,099,858 11,099,858 11,099,858
Issuances (Notes 14, 15B(ix), (x)) 9,334,970 2,250,180 2,250,180 3,746,648
Conversions & exercises (Notes 15B(iii), (iv), (6,466,350) (3,311,347) (678,024) (3,989,371) 14,733,592
(vi),(viii), (ix), (x), 15E)
Release of shares from escrow (Note 15B(ii)) - 3,206,250
Compensatory options to employees (Note 15E) 552,819 552,819 552,819
Options to non-employees (Note 15E) 92,301 92,301 92,301
Dividends on preferred shares - (31,109) (31,109)
Beneficial conversion (Note 14) 1,911,605 1,911,605 1,911,605
Cumulative Translation Adjustments 44,858 44,858
Net loss (31,472,615) (31,472,615)
Comprehensive net loss - (31,427,757)
----------------------------------------------------------------------------------
December 31, 2000 9,528,249 $2,294,267 $13,188,452 15,482,719 $(49,414,508)$ 44,858 $12,182,589
Issuances (Notes 13, 15B(xii), (xiii), (xiv),
(xv), 15G) 11,478,684 1,170,383 1,170,383 6,466,524
Conversions & exercises (Notes 13, 14, 15B(xiii)
(xv), 15E) 1,343,480 (593,274) (2,068,665) (2,661,939) 5,712,188
Release of shares from escrow (Note 15B(ii)) - 2,830,500
Issue for purchase of subsidiary (Note 3) - 973,161
Expiration of warrants (Notes 14, 15B(x)) (6,507,960) (772,818) (772,818)
Compensatory options to employees (Note 15E) 183,200 183,200 183,200
Options to non-employees (Note 15E) 85,612 85,612 85,612
Amendment to conversion price (Note 14) 113,781 113,781 1,258,435
Beneficial conversion (Notes 13, 14, 15B(xiii)) 147,794 147,794 (1,043,832) (453,343)
----------
Cumulative Translation Adjustments - (149,444) (149,444)
Net loss (21,492,950) (21,492,950)
------------
Comprehensive net loss - (21,642,394)
----------------------------------------------------------------------------------
December 31, 2001 15,842,453 $2,212,339 $11,536,393 $13,748,732 $(71,951,290)(104,586) (7,596,472)
==================================================================================
F-15 (con't)
Consolidated Financial Statements F-16
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2001, 2000 and 1999
1. NATURE OF OPERATIONS
WaveRider Communications Inc. was incorporated in 1987 under the laws of the
state of Nevada.
The Company develops and markets wireless data communications products
throughout the world, focusing on Internet connectivity. The Company's primary
markets are telecommunications companies and Internet Service Providers (ISPs)
supplying high-speed wireless Internet connectivity to their customers. A
significant secondary market is that of Value Added Resellers, to allow them to
supply their customers with wireless connectivity for local area networks.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation and basis of accounting - The consolidated financial
statements include the accounts of the Company and its wholly-owned
subsidiaries; WaveRider Communications (Australia) Pty Ltd (formerly known as
ADE Network Technology Pty Ltd.) ("ADE"), an Australian Corporation, 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
in the United States of America 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 complies with Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements"
and related communiques; SAB No. 101 provides guidance regarding the
recognition, presentation and disclosure of revenue in financial statements
filed with the Securities and Exchange Commission (SEC).
Revenue for product sales to end-user and Value-Added Reseller customers is
recognized when all of the following criteria have been met: (a) evidence of an
agreement exists, (b) delivery to the customer has occurred, (c) the price to
the customer is fixed and determinable, and (d) collectibility is reasonably
assured. Delivery occurs when the product is shipped, except when the terms of a
specific contract include substantive customer acceptance.
Revenue from maintenance is recognized ratably over the term of the contract.
Revenue from installation and consulting services is recognized as earned and
the associated costs and expenses are recognized as incurred. In cases in which
extended warranty, maintenance or installation services are bundled with the
sale of the product, the Company unbundles these components and defers the
recognition of revenue for the services at the time the product sales revenue is
recognized, based upon the verifiable objective evidence of the service element.
Revenue from rentals and operating leases is recognized monthly as the fees
accrue.
Fees billed for internet services on long-term service contracts are recognized
over the period of the contracts.
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.
F-16
Consolidated Financial Statements F-17
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2001, 2000 and 1999
Unless otherwise indicated, the fair values of financial instruments approximate
their carrying amounts. By their nature, all financial instruments involve risk,
including credit risk for non-performance by counterparties. The maximum
potential loss may exceed any amounts recognized in the consolidated balance
sheets. However, the Company'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. Exposure to credit risk is controlled through
credit approvals, credit limits and monitoring procedures. The Company 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. The Company 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 and Australian business activities.
The fair values of cash and cash equivalents, accounts receivable, due from
contract manufacturers, current notes receivable, accounts payable and current
liabilities approximate their recorded amounts because of their short term to
realization of settlement.
Cash and cash equivalents - All liquid investments having an original maturity
not exceeding three months are treated as cash equivalents.
Inventory - Raw materials are recorded at the lower of cost or replacement cost.
Finished goods are recorded at the lower of cost and net realizable value. Cost
is determined on the weighted average cost basis and includes material, labor
and overheads, where applicable.
Property, plant and equipment - Property, plant and equipment are recorded at
historic cost. Effective for the first quarter of 2000, the Company adopted a
change in its method of depreciation from a declining balance to a straight line
basis, as follows:
Computer software 3 years
Computer equipment 4 years
Lab equipment and tools 4 years
Equipment and fixtures 5 years
Assets held for lease 5 years
Leasehold improvements over the term of the lease or estimated useful lives
The change in policy had no significant effect in fiscal 2000 or prior periods
on reported amounts for depreciation.
Foreign currency translation - The Company's functional currency is the US
dollar, except as noted below. Foreign denominated non-monetary assets,
liabilities and operating items of the Company are measured in US dollars at the
exchange rate prevailing at the respective transaction dates. Monetary assets
and liabilities denominated in foreign currencies are measured at exchange rates
prevailing on the consolidated balance sheet dates.
The functional currency of ADE, the Company's subsidiary in Australia, is
Australian dollars. Accordingly, ADE's assets and liabilities are translated
into US dollars using the rate of exchange in effect on the balance sheet dates,
whereas ADE's revenues, expenses, gains and losses are translated at the average
rate of exchange in effect throughout the reporting period. Resulting
translation adjustments are included as a separate component of comprehensive
income within shareholders' equity in the accompanying consolidated financial
statements.
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 income 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 income tax rates and
laws currently enacted. Valuation allowances are established, when necessary, to
reduce deferred income tax assets when realization is not more likely than not.
Stock options - The Company applies SFAS No. 123, together with APB No. 25 as
permitted under SFAS No. 123, in accounting for its stock option plan.
F-17
Consolidated Financial Statements F-18
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2001, 2000 and 1999
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 statements of loss
over the option vesting period or upon meeting certain performance criteria. In
accordance with SFAS No. 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 statements of loss in
the period in which the services are rendered. Fair values of stock options are
determined using the Black-Scholes option-pricing model.
Research and development costs - Research and development costs are charged to
expense as incurred.
Acquired core technologies - Acquired core technologies are recorded at cost and
amortized over their estimated useful lives using the straight-line method.
Acquired labor force - Acquired labor force costs are recorded at cost and
amortized using the straight-line method over a period of three years.
Goodwill - Goodwill is recorded at cost and amortized using the straight-line
method over a period not exceeding five years. Effective 2000, the Company
modified the amortization period for goodwill from a period of three years to a
period not exceeding five years. This modification was adopted prospectively and
had the effect of increasing the total asset and decreasing the net loss as at
and for the year ended December 31, 2000 by $162,000.
Valuation of long-lived assets - The Company periodically evaluates the carrying
value of its long-lived assets, including, but not limited to, property, plant
and equipment, acquired core technologies, acquired labor force and goodwill.
The carrying value of a long-lived asset is considered to be impaired when the
undiscounted cash flow from such asset is estimated to be less than its carrying
value. In that event, a loss is recognized based on the amount by which the
carrying value exceeds the fair market value of the long-lived asset. Fair
market value is determined primarily using the anticipated cash flows discounted
at a rate commensurate with the risk involved. Losses on long-lived assets to be
disposed of would be determined in a similar manner, except that fair market
values would be reduced by the cost of disposal.
Comprehensive income (loss) - Under SFAS No. 130, the Company presents
comprehensive income (loss), in addition to net income (loss) in the accounts.
Comprehensive loss differs from net loss as a result of foreign currency
translation adjustments. Accumulated other comprehensive income (loss) is
included in the consolidated statements of shareholders' equity and reflects the
cumulative effect of other comprehensive income (loss) excluded from net income
(loss) as reported in the consolidated statements of income (loss).
Recently issued accounting standards - SFAS No. 142 changes the accounting for
goodwill from an amortization method to an impairment-only approach. Thus,
acquired labor force would be reclassified as goodwill and amortization of
goodwill will cease upon adoption of that statement. SFAS No. 142 will be
applicable for fiscal years beginning after December 15, 2001. Had this standard
been applied January 1, 2001 the amortization of goodwill and acquired labor
force in the amount of $2,385,495 would not have been charged to the
consolidated statement of loss. The Company has not yet assessed whether there
is an impairment under the new standard and have until June 30, 2002 to make
such assessment.
3. ACQUISITION OF SUBSIDIARIES
WaveRider Communications (Australia) Pty Ltd. - Effective October 1, 2000, the
Company acquired ADE Network Technology Pty Ltd. of Melbourne, Australia,
("ADE") a privately-held wireless infrastructure company. The Company undertook
this acquisition to provide a sales presence in Australia and South East Asia.
Subsequently, ADE changed its name to WaveRider Communications (Australia) Pty
Ltd.
Under the terms of agreement, the Company committed to pay a minimum of
$2,227,000 ($4,000,000 Australian) in 4 equal quarterly installments commencing
on the closing date. In addition, the former shareholders of ADE could receive
up to $501,000 ($900,000 Australian) additional consideration based on 40% of
any revenue in excess of $4,175,000 ($7.5 Million Australian) earned by ADE
during the year ended September 30, 2001.
F-18
Consolidated Financial Statements F-19
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2001, 2000 and 1999
Payment of the first two installments of $1,000,000 Australian each was made in
cash. On April 1, 2001, the Company issued 298,706 shares of common stock in
consideration of the third installment and, on July 1, 2001, the Company issued
520,163 shares of common stock in consideration of the fourth installment. On
December 18, 2001, the Company issued 181,131 shares of common stock in
consideration of deficiencies in the fourth installment. Subsequent to the year
end, on January 7, 2002, the Company paid $105,256 in cash for the final
consideration owing. The shares issued and cash paid to fund deficiencies
were recorded against additional paid in capital.
The transaction, accounted for as a purchase, is summarized as follows:
Current assets $ 1,038,352
Fixed assets 271,537
Current liabilities (1,160,762)
Non-current liabilities (199,825)
----------------
Net liabilities assumed (50,698)
Expenses incurred on acquisition (51,237)
Acquired labor force 425,000
Deferred income tax liability (153,000)
Goodwill 1,917,917
---------------
Purchase price $ 2,087,982
===============
Cash paid on closing $ 553,065
Cash paid in installments 567,372
Issuance of shares - 1,000,000 shares of common stock 973,161
Balance due at December 31, 2001 105,256
---------------
2,198,854
Less: Interest paid 110,872
---------------
Total consideration given $ 2,087,982
===============
The cash effect of this transaction is summarized as follows:
Bank indebtedness assumed $ 75,631
Cash paid on closing 553,065
Cash acquired (136,614)
---------------
Net cash paid to December 31, 2000 $ 492,082
===============
The following summarizes certain supplementary pro forma disclosure assuming
that the acquisition had occurred at the beginning of 1999:
2000 1999
--------------------------------
(unaudited) (unaudited)
Pro forma consolidated revenue $ 7,276,639 $ 5,883,252
================================
Pro forma consolidated net loss $ (32,529,320) $ (8,188,491)
=================================
Pro forma consolidated basic and diluted loss per share $ (0.61) $ (0.27)
================================
F-19
Consolidated Financial Statements F-20
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2001, 2000 and 1999
As a result of the reduction of approximately half the staff of ADE, on
September 24, 2001, the Company wrote down the acquired labor force resulting
from the acquisition of ADE, in the amount of $155,050.
WaveRider Communications (USA) Inc. - In December 2000, the Company determined
that there was significant impairment of its investment in WaveRider
Communications (USA) Inc. and, accordingly, wrote off a number of assets
relating to this acquisition (Note 4 - Impairment of Assets).
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 income tax liability (504,000)
---------------
Net liabilities assumed (1,153,620)
Goodwill 504,000
Acquired core technologies 1,444,605
--------------
Purchase price $ 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 assumed $ 401,303
Cash paid on closing 253,985
--------------
Net cash paid to December 31, 2000 $ 655,288
==============
The following summarizes certain supplementary pro forma disclosure assuming
that the acquisition had occurred at the beginning of 1998:
1999
----------------
(unaudited)
Pro forma consolidated revenue $ 2,369,510
================
Pro forma consolidated net loss $ (7,755,009)
================
Pro forma consolidated basic and fully diluted loss per share $ (0.26)
=================
F-20
Consolidated Financial Statements F-21
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2001, 2000 and 1999
4. IMPAIRMENT OF ASSETS
During the fourth quarter of fiscal 2000, it was determined that products built
from technologies acquired from TTI in 1999 did not meet customers' expectations
under certain operating conditions and that these technologies, in fact, could
not be remedied.
Accordingly, the Company developed replacement technologies and abandoned the
TTI technologies. All TTI amounts carried on the Company's balance sheet have
appropriately been written off, and related costs recorded, as follows:
Write off of acquired core technology $ 762,430
Write off of goodwill 266,000
-------------
Impairment of assets recorded in operating expenses $ 1,028,430
=============
In addition, the Company recorded in cost of goods sold, inventory write downs
and warranty provisions during fiscal 2000 in the amount of $1,568,739.
5. ACCOUNTS RECEIVABLE
2001 2000
----------------------------------
Accounts receivable - trade $ 1,370,805 $ 2,453,565
Other receivables 163, 037 134,785
Allowance for doubtful accounts (635,410) (591,877)
------------------------------------
$ 898,432 $ 1,996,473
===================================
6. INVENTORIES
2001 2000
---------------------------------
Finished products $ 959,786 $ 1,116,651
Raw materials 442,917 1,076,851
------------------------------------
$ 1,402,703 $ 2,193,502
====================================
7. NOTES RECEIVABLE
On February 28, 2001, the Company purchased a promissory note from Platinum
Communications Corporation ("Platinum") in the amount of approximately $65,601
(Can $100,000). The note is secured by a fixed charge over certain assets of
Platinum, bears interest at Canadian prime rate plus 2% and is repayable in 20
equal monthly installments commencing March 1, 2002.
8. PREPAID EXPENSES AND OTHER ASSETS
2001 2000
---------------------------------
Prepaid expenses $ 297,282 $ 430,914
Call option - 408,795
Deferred financing expense - 143,652
------------------------------------
$ 297,282 $ 983,361
====================================
F-21
Consolidated Financial Statements F-22
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2001, 2000 and 1999
9. PROPERTY, PLANT AND EQUIPMENT
Net Book Net Book
Accumulated Value Accumulated Value
Cost Depreciation 2001 Cost Depreciation 2000
-------------------------------------------------------------------------------------
Computer software $ 1,218,946 $ 900,290 $ 318,656 $ 1,162,873 $ 498,515 $ 664,358
Computer equipment 1,242,779 694,521 548,258 1,198,592 426,399 772,193
Lab equipment and tools 972,567 591,272 381,295 840,922 375,637 465,285
Equipment and fixtures 459,745 223,632 236,113 581,255 186,763 394,492
Assets held for lease 184,697 11,735 172,962 - - -
Leasehold improvements 163,049 149,245 13,804 193,867 94,822 99,045
-------------------------------------------------------------------------------------
$ 4,241,783 $ 2,570,695 $ 1,671,088 $ 3,977,509 $ 1,582,136 $ 2,395,373
=====================================================================================
Computer software includes $1,714 (2000 - $5,141) net of accumulated
depreciation of $8,568 (2000 - $5,141), Computer equipment includes $127,959
(2000 - $183,968) net of accumulated depreciation of $83,570 (2000 - $30,688),
Lab Equipment and tools includes $138,226 (2000 - $ 211,231) net of accumulated
depreciation of $212,359 (2000 - $125,123) and Equipment and fixtures includes
$90,935 (2000 - $230,403) net of accumulated depreciation of $65,548 (2000 -
$71,386) related to capital leases.
The assets held for lease consist of a communication tower and wireless
communications equipment which has been leased to a customer on a fixed
three-year term. The minimum lease payments receivable under the contracts are
$34,750 in 2002, $34,750 in 2003 and $22,900 in 2004.
10. ACQUIRED LABOR FORCE
2001 2000
-----------------------------------
Cost (Note 3) $ 169,627 $ 436,076
Less: Accumulated amortization 70,678 35,417
----------------------------------
$ 98,949 $ 400,659
==================================
11. GOODWILL
2001 2000
-----------------------------------
Cost (Notes 3, 4 and 15B(ii)) $ 7,112,200 $ 5,070,449
Less: Accumulated amortization 3,213,672 955,466
----------------------------------
$ 3,898,528 $ 4,114,983
==================================
12. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
2001 2000
-----------------------------------
Accounts payable $ 1,528,810 $ 2,006,608
Accrued liabilities 479,221 1,449,700
Accrued salaries and benefits 208,734 558,276
Accrued warranty provision 98,155 240,045
Put option (Note 14) - 117,736
----------------------------------
$ 2,314,920 $ 4,372,365
==================================
F-22
Consolidated Financial Statements F-23
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2001, 2000 and 1999
13. PROMISSORY NOTES
On October 19, 2001, the Company issued promissory notes in the aggregate
principal amount of $834,500 and 1,794,175 common stock purchase warrants to the
Company's senior management team, certain directors and significant accredited
shareholders and received cash proceeds of $834,500. On November 5, 2001, the
Company issued, in connection with a second closing, promissory notes in the
aggregate principal amount of $165,000 and 354,750 common stock purchase
warrants to certain significant accredited shareholders and received cash
proceeds of $165,000. The notes bear an interest rate of 8%, compounded annually
and are repayable on October 19, 2002. The promissory notes, which have a
general security interest over the Company's assets, may be redeemed in whole or
in part at any time by the Company subject to payment of accrued interest and a
repayment premium of 15% of the outstanding principal.
The warrants are exercisable at a price of $0.50 for a period of five years,
have registration rights, a cashless exercise feature and, in addition to
regular terms and conditions, have a special adjustment clause in the event of a
consolidated or reverse split of the Company's common stock.
The net proceeds of the transaction have been allocated to the primary financial
instruments as follows:
Promissory notes $ 759,620
Class O warrants 239,880
------------
Net cash proceeds $ 999,500
============
Under the terms of the notes, if, prior to maturity, the Company makes an
offering of its securities, the investors have the option and right to
participate in the offering to the extent of the value of their note plus
accrued but unpaid interest and the 15% repayment premium. With the completion
of the Company's shareholders' rights offering, on December 14, 2001, (see
"Shareholders' Rights Offering" under Shareholders' Equity) the beneficial
conversion feature ("BCF"), in the amount of $442,695, embedded in the
promissory notes was calculated and measured using the intrinsic value of the
feature based on the most beneficial conversion available to the investors was
recorded as a reduction of the promissory notes and an increase in accumulated
paid in capital.
On December 14, 2001, the senior management and directors of the Company, and
certain other holders, returned their notes in exchange for participation in the
Company's shareholders' rights offering. Included in the exchange was the
nominal value of the notes, in the amount of $567,000, and accrued interest and
repayment premium, in the amount of $87,259. As a result of the exchange, the
promissory notes returned, which had a book value of $200,665, were accreted to
the nominal value, which resulted in a financing expense of $366,335, and with
the interest and repayment premium were transferred to share capital.
If, prior to maturity, the Company makes a further offering of its securities,
completes a financing with net proceeds of more than $5 million or enters into a
business combination with another company such that the resulting entity will
have more than $5 million in working capital, the remaining investors have the
right to demand repayment, including principal, all accrued interest and the
repayment premium, or participation in the offering.
During the year ended December 31, 2001, $37,120 and $23,896 were charged to the
consolidated statements of loss for accretion of the promissory notes and
accrual of interest and repayment premium, respectively, for the notes that were
not returned. At December 31, 2001, the outstanding nominal value of the
remaining notes was $432,500.
F-23
Consolidated Financial Statements F-24
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2001, 2000 and 1999
14. CONVERTIBLE PROMISSORY NOTES
On December 8, 2000, the Company issued convertible promissory notes in the
aggregate principal amount of $5,000,000 to Capital Ventures International
("CVI") and received cash proceeds of $5,000,000, less cash fees of $182,000 and
warrants valued at $23,680. The notes bore an interest rate of 6%, compounded
annually and were repayable on December 8, 2002, if not converted prior to that
date. In connection with the private placement, the Company also issued to CVI
Series J and Series K warrants to purchase up to 2,461,538 and 5,907,692 shares
of common stock at an exercise price of $3.35 per share and $2.539 per share,
respectively. The Series J warrants have a term of five years and contain a
cashless exercise feature.
The note agreement provided for the automatic conversion of the principal amount
of the notes plus accrued and unpaid interest, subject to certain terms and
conditions, into shares of the Company's common stock upon the effectiveness of
a registration statement filed with the Securities and Exchange Commission
("SEC") on December 28, 2000. The registration statement was declared effective
on March 14, 2001 and, accordingly, the conversion price has been adjusted,
based on the provisions of the agreement, to $1.49 per share, which was 90% of
the market price at the time of conversion.
In connection with the sale to CVI, the Company agreed to pay Avondale Capital
Partners Inc. ("Avondale") a fee equal to 2% of the total aggregate amount
financing received by the Company pursuant to the Securities Purchase Agreement,
to a maximum fee of $400,000 plus 50,000 Series M warrants, for its involvement
as a consultant in connection with the Securities Purchase Agreement. Upon the
First Closing, the Company issued to Avondale Series M warrants to purchase
25,000 shares of common stock at an exercise price of $3.05 per share, which
expire on December 8, 2005. The fair value of $23,680 for the warrants has been
included in the cost of financing.
The net proceeds of the transaction were allocated to the primary financial
instruments, as follows:
Convertible promissory notes $ 1,732,346
Beneficial conversion feature 1,911,605
Series J warrants 1,195,663
Series K warrants 503,097
Series M warrants 23,680
Put option 117,736
Call option (516,229)
Deferred financing costs (149,898)
-------------
Net cash proceeds $ 4,818,000
============
The proceeds received were first allocated to the convertible promissory note,
the warrants and the options based on the relative fair values of the respective
instruments. Then the beneficial conversion feature embedded in the convertible
promissory note was calculated and measured using the intrinsic value of the
feature based on the most beneficial conversion available to the investor on the
commitment date. The Put Option reflects the value of the investor's right to
require the company to issue additional convertible promissory notes and
warrants. The Call Option reflects the value of the company's right to require
the investor to purchase additional convertible promissory notes and warrants.
On March 14, 2001, CVI exercised their right to convert promissory notes in the
principal amount of $4,550,000, with a book value of $3,481,699, plus interest
of $72,800, for 3,101,249 shares of common stock of the Company. As result,
$1,739,560 of the beneficial conversion feature was transferred from other
equity to additional paid in capital.
During the second quarter of 2001, CVI informed the Company that it was waiving
its option to purchase an additional $7,000,000 worth of shares of common stock.
As a result, the Company entered into a separate sale of Convertible Preferred
Stock (see "Issue of Convertible Preferred Stock" under Shareholders' Equity).
The sale of the convertible preferred stock triggered the repricing provisions
of the CVI convertible promissory notes and warrant agreements. Accordingly, the
conversion rate of the convertible promissory notes was reduced from $1.49 to
$1.455 and the exercise prices of the Series J and Series K warrants were
reduced from $3.35 and $ 2.539 to $2.80 and $2.48 respectively.
F-24
Consolidated Financial Statements F-25
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2001, 2000 and 1999
The adjustment to the conversion price of the convertible promissory notes
resulted in a decrease in the fair value of the convertible promissory notes and
an increase in other equity in the amount of $147,794. In addition, the fair
value of $113,781 for the changes in the exercise prices of the warrants has
been expensed in the cost of financing.
The balance of the promissory notes was converted on December 14, 2001 in
conjunction with the Company's shareholders' rights offering. In consideration
of the Company allowing CVI to convert into the shareholders' rights offering,
CVI returned 1,500,000 Series J warrants for cancellation. As a result, the
Company recorded a loss on extinguishment of debt in the amount of $198,300 and
the remaining $319,839 of the beneficial conversion feature was transferred from
other equity to additional paid in capital. The 5,907,692 Series K warrants,
valued at $530,036, had a one-year term and expired unexercised.
During the year ended December 31, 2001, $3,024,445, $1,144,654 and $85,520 were
charged to the statement of loss relating to the accretion of interest expense,
the adjustment of the conversion price and accrual of interest, respectively.
The convertible promissory note was being accreted over the period to its
redemption date of December 7, 2002.
The Call Option was amortized over the period of the option and for the year
ended December 31, 2001 $408,796 (2000 -$107,433) was charged to the
consolidated statements of loss. The Put Option, of $117,736, was credited to
the consolidated statements of loss upon its expiration in 2001.
15. 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 - 200,000,000 shares
B Issued share capital
i) 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.
During 1998, 470,000 of the warrants were exercised for cash proceeds
of $587,500. The remaining 30,000 were exercised in 1999 for cash
proceeds of $37,500.
ii) Series B preferred shares - 4,000,000 Series B preferred shares were
issued upon the acquisition of Major Wireless Communication Inc. 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. 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. Under the original terms, if the
specified criteria were not met by February 7, 2002, the remaining
common shares held in escrow could have been cancelled. On September
21, 2001, the Board of Directors extended the escrow period by two
years to February 2004.
In 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.
F-25
Consolidated Financial Statements F-26
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2001, 2000 and 1999
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 and was charged to
goodwill.
During the second quarter of 2000, the second milestone was met with
the first of the LMS systems becoming operational in at least one
community. As a result, the Company requested and the Escrow Agent
released, on May 26, 2000, the second 10% of the shares held under the
Escrow Agreement, 900,000 shares of common stock, valued at $3,206,250.
The Company charged $712,500 to compensation expense and charged
$2,493,750 to goodwill. The valuation was based on the closing price of
the common stock on May 26, 2000 of $3.5625 per share.
During the second quarter of 2001, a third milestone was met with the
Company surpassing cumulative gross revenues of $10 million Canadian
which results in the release of 25% of the shares held under the Escrow
Agreement. The 2,250,000 common shares released were recorded at a fair
value of $2,830,500 based on an average stock price of $1.258 at the
time the milestone was achieved. The Company charged $629,000 to
compensation expense and $2,201,500 to goodwill.
The remaining 5,400,000 shares held in escrow are not included in 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 and if the respective performance events have
occurred and the value of the shares will be measured and recorded at
that date.
iii) 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 2000,
all of the Series F warrants were exercised for cash proceeds of
$2,000,000.
During 1999, 36,000 shares of preferred stock were converted to shares
of common stock and, in 2000, the balance of 764,000 shares of
preferred stock were converted to shares of common stock.
iv) 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 29, 1998, the Company issued 1,167,860 shares of common
stock 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 shares of
common stock in the Second Tranche at $1.81 per share for cash proceeds
of $3,000,000.
Pursuant to the agreement, the Company was 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%. 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.
F-26
Consolidated Financial Statements F-27
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2001, 2000 and 1999
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.
In 1998, as part of the agreement, the Company issued four groups of
warrants to the investors, 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 an exercise price of $4.00.
Each warrant entitles the holder to acquire one common share at the
specified exercise price, and contain a cashless exercise feature. 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
During 2000, the investors exercised all of the warrants with exercise
prices of $2.00, $2.61 and $3.00 and 191,249 warrants with an exercise
price of $4.00, for total proceeds of $2,477,246. In addition, the
placement agent's warrants to purchase 150,000 shares of common stock
at $3.00, with an assigned value of $103,686, were exercised using the
cashless exercise feature. This resulted in the issuance of 107,522
common shares and the return and cancellation of the balance of 42,478
warrants.
v) 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, on December 15, 1998, 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 statements of loss in 1998. The Company terminated the
debenture agreement on January 8, 1999 without drawing any funds.
vi) 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.
As part of the consideration, the Company 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 shares in or affiliation with
the Company.
Pursuant to the Acquisition Agreement, the Company was required to
issue additional shares to Mr. Peter Bonk if the average bid price for
the common stock for five days prior to certain future dates ("Reset
Price") fell below the original price of the shares at acquisition.
F-27
Consolidated Financial Statements F-28
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2001, 2000 and 1999
During the third quarter of 1999, the Company issued 57,463 common
shares pursuant to the first reset. During the fourth quarter of 1999,
the Company issued a further 70,893 common shares pursuant to the
second and the third resets. The additional shares issued did not
affect the cost of the acquired company. The Company has now satisfied
this requirement and there are no further resets (Note 3).
vii) 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 statements of loss in 1999. During 2000, all of the
warrants were exercised for cash proceeds of $1,000,000.
viii) 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. During 2000, all of
the warrants were exercised for cash proceeds of $181,800.
ix) Common Stock Purchase Agreement - Under a Common Stock Purchase
Agreement, dated October 18, 1999, the Company agreed to sell and the
investor agreed 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 1999. During 2000, all of the warrants were exercised for cash
proceeds of $202,000.
In December 1999, 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 units, $1,625,815 of the total proceeds was
allocated to common shares and the balance of $308,585 was allocated to
the warrants. During 2000, the investor exercised all of the 762,963
warrants for cash proceeds of $1,525,926.
In January 2000, the investor purchased the balance of 1,437,036 common
share units for cash proceeds of $1,940,000, less fees of $117,408.
Based on the fair value of the underlying instruments within the common
share unit, $1,496,468 of the total proceeds was allocated to common
shares and the balance of $326,124 was allocated to the warrants.
During 2000, the investor exercised all of the 718,518 warrants for
cash proceeds of $1,437,036.
x) 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 two 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 $424,044 was allocated to the
underwriter warrants.
F-28
Consolidated Financial Statements F-29
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2001, 2000 and 1999
During 2000, all of the underwriter warrants were exercised for cash
proceeds of $600,000. This resulted in the issuance of 222,222
additional common share purchase warrants, valued at $201,616. In
addition, during the year, 1,844,176 of the common share purchase
warrants, valued at $857,626, were exercised for cash proceeds of
$3,688,352. The remaining 600,268 warrants, with a value of $242,782,
expired unexercised on December 21, 2001.
xi) Warrants issued in connection with a Strategic Partnership Agreement -
On March 9, 2000, the Company entered into a Strategic Partnership
Agreement with VoIP International S.A. de C.V. ("VoIP"), a company
incorporated in Mexico. Under the terms of the agreement, the Company
granted VoIP exclusive rights to market the Company's products in
Mexico in exchange for commitments from VoIP to procure a minimum of
$28,000,000 of the Company's products. As an incentive, the Company
issued to VoIP 4,500,000 Common Stock Purchase Warrants which VoIP
would earn based on achievement of the minimum procurement commitments.
In addition, the Company issued 55,000 Common Stock Purchase Warrants
to an agent in connection with this transaction.
On December 8, 2000, the Company notified VoIP that it had cancelled
the Agreement for lack of performance. With the cancellation of the
Agreement, the warrants for both VoIP and the agent cannot be earned
and are, therefore, cancelled.
xii) Warrants issued in connection with Investment banking services - On
April 25, 2001, the Company issued 350,000 Series M-1 warrants to the
Company's investment bankers for services rendered. The Series M-1
warrants have a term of three years and have an exercise price of $1.63
per share. The fair value of $117,128 was charged to the statement of
loss as a consulting expense.
xiii) Issue of Convertible Preferred Stock - On June 4, 2001, the Company
issued 30,000 shares of Series D 5% convertible preferred stock, with a
par value of $0.01 per share and Series N warrants to purchase 877,193
shares of common stock, to Crescent International Ltd. ("Crescent") for
cash consideration of $3,000,000, less cash expenses of $423,285 and
the $22,007 fair value of 61,404 Series M-2 warrants issued to the
Company's investment bankers. Based upon the fair value of the
underlying instruments, $2,215,798 of the total proceeds, net of costs,
was allocated to preferred shares and $338,910 was allocated to the
Series N warrants. The Series D 5% convertible preferred stock has a
liquidation preference of $100 per share.
The beneficial conversion feature (BCF) embedded in the convertible
preferred stock was calculated to be $1,043,832 using the intrinsic
value of the feature based on the most beneficial conversion available
to the investor on the commitment date. The shares of preferred stock
were accreted by $1,043,832, to their redemption value, with a
corresponding charge to accumulated deficit.
The Series D convertible preferred stock is convertible to shares of
common stock at the liquidation preference value dividend by the lesser
of; a) $1.3772 or b) 95% of the average of the lowest three consecutive
closing bid prices during the twenty-two trading day period immediately
preceding the Conversion Date. The Series N warrants have a term of
five years and an exercise price of $1.71 per share and contain a
cashless exercise feature. The Series M-2 warrants have a term of three
years and an exercise price of $1.71.
During the fourth quarter of 2001, 1,000 shares of the Series D 5%
convertible preferred stock were converted to 317,317 shares of common
stock.
xiv) Sale of Common Stock - On December 18, 2001, the Company completed the
sale of 300,000 shares of common stock for cash proceeds of $132,000.
F-29
Consolidated Financial Statements F-30
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2001, 2000 and 1999
xv) Shareholders' Rights Offering - On December 14, 2001, the Company
issued 10,675,919 common shares and Series P warrants to purchase
10,675,919 common shares, under a Shareholders' rights offering. Of the
total, 7,832,439 common shares and warrants each were issued for cash
-consideration of $3,132,976, less cash expenses of $935,102, the
$50,459 fair value of 208,723 underwriter warrants issued the Company's
investment bankers. The remaining 2,843,480 shares and warrants each
were issued as a result of; 1) the return for cancellation of
promissory notes, including interest and repayment premium, in, 2)
conversion of convertible promissory notes, including interest, and 3)
cancellation of 1,500,000 Series J warrants. This resulting in
increased accumulated paid in capital and other equity of $1,647,707
and $188,254 respectively.
The Underwriters' warrants provide for the purchase of common stock
units consisting of one share of common stock and one Series P warrant.
They have a term of three years, an exercise price of $0.40 per unit
and contain a cashless exercise feature. The Series P warrants have a
term of three years, an exercise price of $0.50 per share and are
callable if the Company's common stock closes at over $1.50 for a
period of 30 consecutive trading days.
C Warrants
The Company has several series of warrants outstanding at December 31,
2001 as follows:
Number Outstanding Weighted Average
Exercise Prices Remaining Life
$0.40 208,723 35 months
$0.50 12,824,844 39 months
$1.50 23 months
500,000
$1.63 350,000 28 months
$1.71 51 months
938,597
$2.80 961,538 47 months
$3.05 47 months
25,000
$4.00 33,751 23 months
------- -------
$0.40 - $4.00 15,842,453
==========
D Other Equity
2001 2000 1999
-------------------------------------------
Stock option extension from 1997 plan $ 10,661,518 $ 10,661,518 $ -
Stock options to non-employees 106,092 29,747 177,130
Stock options to employees that vested on performance 768,783 585,582 32,763
Beneficial conversion - 1,911,605 -
Warrants 2,212,339 2,294,267 3,355,434
-------------------------------------------
$ 13,748,732 $ 15,482,719 $ 3,565,327
===========================================
E Employee Stock Option Plans
F-30
Consolidated Financial Statements F-31
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2001, 2000 and 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.
On July 7, 2000, at the Company's annual general meeting of shareholders, a
resolution was passed extending the life of all the outstanding warrants awarded
to the then current employees and non-employee consultants under the Company's
Employee Stock Option (1997) Plan.
A modification that either renews a fixed award or extends the award's period
(life) results in a new measurement of compensation cost as if the award were
newly granted. Accordingly, for the fixed awards to employees, the difference
between the fair market value of the shares of Common Stock at the time of the
extension and the time of the original award was recorded as a compensation
expense to the Company. At July 7, 2000, the total charge to compensation
expense, related to the extension of the fixed awards, based on a closing stock
price of $8.75 per share, was $11,099,858.
During 2001, employees exercised none of the extended options for no value (2000
- - 58,000 for $438,000).
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 expires 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.
Employee Stock Option (2000) Plan -
During 2000, the Company authorized a new option plan for a total of 6,000,000
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 expires 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.
F-31
Consolidated Financial Statements F-32
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2001, 2000 and 1999
Stock options to employees, directors and consultants are summarized as follows:
Weighted
Average
Granted to Employees and Directors Number Exercisable Exercise Price
Balance at December 31, 1998 4,015,510 2,596,641 $ 0.92
Granted to employees and 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
Granted to employees and directors @ $1.31 - $13.81 3,193,192 7.55
Cancelled on termination (175,270) 3.23
Exercised (1,507,220) 1.14
- ------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 7,739,202 3,302,360 $ 3.93
Granted to employees and directors @ $0.43 - $2.38 2,338,829 0.80
Cancelled on termination (1,069,866) 3.69
Exercised (28,900) 1.05
- ------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2001 8,979,265 4,123,497 $ 3.15
==================================================================================================================
Weighted
Average
Granted to Consultants Number Exercisable Exercise Price
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 685,035 189,125 $ 0.51
Granted to consultants @ $2.09 6,000 2.09
Cancelled (70,000) 0.44
Exercised (93,000) 0.45
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 528,035 154,102 $ 0.54
Granted to consultants @ $10.00 10,000 10.00
Cancelled (22,075) 3.34
Exercised (186,625) 0.53
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 329,335 15,230 $ 0.67
Granted to consultants 0
Cancelled (0)
Exercised (10,000) 0.50
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2001 319,335 97,614 $ 0.67
==================================================================================================================
F-32
Consolidated Financial Statements F-33
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2001, 2000 and 1999
Number Weighted Average Number Weighted Average
Outstanding at Exercise Price of Weighted Average Exercisable at Exercise Price
Range of December 31 Outstanding Remaining Life December 31, of Exercisable
Exercise 2001 Options (months) 2001 Options
Prices
-------------- --------------------- -------------------- --------------------- ----------------- ---------------------
$0.43 1,568,000 $ 0.43 117 - $ 0.00
$0.50 - $0.56 1,308,535 0.55 103 486,814 0.55
$0.78 - $1.50 1,191,625 1.09 95 984,600 1.08
$1.51 - $2.00 652,495 1.71 95 387,185 1.75
$2.03 1,671,150 2.03 89 692,167 2.03
$2.06 - $3.81 624,915 2.47 87 452,248 2.43
$4.00 - $8.75 428,415 6.95 72 256,726 7.19
$9.00 - $13.81 1,853,465 9.05 96 961,372 9.06
--------- ----- --- --------- -----
$0.43 - $13.81 9,298,600 $ 3.06 97 4,221,111 $ 3.57
========= ====== ==== ========= ======
The weighted average exercise price for the exercisable options for 2000 was
$3.76 (1999 - $1.27)
Non-employee and Performance Based Options -
Options granted to consultants, and performance based options awarded to
employees, are valued when earned and probable that the options will vest and
will continue to be adjusted until actual vesting is achieved. Included in
options granted but not exercisable at December 31, 2001 are 221,720
non-employee options (2000 -314,105, 1999 - 351,058) and 1,559,000 performance
based employee options (2000 - 2,207,750, 1999 - 2,465,250) which vest on the
same basis as the release of shares from the escrow agreement (Note 15B(ii)).
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 (2000 - nil, 1999 - nil), expected volatility of 90% (2000 -
90%, 1999 - 90%), risk-free interest of 4.50% (2000 - 5.76%, 1999 - 5.76%) and
expected life of five years (2000 - three years, 1999 - three years). The
weighted average fair value of the stock options granted in 2001 was nil (2000 -
$2.98, 1999 - $1.41).
The resulting values have been charged to the consolidated statements of loss
over the contract period of the consultant. The amount charged to the
consolidated statement of loss in 2001 was $85,612 (2000 - 92,301, 1999 -
$70,412).
The amount recorded in the accounts with respect to performance-based options
awarded to employees is calculated using the intrinsic value at the valuation
date. The amount charged to compensation expense in 2001 was $183,200 (2000 -
$552,819, 1999 - $32,763)
Fixed Option Awards -
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 2001: nil annual dividends (2000 - nil, 1999 - nil),
expected volatility of 90% (2000 - 90%, 1999 - 90%), risk-free interest of 4.50%
(2000 - 5.76%, 1999 - 5.76%) and expected life of five years (2000 - five years,
1999 - two years). The weighted average fair value of the stock options granted
in 2001 was $0.80 (2000 - $7.55, 1999 - $1.08).
Under the above model, the total value of stock options granted to employees and
directors in 2001 was $1,073,970 (2000 - $14,002,639, 1999 - $2,612,610), 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 $23,731,340 and
$0.40, respectively (2000 - $36,025,438 and $0.68, 1999 - $10,086,384 and
$0.29).
F-33
Consolidated Financial Statements F-34
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2001, 2000 and 1999
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.
Had the Company determined compensation cost for these options in accordance
with SFAS No. 123, the Company's 2001 pro forma loss and pro forma loss per
share would not have changed (2000 and 1999 - no change)
F Employee Stock Compensation (1997) Plan
In 1999, the Employee Stock Compensation (1997) Plan, authorized by the Company
in 1997, which allowed for a total of 2,500,000 common shares that could be
awarded to employees and certain consultants, expired. As such, during 2001, the
Company did not authorize any issuance of common shares (2000 - nil and 1999 -
267,870) pursuant to the plan. In the prior years, the value of the shares at
the date of the award was recorded in the consolidated statements of loss during
the year.
G Employee Stock Purchase (2000) Plan
During 2000, the Company authorized a new employee stock purchase plan for a
total of 3,000,000 common shares that may be purchased by employees at 85% of
the lower of closing price of the Company's common stock at the beginning or
ending date of each plan period. In 2001, the Company sold 168,398 shares of
common stock for cash proceeds of $159,095.
16. COMMITMENTS AND CONTINGENCIES
Obligation under Capital Lease
2001 2000
----------------------------------
Gross Lease commitments:
2001 $ - $ 326,138
2002 157,397 184,348
2003 33,930 53,653
2004 5,586 -
--------------------------------
196,913 564,139
Less: Imputed interest 29,456 66,941
--------------------------------
167,457 497,198
Less: Current portion 131,145 272,851
--------------------------------
Long-term obligation under capital lease $ 36,312 $ 224,347
================================
Operating Leases
2002 $ 569,816
2003 524,923
2004 181,263
F-34
Consolidated Financial Statements F-35
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2001, 2000 and 1999
The Company incurred rental expenses in 2001 of $708,038 (2000 - $652,104 and
1999 - $421,242).
Contract Manufacturers
The Company provides its contract manufacturers with ongoing production
forecasts to enable them to forecast and procure required parts. Under the terms
of the Agreements with the contract manufacturers, the Company has committed to
assume liability for all parts required to manufacture the Company's forecast
products for the next 13 weeks and all final assembly costs for the forecast
products for the next 4 weeks, on a rolling basis.
Escrow Shares
As at December 31, 2001, the Company had 5,400,000 shares of common stock
outstanding which were held under an escrow agreement (Note 15B(ii)). The shares
will be considered to be issued when and if the respective performance events
have occurred and the value of the shares will be measured and recorded at that
date.
Litigation
On January 30, 2002, a former employee of the Company filed suit for breach of
contract of employment and has made claims in the amount of $345,000 plus costs.
The Company believes that the case is without merit and plans to vigorously
defend this lawsuit. No provisions have been made for expenses that may be
incurred to resolve the lawsuit, and although there can be no assurance as to
the ultimate outcome, the Company believes it will not have a material impact on
its business, results of operations and financial condition.
17. SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION
2001 2000 1999
--------------------------------------------------
Net changes in non-cash working capital items relating to operations
Accounts receivable $ 417,196 $ (1,536,885) $ (558,662)
Due from contract manufacturers 1,086,497 (1,127,792) -
Prepaid expenses and other assets 118,300 (190,224) (98,027)
Inventory 786,928 (2,653,078) (250,946)
Accounts payable and accrued liabilities (1,907,686) 1,650,008 (955)
Consideration payable on business combination 23,872 - -
Notes payable (24,659) - -
Deferred revenue (154,622) 186,430 1,477
---------------------------------------------------
$ 345,826 $ (3,671,541) $ (907,113)
====================================================
Cash paid during the year for:
Interest $ 34,231 $ 61,860 $ 32,349
Non-cash investing and financing activities
Share release from escrow to goodwill $ 2,201,500 $ 2,493,750 $ 534,375
Conversion of convertible promissory
notes to common shares 5,105,934 - -
Conversion of promissory notes to common shares 654,258 - -
Capital lease additions 37,155 370,711 125,830
Accounts receivable exchanged for assets for lease 84,824 - -
Disposal of capital lease 40,769 - -
Consideration payable for acquisition 973,161 1,534,917 -
Conversion of warrants - 103,686 -
F-35
Consolidated Financial Statements F-36
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2001, 2000 and 1999
18. RELATED PARTY TRANSACTIONS
During the year, a total of $18,745 (2000 - $25,283 and 1999 - $29,093) was paid
or payable to directors and officers or to companies related to them for their
management and administrative services. In connection with the sale of
promissory notes, management and directors purchased $176,000 of promissory
notes. The total principal, accrued interest and repayment premium, in the
amount of $200,367, were converted into the shareholders' rights offering.
19. FINANCING EXPENSES
2001 2000 1999
--------------------------------------------------
Accrued interest expense on consideration payable on
business combination $ 65,872 $ 45,000 $ -
Accretion of promissory notes 424,461 - -
Accrued interest and repayment premium
on promissory notes 111,155 - -
Accretion of interest on convertible promissory notes 3,024,445 102,954 -
Adjustment of conversion price of notes 1,144,654 - -
Accrued interest on convertible promissory notes 85,520 - -
Amortization of deferred financing expense 149,898 - -
Amortization of call option 408,796 107,433 -
Financing expense due to change in exercise price 113,781 - -
Expiry of put options (117,736) - -
----------------------------------------------------
Non-cash financing expenses $ 5,410,846 $ 255,387 $ -
====================================================
20. INCOME TAXES
Net loss before income tax expense for the each year is summarized as follows:
2001 2000 1999
----------------------------------------------
United States 15,264,526 21,458,701 4,947,362
Canada 4,907,697 9,810,052 3,004,488
Australia 1,320,727 360,907 -
-----------------------------------------------
Net loss before income taxes $ 21,492,950 $ 31,629,660 $ 7,951,850
===============================================
US statutory rate at 35% 7,522,000 11,070,000 2,783,000
Amounts permanently not deductible for income tax purposes (2,584,000) (4,734,000) (190,000)
Foreign income tax rate differential 406,000 1,045,000 319,000
Net operating loss and temporary differences for which
no benefit was recognized (5,344,000) (7,223,955) (2,408,000)
------------------------------------------------
Deferred income tax recovery $ - $ 157,045 $ 504,000
===============================================
F-36
Consolidated Financial Statements F-37
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2001, 2000 and 1999
Deferred income tax assets/(liabilities) consist of the following:
2001 2000 1999
-------------------------------------------
Net operating loss carry forwards $ 14,559,000 $ 11,776,000 $ 4,878,000
Property, plant and equipment 92,000 722,000 280,000
Acquired core technology - - (420,000)
Other 120,000 - -
-----------------------------------------------
Net deferred income tax assets 14,771,000 12,498,000 4,738,000
Valuation allowance (14,771,000) (12,498,000) (4,738,000)
------------------------------------------------
$ - $ - $ -
================================================
The Company provides a valuation allowance for deferred income tax assets when
it is more likely than not that some portion or all of the net deferred income
tax assets will not be realized. Based on a number of factors, including the
lack of a history of profits and that the market in which the Company competes
is intensely competitive and characterized by rapidly changing technology,
management believes that there is sufficient uncertainty regarding the
realization of deferred income tax assets that a full valuation allowance has
been provided. The deferred income tax valuation allowance increased in 2001 by
$2,273,000 (2000 - $7,760,000, 1999 - $2,448,000).
As of December 31, 2001, the Company had available net operating loss carry
forwards for United States, Canadian and Australian purposes of approximately
$27,086,000, $18,356,000 and $621,000, respectively. The United States net
operating loss carry forwards begin to expire in 2008, the Canadian net
operating loss carry forwards begin to expire in 2004 and the Australian net
operating losses begin to expire in 2020. The net operating losses are subject
to certain Canadian and United States restrictions that may apply on any change
in the control of the Company and which could adversely affect the amounts and
benefits to be derived therefrom.
21. LOSS PER SHARE
The warrants, which could result in the issue of 15,842,453 additional shares of
common stock (Note 15C) and the options, which could result in the issue of
9,298,600 additional shares of common stock (Note 15E) 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 Communication Inc. transaction (Note
15B(ii)) have not been included from the loss per share calculation as they are
contingently issuable shares.
Year ended December 31, 2001
Loss Shares Per Share
(Numerator) (Denominator) Amount
Net Loss $ 21,492,950
Add: Deemed dividend on beneficial conversion 1,043,832
(Note 15B(xiii)) -----------
Basic LPS
Loss attributable to common shareholders $ 22,536,782 60,269,617 $0.374
==============================================
F-37
Consolidated Financial Statements F-38
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2001, 2000 and 1999
Year ended December 31, 2000
Loss Shares Per Share
(Numerator) (Denominator) Amount
Net Loss $ 31,472,615
Add: Cash dividends paid on preferred stock in year 31,109
--------------
Basic LPS
Loss attributable to common shareholders $31,503,724 53,203,750 $0.59
=============================================
Year ended December 31, 1999
Loss Shares Per Share
(Numerator) (Denominator) Amount
Net Loss $ 7,447,850
Add: Cash dividends paid on preferred stock in year 158,144
Deemed dividend on share resets (Note 15B(iv)) 1,050,000
---------
Basic LPS
Loss attributable to common shareholders $ 8,655,994 34,258,565 $0.25
=============================================
22. SEGMENTED INFORMATION
INDUSTRY SEGMENTS
The Company operates in one industry segment: wireless data communications
product.
GEOGRAPHIC SEGMENTS
The Company operated in the following geographic segments;
Year Ended December 31,
REVENUE BY REGION 2001 2000 1999
United States $ 1,909,912 $ 899,334 $ 739,826
Australia 3,078,879 699,878 (1)
United Arab Emirates 1,030,125 (1) (1)
Canada 490,661 1,314,968 492,060
Rest of world 1,294,440 1,218,812 484,159
----------------------------------------------------
$ 7,804,017 $ 4,132,992 $ 1,716,045
====================================================
(1) Less than 10% of consolidated revenue.
Year ended December 31, 2001
Canada Australia Total
----------------------------------------------------
Property, plant and equipment $ 1,524,076 $ 147,012 $ 1,671,088
Acquired labor force - 98,949 98,949
Goodwill 2,843,090 1,055,438 3,898,528
-----------------------------------------------------
$ 4,367,166 $ 1,301,399 $ 5,668,565
====================================================
F-38
Consolidated Financial Statements F-39
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2001, 2000 and 1999
Year ended December 31, 2000
Canada Australia Total
-----------------------------------------------------
Property, plant and equipment $ 2,111,984 $ 283,389 $ 2,395,373
Acquired labor force - 400,659 400,659
Goodwill 2,305,738 1,809,245 4,114,983
----------------------------------------------------
$ 4,417,722 $ 2,493,293 $ 6,911,015
====================================================
23. COMPARATIVE FIGURES
Certain comparative amounts have been reclassified to correspond with the
current year's presentation.
24. SUBSEQUENT EVENTS
i. Sale of Common Stock - During March 2002, the Company completed the
sale of 30,096,666 shares of common stock for cash proceeds of
$4,497,000, less cash fees of $134,750.
ii. In March 2002, the Company announced that it intends to close its
Calgary Research and Development facility and integrate its operations
at its Toronto location. It is expected that the transition will be
completed in the third quarter of 2002. The final costs of this
transition have not been determined but due to the relatively long
transition period, the Company believes that the costs will not have a
significant impact on ongoing operating expenses.
F-39
Corporate Information
BOARD OF DIRECTORS EXECUTIVE OFFICERS OFFICES
D. Bruce Sinclair D. Bruce Sinclair Executive and Administration
President and Chief Executive Officer President and Chief Executive Officer WaveRider Communications Inc.
WaveRider Communications Inc. 255 Consumers Road, Suite 500
Toronto, Ontario Charles W. Brown Toronto, Ontario
Vice President, Sales and Marketing Canada M2J 1R4
Cameron A. Mingay (1) (2) Telephone: (416) 502-3200
Lawyer, Partner James H. Chinnick, P.Eng Fax: (416) 502-2968
Cassels, Brock & Blackwell LLP Vice President, Engineering Website: www.waverider.com
Toronto, Ontario Email: info@waverider.com
T. Scott Worthington, CA
Gerry Chastelet (2) (3) Vice President and Chief Financial Officer Investor Relations
Board Director and Advisor (888) 533-1910 (in North America)
Clearwater, Florida AUDITORS AND TAX ADVISORS (416) 502-3265
Email: investors@waverider.com
John E. Curry, CA (3) PricewaterhouseCoopers LLP
President Chartered Accountants Subsidiary Offices
Hydrovane Self Steering Inc. Toronto, Ontario
Vancouver, British Columbia WaveRider Communications(Australia)Pty Ltd.
LEGAL ADVISORS 2 Dublin Street
Dennis R. Wing (3) East Oakleigh, VIC,
President and CEO Foley, Hoag & Eliot Australia, 3166
Fahnestock Canada Inc. Boston, Massachusetts Telephone: 61-3-9543-2677
Toronto, Ontario Fax: 61-3-9543-5582
Cassels, Brock & Blackwell
(1) Corporate Secretary Toronto, Ontario JetStream Internet Services Inc.
(2) Member of Compensation Committee #195K, 1151 - 10 Ave., S.W.
(3) Member of Audit Committee TRANSFER AGENT Salmon Arm, British Columbia
Canada V1E 1T3
Corporate Stock Transfer Telephone: (250) 832-0911
Denver, Colorado Fax: (250) 832-0062
Website: www.jetstream.net
STOCK EXCHANGE SYMBOLS
WAVC (OTC-BB)
WVR (FSE Frankfurt)
[GRAPHIC OMITTED][GRAPHIC OMITTED]
WaveRider Communications Inc.
255 Consumers Road, Suite 500 Toronto, Ontario, Canada M2J 1R4
Telephone: (416) 502-3200 Fax: (416) 502-2968
Website: www.waverider.com Email: info@waverider.com
FORM OF PROXY
WAVERIDER COMMUNICATIONS INC.
PROXY THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints T. Scott Worthington and Cameron A. Mingay, and
each of them, as proxies, with full power of substitution, and hereby authorizes
them to represent and vote, as designated below, all shares of the Common Stock
of WaveRider Communications Inc., a Nevada corporation (the "Company"), held of
record by the undersigned on May 7, 2002 at the Annual Meeting of Shareholders
(the "Annual Meeting") to be held in Room 4 of Le Parc Conference and Banquet
Centre, 8432 Leslie Street, Thornhill, Ontario Canada L3T 7M6, on Tuesday, July
9, 2002, at 2:00 p.m., local time, or at any adjournment or postponement
thereof, upon the matters set forth below, all in accordance with and as more
fully described in the accompanying Notice of Annual Meeting of Shareholders and
Proxy Statement, receipt of which is hereby acknowledged.
1. ELECTION OF DIRECTORS, each to serve until the next annual
Meeting of shareholders of the Company or until their respective
successors all have been duly elected and qualified.
[ ] FOR all nominees listed below (except as marked to the contrary).
[ ] WITHHOLD AUTHORITY to vote for all nominees listed below.
(INSTRUCTION: To withhold authority to vote for any individual nominee strike a
line through the nominee's name in the list below.)
GERRY CHASTELET JOHN CURRRY CAMERON MINGAY BRUCE SINCLAIR DENNIS WING
2. PROPOSAL TO APPROVE the Employee Stock Option (2002) Plan
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. PROPOSAL TO APPROVE an amendment to the Company's Restated Certificate
of Incorporation to increase the authorized number of shares of Common
Stock from 200,000,000 to 400,000,000
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Annual Meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR THE ELECTION OF THE DIRECTOR NOMINEES NAMED ABOVE; FOR THE APPROVAL OF
THE EMPLOYEE STOCK OPTION (2002) PLAN; FOR THE APPROVAL OF THE INCREASE IN THE
AUTHORIZED CAPITAL OF THE COMPANY
Please complete, sign and date this proxy where
indicated and return it promptly to:
Mr. T. Scott Worthington, Vice President and Chief Financial Officer
WaveRider Communications Inc., 255 Consumers Road, Suite 500, Toronto, Ontario
Canada M2J 1R4
Date: _____________, 2002 Signature: ___________________________
Name (Print):_________________________
Signature (if held jointly):______________________
Name (Print - if held jointly): __________________
Registered Address: _____________________________________________________
___________________________________________________________________________
(Please sign above exactly as the shares are issued. When shares are held by
joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by president or other authorized
officer. If a partnership, please sign in partnership name by authorized
person.)