SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
Form 10-QSB/A
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003
Commission file number 0-25680
WAVERIDER COMMUNICATIONS INC.
(Exact name of small business issuer as specified in its charter)
NEVADA 33-0264030
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
255 Consumers Road, Suite 500, Toronto, Ontario M2J 1R4
(Address of principal executive offices and Zip (Postal) Code)
(416) 502-3200
(Issuer's telephone number)
(Former name, former address and former fiscal year,
if changed since last report)
Applicable only to corporate issuers:
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: July 30, 2003
138,707,863 Common shares, $.001 par value.
Transitional Small Business Disclosure Format: (check one):
Yes _____; No __X__
PART I OF THE REGISTRANT'S QUARTERLY REPORT ON FORM 10-QSB IS HEREBY AMENDED BY
DELETING THE TEXT THEREOF IN ITS ENTIRETY AND SUBSTITUTING THEREFOR THE
FOLLOWING:
PART I. FINANCIAL INFORMATION
WaveRider Communications Inc.
CONSOLIDATED BALANCE SHEETS
(in U.S. dollars)
June 30, December 31,
2003 2002
(Unaudited) (Audited)
ASSETS
Current assets:
Cash and cash equivalents $ 880,255 $ 1,025,604
Accounts receivable, less allowance for doubtful accounts 1,487,740 1,395,970
Inventories 1,081,646 1,230,048
Note receivable 19,813 32,761
Prepaid expenses and other assets 87,992 75,362
------------ ------------
Current assets 3,557,446 3,759,745
Property, plant and equipment, net 603,522 885,475
------------ ------------
$ 4,160,968 $ 4,645,220
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 2,497,318 $ 2,708,268
Deferred revenue 380,151 259,235
Current portion of obligation under capital lease 16,077 12,094
------------ ------------
Current liabilities 2,893,546 2,979,597
Obligation under capital lease 12,490 6,004
------------ ------------
Total liabilities 2,906,036 2,985,601
------------ ------------
Commitments and Contingencies (Note 8)
Shareholders' equity:
Preferred Stock, $0.01 par value per share:
issued and outstanding 5,800 at June 30, 2003 and 16,700 shares
at December 31, 2002 58 167
Common Stock, $0.001 par value per share:
issued and outstanding - 129,957,864 shares at June 30, 2003
116,755,119 shares at December 31, 2002 129,958 116,755
Additional paid-in capital 72,407,943 72,397,489
Other equity 12,600,831 12,621,831
Deferred compensation (62,076) (173,260)
Accumulated other comprehensive loss (243,525) (102,371)
Accumulated deficit (83,578,257) (83,200,992)
------------ ------------
Total shareholders' equity 1,254,932 1,659,619
------------ ------------
$ 4,160,968 $ 4,645,220
============ ============
See accompanying notes to financial statements.
2
WaveRider Communications Inc.
CONSOLIDATED STATEMENTS OF LOSS, DEFICIT AND COMPREHENSIVE LOSS
(in U.S. dollars)
Three Months ended Six Months ended
June 30 June 30 June 30 June 30
2003 2002 2003 2002
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------- ------------- ------------- -------------
CONSOLIDATED STATEMENT OF LOSS
REVENUE
Product revenue $ 2,686,066 $ 2,017,378 $ 5,559,612 $ 3,177,543
Service revenue 450,088 327,489 754,903 780,312
------------- ------------- ------------- -------------
3,136,154 2,344,867 6,314,515 3,957,855
COST OF REVENUE
Product revenue $ 1,671,957 $ 1,599,025 $ 3,556,441 $ 2,685,638
Service revenue 99,501 86,227 218,304 151,347
------------- ------------- ------------- -------------
1,771,458 1,685,252 3,774,745 2,836,985
------------- ------------- ------------- -------------
GROSS MARGIN 1,364,696 659,615 2,539,770 1,120,870
------------- ------------- ------------- -------------
EXPENSES
Selling, general and administration 1,101,505 1,399,941 2,239,075 3,661,992
Employee stock based compensation 48,185 (43,500) 97,184 160,500
Research and development 275,992 479,657 432,595 815,765
Depreciation and amortization 117,646 282,672 265,400 553,092
Foreign exchange gain (80,374) (67,487) (151,197) (97,256)
Bad debt expense -- 13,731 -- 29,495
Interest expense 22,374 22,347 37,653 359,229
Interest income (1,860) (13,617) (3,675) (14,495)
------------- ------------- ------------- -------------
1,483,468 2,073,744 2,917,035 5,468,322
------------- ------------- ------------- -------------
NET LOSS $ (118,772) $ (1,414,129) $ (377,265) $ (4,347,452)
============= ============= ============= =============
BASIC AND FULLY DILUTED LOSS PER SHARE $ (0.001) $ (0.013) $ (0.003) $ (0.046)
============= ============= ============= =============
Weighted Average Number of Common Shares 125,011,540 110,182,830 120,991,298 94,826,431
============= ============= ============= =============
CONSOLIDATED STATEMENT OF DEFICIT
OPENING DEFICIT (83,459,485) (74,884,613) (83,200,992) (71,951,290)
NET LOSS FOR THE PERIOD (118,772) (1,414,129) (377,265) (4,347,452)
------------- ------------- ------------- -------------
CLOSING DEFICIT $ (83,578,257) $ (76,298,742) $ (83,578,257) $ (76,298,742)
============= ============= ============= =============
CONSOLIDATED STATEMENT OF ACCUMULATED COMPREHENSIVE INCOME
NET LOSS FOR THE PERIOD (118,772) (1,414,129) (377,265) (4,347,452)
OTHER COMPREHENSIVE INCOME/(LOSS)
Cumulative translation adjustment (91,919) 28,629 (141,154) 50,433
------------- ------------- ------------- -------------
COMPREHENSIVE LOSS $ (210,691) $ (1,385,500) $ (518,419) $ (4,297,019)
============= ============= ============= =============
See accompanying notes to financial statements.
3
WaveRider Communications Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in U.S. dollars)
Six months ended June 30
2003 2002
----------- -----------
(Unaudited) (Unaudited)
OPERATIONS
Net loss $ (377,265) $(4,347,452)
Items not involving cash
Depreciation and amortization 265,401 553,092
Unrealized foreign exchange loss (gain) (164,346) 50,410
Compensatory stock options 97,184 --
Non-cash financing charges -- 263,607
Charges for shares released from escrow - 710,813
Compensatory shares released from escrow to employee -- 160,500
Non-employee stock options -- 21,569
Bad debt expense -- 29,495
Net changes in non-cash working capital items (86,937) (471,652)
----------- -----------
Net cash used in operating activities (265,963) (3,029,618)
----------- -----------
INVESTING
Disposal (Acquisition) of property, plant and equipment (19,252) 4,346
----------- -----------
Net cash provided by (used in) investing activities (19,252) 4,346
----------- -----------
FINANCING
Proceeds from sale of shares net of issue fees 16,548 4,357,962
Payment of consideration payable on business combination -- (105,256)
Repayment of promissory notes -- (432,500)
Payments on capital lease obligations (796) (64,471)
----------- -----------
Net cash provided by financing activities 15,752 3,755,735
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 124,114 (20,368)
----------- -----------
Increase (decrease) in cash and cash equivalents (145,349) 710,095
Cash and cash equivalents, beginning of period 1,025,604 2,244,625
----------- -----------
Cash and cash equivalents, end of period $ 880,255 $ 2,954,720
=========== ===========
Supplementary disclosures of cash flow information:
Cash paid during the period for:
Interest 1,136 22,414
Repayment premium on redemption of promissory notes -- 68,775
In the quarter ending June 30, 2003, the Company acquired equipment with a cost
of $8,101 under a capital lease obligation.
See accompanying notes to financial statements.
4
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003 and December 31, 2002
1. BASIS OF PRESENTATION
The Financial statements for the three and six months ended June 30, 2003 and
2002 include, in the opinion of Management, all adjustments (which consist only
of normal recurring adjustments) necessary to present fairly the results of
operations for such periods. Results of operations for the three and six months
ended June 30, 2003, are not necessarily indicative of results of operations
which will be realized for the year ending December 31, 2003. The financial
statements should be read in conjunction with the Company's Form 10-K for the
year ended December 31, 2002.
2. NET LOSS PER SHARE
Basic loss per share represents loss applicable to common stock divided by the
weighted average number of common shares outstanding during the period. Diluted
loss per share reflects additional common shares that would have been
outstanding if potential dilutive common shares had been issued, as well as any
adjustment to income that would result from the assumed conversion. Potential
common shares that may be issued by the Company relate to outstanding stock
options and warrants (determined using the treasury stock method) and preferred
stock. For all periods presented, options, warrants and preferred stock were
anti-dilutive and excluded from the net loss per share computation.
3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
FASB FIN 46, Consolidation of Variable Interest Entities, requires consolidation
where there is a controlling financial interest in a variable interest entity,
previously referred to as a special-purpose entity. FIN 46 became effective
during the second quarter of our fiscal year 2003. There was no impact to our
financial position or results of operations.
4. 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 plans. 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[smg4]. 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.
The following table illustrates the effect on net loss and net loss per share if
the Company had applied the fair value recognition provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation", to the stock-based employee
compensation:
Three Months ended Six Months ended
June 30 June 30 June 30 June 30
2003 2002 2003 2002
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------- -------------- ----------- -------------
Net loss, as reported $ (118,772) $ (1,414,129) $ (377,265) $ (4,347,452)
Add: Stock-based employee compensation
expense included in reported net loss 48,185 (43,500) 97,184 160,500
Deduct: Total stock based employee
compensation expense determined under
fair value based method for all awards (253,397) (627,695) (630,978) (963,199)
------------ ------------- ---------- ------------
Pro forma net loss $ (323,984) $ (2,085,324) $ (911,059) $ (5,150,151)
============ ============= ========== ============
Basic and fully diluted loss per share,
as reported $ (0.001) $ (0.013) $ (0.003) $ (0.046)
============ ============= ========== ============
Basic and fully diluted loss per share,
pro forma $ (0.003) $ (0.019) $ (0.008) $ (0.054)
============ ============= ========== ============
5
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003 and December 31, 2002
5. ACCOUNTS RECEIVABLE
June December
30, 2003 31, 2002
------------ -----------
(Unaudited) (Audited)
Accounts receivable - trade $ 1,625,523 $ 1,494,622
Other receivables 13,956 113,572
Allowance for doubtful accounts (151,739) (212,224)
------------ -----------
$ 1,487,740 $ 1,395,970
============ ===========
6. INVENTORIES
June December
30, 2003 31, 2002
------------ -----------
(Unaudited) (Audited)
Finished products $ 1,050,154 $ 1,258,620
Raw materials 63,250 22,043
Valuation allowance (31,758) (50,615)
------------ -----------
$ 1,081,646 $ 1,230,048
============ ===========
7. SHAREHOLDERS' EQUITY
(a) Conversion of Preferred Stock - During the second quarter of 2003, 9,900
shares of the Series D 5% convertible preferred stock were converted to
11,867,524 shares of common stock.
(b) Exercise of Options - During the second quarter of 2003, employees exercised
options to purchase 58,333 shares of common stock for cash considerations of
$1,833.
(c) Purchase under Employee Stock Purchase Plan - During the second quarter of
2003, employees purchased 187,456 shares of common stock for cash consideration
of $14,340.
8. COMMITMENTS AND CONTINGENCIES
Employee Stock Option Agreements
The Company has four existing employee stock option plans -- the Employee Stock
Option (1997) Plan, the 1999 Incentive and Nonqualified Stock Option Plan, the
Employee Stock Option (2000) Plan and the Employee Stock Option (2002) Plan
which have authorized shares of 6,250,000, 3,000,000, 6,000,000 and 6,000,000
shares, respectively. Through June 30, 2003, the Company had awarded, net of
forfeitures, 5,828,617 options under the Employee Stock Option (1997) Plan,
2,262,550 options under the 1999 Incentive and Nonqualified Stock Option Plan,
4,424,674 options under the Employee Stock Option (2000) Plan and 2,375,000
options under the Employee Stock Option (2002) Plan.
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WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003 and December 31, 2002
Employee Stock Purchase Agreement
On July 7, 2000, the shareholders approved the establishment of the Company's
Employee Stock Purchase (2000) Plan, which has 3,000,000 authorized shares.
Under the terms of the plan, employees are eligible to purchase shares of the
Company's common stock at 85% of the lower of the closing price at the beginning
or ending date of each period. To the end of the second quarter of 2003, 757,579
shares of common stock have been purchased under the Plan. The offerings under
the plan run for six-month periods commencing May 1 and November 1.
Lease Commitments
During the second quarter of 2003, the Company extended its lease on its
principal office location for an additional five years until May 31, 2009. The
minimum monthly rent for the principal lease has been reduced to $7,500 per
month until February 2006 and $10,500 from March 2006 until May 2009. Prior to
the extension, the Company was committed to paying $12,900 in minimum monthly
rent for the principal lease through May 2004.
Litigation
As at June 30, 2003, there are no litigation matters outstanding against the
Company.
9. SEGMENT INFORMATION
Industry Segments
The Company operates in one industry segment: wireless data communications
products.
Geographic Segments
The Company operated in the following geographic segments;
Three Months ended Six Months ended
June 30 June 30
2003 2002 2003 2002
------------ ------------ ------------ ------------
Revenue by Region (Unaudited) (Unaudited) (Unaudited) (Unaudited)
United States $ 2,117,240 $ 1,279,058 $ 4,454,243 $ 1,987,440
Australia 572,145 534,882 1,120,370 977,089
Canada 312,473 254,774 441,614 350,266
Rest of World 134,296 276,153 298,288 643,060
------------ ------------ ------------ ------------
$ 3,136,154 $ 2,344,867 $ 6,314,515 $ 3,957,855
============ ============ ============ ============
Six months ended June 30, 2003 (Unaudited)
Canada Australia Total
----------- ---------- -----------
Property, plant and equipment $ 498,383 $ 105,139 $ 603,522
=========== ========== ===========
Year ended December 31, 2002 (Audited)
Canada Australia Total
----------- ---------- -----------
Property, plant and equipment $ 790,009 $ 95,466 $ 885,475
=========== ========== ===========
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WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003 and December 31, 2002
10. COMPARATIVE FIGURES
Certain comparative amounts have been reclassified, where appropriate, to
correspond with the current period's presentation.
11. SUBSEQUENT EVENTS
(a) Effective July 2, 2003, the Company acquired Avendo Wireless Inc., a
privately-held technology developer located in Mississauga, Ontario, Canada. The
Company undertook this acquisition to gain control of Avendo's assets, which
include cash, net receivable, in-process wireless technologies and experienced
research and development team to aid in expanding and enhancing WaveRider's
non-line-of-sight wireless broadband products[smg6].
Avendo Wireless designs and develops advanced fixed broadband wireless
technology. Avendo's technology, when completed, is targeted to significantly
improve spectral efficiency resulting in the ability to operate in non line of
sight environments thereby providing the reliability needed to meet the needs of
leading equipment vendors and their customers. The ultimate outcome of the
development of this product cannot be determined at this time.
Under the terms of the acquisition, the Company issued 8,749,999 shares of
common stock and 3,000,000 common stock purchase warrants in exchange for all of
the issued and outstanding shares of Avendo and all outstanding long term debt.
The warrants are exercisable at $0.41per share for a five year period and
include a net share settlement feature. In addition, the Company issued to the
employees and advisors to Avendo 863,000 employee stock options, with an
exercise price of $0.39.
The transaction will be accounted for as a purchase and is summarized as
follows:
Cash on hand $ 1,177,420
Other current assets 245,378
Fixed assets 16,235
Current liabilities (64,690)
------------
Net assets received 1,374,343
Expenses incurred on acquisition (100,000)
Goodwill 2,748,583
------------
Total consideration received $ 4,022,926
============
Common stock issued on closing $ 3,412,500
Warrants issued on closing at fair value 416,647
Employee stock options issued on closing at fair value 193,779
------------
Total consideration given $ 4,022,926
============
The cash effect of this transaction is summarized
as follows:
Cash acquired on closing $ 1,177,420
============
8
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003 and December 31, 2002
Six Months ended June 30,
2003 2002
------------ -------------
Pro forma consolidated revenue $ 6,314,515 $ 3,957,855
============ =============
Pro forma consolidated net loss $ (719,841) $ (5,020,920)
============ =============
Pro forma consolidated basic and
fully diluted loss per share $ (0.006) $ (0.048)
============ =============
(b) On July 14, 2003, the Company issued convertible debentures, at a 6%
discount, in the aggregate principal amount of $1,600,000 to Crescent
International Ltd. and Palisades Master Fund L.P. and received cash proceeds of
$1,504,000, before cash fees of $87,120. The debt is unsecured, has no stated
interest rate and matures in three years. In conjunction with the convertible
debentures, the Company issued Series R warrants to purchase 1,019,108 shares of
common stock at a price of $.4121 per share with a term of five years. Based
upon the relative fair value of the underlying instruments, $1,038,336 of the
total proceeds, net of costs, was allocated to convertible debentures and
$134,459 was allocated to the Series R warrants.
The convertible debentures are initially convertible into shares of common stock
at $0.4318. If, after December 11, 2003, the price of the Company's common stock
is less than $0.5182, upon a request for conversion, the Company, at its option,
may either a) pay cash equal to 120% of the face value of the note or b) issue
conversion shares based on a conversion price equal to 95% of the average of the
lowest three Closing Bid Prices during the 20 Trading Day period immediately
preceding the Conversion Date, as defined in the agreement. The Series R
warrants also have a net share settlement feature. Based on the most beneficial
conversion terms given no changes other than the passage of time, the Company
has determined that there is a beneficial conversion feature equal to $322,937.
This amount has been recorded as additional paid in capital and a reduction in
the carrying amount of the convertible debt and will be amortized to interest
expense over the debt term.
9
Item 6. Exhibits and Reports on Form 8-K
Number Description
- ------ -----------
31.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Signatures:
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized,
WaveRider Communications Inc.
Date: July 31, 2003 /s/ D. Bruce Sinclair
-------------------------------
D. Bruce Sinclair
Chief Executive Officer
/s/ T. Scott Worthington
-------------------------------
T. Scott Worthington
Vice President and Chief Financial Officer
10