SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
Form 10-QSB
QUARTERLYREPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005
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)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirement for the past 90 days.
Yes __X__; No _____
Applicable only to corporate issuers:
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
May 12, 2005: 25,015,478 Common shares, $.001 par value.
Transitional Small Business Disclosure Format: (check one):
Yes _____; No __X__
WAVERIDER COMMUNICATIONS INC.
FORM 10 - QSB
For the Period Ended March 31, 2005
INDEX
Page
----
PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements 3-10
Consolidated Balance Sheets 3
Consolidated Statements of Loss, Deficit and Comprehensive Loss 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6-10
Item 2. Management's Discussion and Analysis
or Plan of Operation 11-14
Item 3. Controls and Procedures 15
PART II OTHER INFORMATION 15
Item 5. Other Information 15
Item 6. Exhibits 15
Signatures 15
Certifications 16-18
2
PART I. FINANCIAL INFORMATION
WaveRider Communications Inc.
CONSOLIDATED BALANCE SHEETS
(in U.S. dollars)
March 31, December 31,
2005 2004
(Unaudited) (Audited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,093,360 $ 1,291,822
Restricted cash 100,000 100,000
Accounts receivable, less allowance for doubtful accounts 1,165,335 1,056,103
Inventories 648,718 943,644
Prepaid expenses and other assets 116,254 145,805
------------- --------------
Current assets 3,123,667 3,537,374
Property, plant and equipment, net 262,607 295,063
------------- --------------
$ 3,386,274 $ 3,832,437
============= ==============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities $ 1,875,104 $ 2,080,064
Deferred revenue 639,481 407,639
Current portion of obligations under capital lease 2,768 2,781
------------- --------------
Current liabilities 2,517,353 2,490,484
Convertible debentures, net of discount 1,280,961 1,506,322
Obligations under capital lease 619 1,854
------------- --------------
Total liabilities 3,798,933 3,998,660
------------- --------------
Commitments and Contingencies (Note 8)
Shareholders' deficit:
Preferred Stock, $0.01 par value per share:
issued and outstanding Nil shares in 2005 and 2004 - -
Common Stock, $0.001 par value per share:
issued and outstanding - 21,847,098 shares at March 31, 2005 and
16,571,732 shares at December 31, 2004 21,847 16,572
Additional paid-in capital 90,155,688 89,582,484
Other equity 5,030,232 5,134,928
Accumulated other comprehensive loss (330,775) (337,239)
Accumulated deficit (95,289,651) (94,562,968)
------------- --------------
Total shareholders' deficit (412,659) (166,223)
------------- --------------
$ 3,386,274 $ 3,832,437
============= ==============
See accompanying notes to financial statements.
3
WaveRider Communications Inc.
CONSOLIDATED STATEMENTS OF LOSS, DEFICIT AND COMPREHENSIVE LOSS
(in U.S. dollars)
Three months ended March 31
2005 2004
--------------------------------------------
(Unaudited) (Unaudited)
REVENUE
Product revenue $ 1,744,849 $ 1,896,527
Service revenue 394,714 409,694
--------------------------------------------
2,139,563 2,306,221
--------------------------------------------
COST OF REVENUE
Product revenue 1,202,029 1,217,767
Service revenue 220,534 265,103
--------------------------------------------
1,422,563 1,482,870
--------------------------------------------
GROSS MARGIN 717,000 823,351
--------------------------------------------
EXPENSES
Selling, general and administration 1,010,731 1,272,630
Research and development 110,856 489,044
Depreciation and amortization 33,954 95,230
Bad debt expense 2,836 1,740
--------------------------------------------
1,158,377 1,858,644
--------------------------------------------
LOSS FROM OPERATIONS (441,377) (1,035,293)
--------------------------------------------
NON-OPERATING EXPENSES (INCOME)
Interest expense 279,582 517,058
Foreign exchange loss 8,967 28,296
Interest income (3,244) (2,097)
--------------------------------------------
285,306 543,257
--------------------------------------------
NET LOSS $ (726,683) $ (1,578,550)
============================================
BASIC AND DILUTED LOSS PER SHARE $ (0.04) $ (0.11)
============================================
Weighted Average Number of Common Shares 17,842,071 14,599,929
============================================
- -------------------------------------------------------------------------------------------------------------------
OPENING DEFICIT $ (94,562,968) $ (88,262,299)
NET LOSS FOR THE PERIOD (726,683) (1,578,550)
---------------------------------------------
CLOSING DEFICIT $ (95,289,651) $ (89,840,849)
=============================================
- -------------------------------------------------------------------------------------------------------------------
NET LOSS FOR THE PERIOD $ (726,683) $ (1,578,550)
OTHER COMPREHENSIVE INCOME/(LOSS)
Cumulative translation adjustment 6,464 (6,179)
---------------------------------------------
COMPREHENSIVE LOSS $ (720,219) $ (1,584,729)
=============================================
See accompanying notes to financial statements.
4
WaveRider Communications Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in U.S. dollars)
Three months ended March 31
2005 2004
------------------------------------
(Unaudited) (Unaudited)
OPERATIONS
Net loss $ (726,683) $ (1,578,550)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 33,954 95,230
Unrealized foreign exchange loss 9,319 13,068
Non-cash financing charges 272,023 507,105
Gain on disposal of fixed assets - (6,246)
Bad debt expense 2,836 1,740
Net changes in working capital items 225,161 171,745
-----------------------------------
Net cash used in operating activities (183,386) (795,908)
-----------------------------------
INVESTING
Acquisition of property, plant and equipment (2,386) (89,791)
-----------------------------------
Net cash used in investing activities (2,386) (89,791)
-----------------------------------
FINANCING
Proceeds from sale of shares net of issuance fees - 3,987
Proceeds from note receivable - 20,698
Payments on capital lease obligations (680) (8,677)
-----------------------------------
Net cash provided by (used in) financing activities (680) 16,008
-----------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (12,010) (14,175)
-----------------------------------
Decrease in cash and cash equivalents (198,462) (883,866)
Cash and cash equivalents, beginning of period 1,291,822 1,843,135
-----------------------------------
Cash and cash equivalents, end of period $ 1,093,360 $ 959,269
===================================
Supplementary disclosures of cash flow information:
Cash paid during the period for:
Interest $ 479 $ 1,023
See accompanying notes to financial statements.
5
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005 (unaudited) and December 31, 2004 (audited)
1. GOING CONCERN
These consolidated financial statements are prepared on a going-concern
basis, which assumes that WaveRider Communications Inc. (the "Company")
will realize its assets and discharge its liabilities in the normal
course of business. The Company incurred a net loss of $726,683 for the
three months ended March 31, 2005 (2004 - $1,578,550) and reported an
accumulated deficit at that date of $95,289,651 (2004 - $89,840,849).
In addition, the requirements to continue investing in research and
development activities to meet the Company's growth objectives, without
assurance of broad commercial acceptance of the Company's products,
create significant doubt as to the ability of the Company to continue
normal business operations.
While the Company has a long term plan that it believes will allow it
to achieve profitability and cash flow positive operations, it does not
presently have, in the absence of further financing, adequate cash to
fund ongoing operations. In the past, the Company has obtained
financing primarily through the sale of convertible securities. If the
Company is unable to obtain additional financing and achieve its
planned cash flow positive operations and profitability, it will, in
all likelihood, be obliged to seek protection under the bankruptcy
laws; in which event the Company believes it is unlikely that its
common stock will have any value.
The ability of the Company to continue as a going concern is dependent
upon it achieving and maintaining profitable and cash flow positive
operations or securing additional external funding to meet its
obligations as they come due. Should the Company be unable to continue
as a going concern, assets and liabilities would require restatement on
a liquidation basis which would differ materially from the going
concern basis.
2. BASIS OF PRESENTATION
The financial statements for the three months ended March 31, 2005 and
2004 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 months ended March 31, 2005 are not
necessarily indicative of results of operations which will be realized
for the year ending December 31, 2005. The financial statements should
be read in conjunction with the Company's Form 10-KSB for the year
ended December 31, 2004.
On June 17, 2004, our directors approved a 1-for-10 reverse stock split
of our common stock, based on shareholder approval on September 4,
2003. The reverse stock split became effective on July 1, 2004. All
common stock information presented herein has been retroactively
restated to reflect the reverse stock split.
3. NET LOSS PER SHARE
Basic loss per share represents loss applicable to common stockholders
divided by the weighted average number of common shares outstanding
during the period. Potential common shares that may be issued by the
Company relate to outstanding stock options and warrants (determined
using the treasury stock method) and convertible debentures. For all
periods presented, options, warrants and preferred stock were
anti-dilutive and excluded from the net loss per share computation. As
a result, diluted loss per share is the same as basic loss per share.
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. 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.
6
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005 (unaudited) and December 31, 2004 (audited)
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 March 31,
2005 2004
-----------------------------
(Unaudited) (Unaudited)
Net loss, as reported $ (726,683) $ (1,578,550)
Add: Stock-based employee compensation
expense included in reported net loss - -
Deduct: Total stock-based employee compensation
expense determined under fair value based method for all awards (108,740) (106,337)
-----------------------------
Pro forma net loss $ (835,423) $ (1,684,887)
============================
Basic and diluted loss per share, as reported $ (0.04) $ (0.11)
=============================
Basic and diluted loss per share, pro forma $ (0.05) $ (0. 12)
=============================
5. ACCOUNTS RECEIVABLE
March 31, December 31,
2005 2004
----------------------------
(Unaudited) (Audited)
Accounts receivable - trade $ 1,233,183 $ 1,076,013
Other receivables - 14,977
Allowance for doubtful accounts (67,848) (34,887)
----------------------------
$ 1,165,335 $ 1,056,103
============================
6. INVENTORIES
March 31, December 31,
2005 2004
----------------------------
(Unaudited) (Audited)
Finished products $ 1,168,142 $ 1,239,278
Raw materials 12,690 314,777
Valuation allowance (532,114) (610,411)
-----------------------------
$ 648,718 $ 943,644
============================
7. CONVERTIBLE DEBENTURES
During the quarter ended March 31, 2005, convertible debentures in an
aggregate nominal value of $473,784 were converted to 5,275,366 shares
of common stock. Upon conversion, an amount of $104,695, being the
prorated portion of the original beneficial conversion feature amount
was transferred from other equity to paid in capital and common shares.
7
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005 (unaudited) and December 31, 2004 (audited)
During the quarter ended March 31, 2005, $272,023 in non-cash financing
expenses were charged to the statement of loss. These expenses included
those relating to accretion of the convertible debentures, the
write-off of the original beneficial conversion feature related to the
converted debentures and the amortization of deferred financing
expenses. At March 31, 2005, the face amount of convertible debentures
outstanding is $1,953,992 less unamortized beneficial conversion
features of $476,948 and unamortized discounts of $196,083.
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
625,000, 300,000, 600,000 and 600,000 shares, respectively. Through
March 31, 2005, the Company had awarded 596,708 options under the
Employee Stock Option (1997) Plan, 298,418 options under the 1999
Incentive and Nonqualified Stock Option Plan, 530,218 options under the
Employee Stock Option (2000) Plan and 482,500 options under the
Employee Stock Option (2002) Plan.
During the quarter ended March 31, 2005, the Company awarded to
employees and directors options to purchase 980,000 shares of common
stock at an exercise price of $0.19 per share. Options to purchase
500,000 shares of common stock were awarded to Mr. Bruce Sinclair in
exchange for his acceptance of an amendment to his employment agreement
which reduces his potential severance compensation; options to purchase
250,000 shares of common stock were awarded to the independent
directors as part of the Company's directors' compensation plan; and,
options to purchase 230,000 shares of common stock were awarded to the
management and key employees of the Company in recognition of their
acceptance of a salary reduction.
Employee Stock Purchase Agreement
On July 7, 2000, the shareholders approved the establishment of the
Company's Employee Stock Purchase (2000) Plan, which has 300,000
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.
Through the end of the first quarter of 2005, 109,004 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.
Subsequent to March 31, 2005, an additional 173,267 shares of common
stock were purchased under the Plan. As a result, the Company will be
required to seek approval and register additional shares.
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. Management believes that, should it be
necessary, they could find alternative contract manufacturers though it
may cause a significant disruption to the business.
A letter of credit has been issued to the contract manufacturer in the
amount of $100,000 at March 31, 2005. The letter of credit secures the
Company's payment obligation under the Agreement and expires in
December 2005. The Company has pledged cash to the bank as collateral
in the same amount as the letter of credit. This pledge has been
classified as restricted cash.
8
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005 (unaudited) and December 31, 2004 (audited)
Development Contractors
The Company employs outside contractors to assist in the design and
development of its products. At March 31, 2005, the Company had entered
into development contracts with one of its contractors, in the amount
of $778,000, of which $520,000 has been expensed through March 31,
2005. The contract calls for progress payments against specific
milestones over the course of the contract.
Contract Supplier
During the quarter, the Company entered into a purchase agreement for
the supply of filters. The agreement calls for a minimum purchase of
$123,000 over a one-year period. During the quarter ended March 31,
2005, the company purchased filters in the amount of $18,040.
Litigation
As at March 31, 2005, the Company knows of no litigation matters
outstanding against the Company.
9. SEGMENTED 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 March 31,
Revenue by region 2005 2004
-------------------------------
(Unaudited) (Unaudited)
United States $ 1,076,273 $ 1,157,115
Australia 762,716 727,455
Canada 163,973 209,399
Rest of world 136,601 212,252
-------------------------------
$ 2,139,563 $ 2,306,221
===============================
As at March 31, 2005 (Unaudited)
Canada Australia Total
----------------------------------------------------
Property, plant and equipment $ 171,940 $ 90,667 $ 262,607
====================================================
As at December 31, 2004 (Audited)
Canada Australia Total
----------------------------------------------------
Property, plant and equipment $ 193,195 $ 101,868 $ 295,063
====================================================
9
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005 (unaudited) and December 31, 2004 (audited)
10. COMPARATIVE FIGURES
Certain comparative amounts have been reclassified to correspond with
the current year's presentation.
11. SUBSEQUENT EVENTS
Conversions of convertible debentures subsequent to March 31, 2005 --
Subsequent to March 31, 2005, convertible debentures with an aggregate
nominal value of $137,546 were converted to 2,995,113 shares of common
stock. As a result of a decline in the conversion price from the date
of issue, the Company determined that there was an additional
beneficial conversion feature in the amount of $299,568. This amount
was recorded as other equity and as a reduction in the carrying amount
of the convertible debt. In conjunction with these conversions, the
Company recorded non-cash financing expenses of $357,706.
Upon conversion, an amount of $336,686, being the prorated portion of
the original beneficial conversion feature amount and the additional
beneficial conversion amount was transferred from other equity to paid
in capital and common shares.
As a result of the conversions in April 2005, the Company is required,
under the registration rights agreement between the Company and the
debenture holders, to register additional shares to cover the
conversion of the remaining outstanding debentures.
10
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion is intended to assist in an understanding of the
Company's financial position and results of operations for the quarter ended
March 31, 2005.
Forward-Looking Information
This report contains certain forward-looking statements and information
relating to the Company that are based on the beliefs of its management as well
as assumptions made by and information currently available to its management.
When used in this report, the words "anticipate", "believe", "estimate",
"expect", "intend", "plan", and similar expressions as they relate to the
Company or its management, are intended to identify forward-looking statements.
These statements reflect management's current view of the Company with respect
to future events and are subject to certain risks, uncertainties and
assumptions. Should any of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those described in this report as anticipated, estimated or expected. The
Company's realization of its business aims could be materially and adversely
affected by any technical or other problems in, or difficulties with, planned
funding and technologies, third party technologies which render the Company's
technologies obsolete, the unavailability of required third party technology
licenses on commercially reasonable terms, the loss of key research and
development personnel, the inability or failure to recruit and retain qualified
research and development personnel, 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 or the
adoption of technology standards which are different from technologies around
which the Company's business ultimately is built. The Company does not intend to
update these forward-looking statements.
Overview
We design, develop, market and support fixed wireless Internet access
products. Our products are designed to deliver efficient, reliable, and
cost-effective solutions; 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.
Market Environment and Strategic Direction
Over the past several years, the global telecommunications market
deteriorated, reflecting a significant reduction in capital spending by
established service providers and a lack of venture capital for new entrants.
Reasons for this market deterioration include the economic slowdown in the
technology sector, network overcapacity, customer bankruptcies, network
build-out delays and limited capital availability. As a result, our sales and
results of operations have been significantly adversely affected.
During this prolonged sector downturn, we have concentrated on working
closely with our customers to get our products and services established in a
number of markets, significantly reducing our cost structure, reducing our
breakeven revenue level and improving our balance sheet, through tightening our
accounts receivable and inventory levels. However, if capital investment levels
continue to decline, or if the telecommunications market does not improve or
improves at a slower pace than we anticipate, our revenues and profitability
will continue to be adversely affected. In addition, if our sales volume and
product mix does not improve, or we do not continue to realize cost reductions
or reduce inventory related costs, our gross margin percentage may not improve
as much as we have targeted, resulting in lower than expected results of
operations.
11
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2005 COMPARED TO THE THREE
MONTHS ENDED MARCH 31, 2004.
Revenue
The following table presents our North American and non-North American
revenues and the approximate percentage of total revenues ($000's):
Three months
ended March 31,
----------------------------------
2005 2004 % Change
--------- -------- --------
North America $ 1,240 $ 1,366 (9.2%)
Non-North America 900 940 (4.3%)
----------------------------------
Total revenues $ 2,140 $ 2,306 (7.2%)
==================================
Percentage of total revenue
North America 57.9% 59.2%
Non-North America 42.1% 40.8%
Total revenue declined 7.2% in Q1 2005 compared to Q1 2004 and 0.7%
compared to Q4 2004. The Company's focus on the 900 MHz non-line of sight LMS
product family has allowed it to make gains in the North American market but has
limited its potential in a large part of the rest of the world, where the 900
MHz band is not available on a license exempt basis. As a result, we are exposed
to potential significant swings when the focused market for our main product
experiences periods of weakness.
Total revenues in North America in Q1 2005 were impacted by the delay in
the introduction of the Company's integrated outdoor modem, the EUM3006, which
did not start shipping until the end of February and remains in tight supply as
our contract manufacturer goes through the standard introduction processes and
increases output.
Non-North American revenues were mainly focused on our operating subsidiary
in Australia. Revenue in Australian dollars was virtually identical in Q1 2005
versus Q4 2004, with the decline in reported revenues in US dollars being the
result of a decline in the foreign exchange rate.
The Company has taken initial steps to access the Caribbean, Latin American
and South American markets, which in most parts do provide license exempt
availability of 900 MHz spectrum, but expects that there will be relatively long
sales cycles in these markets.
Gross Margins
The following table presents our gross margin and the percentage of total
revenues ($000's):
Three months ended
March 31,
2005 2004
---- ----
Product revenue
Gross margin $543 $679
Gross margin rate 31.1% 35.8%
Service revenue
Gross margin $174 $144
Gross margin rate 44.1% 35.3%
Total revenue
Gross margin $717 $823
Gross margin rate 33.5% 35.7%
12
Gross margins in Q1 2005 decreased to 33.5% compared to 35.7% of revenue in
Q1 2004 and 39.7% in Q4 2004.
The decline in product margins was the result of pricing actions taken to
reduce existing inventory stocks in anticipation of the integrated outdoor modem
and in response to competitive pricing pressures. Service margins increased as
more of the service revenue was generated through higher margin extended service
agreements and less through subcontracted services.
The Company is actively involved in continuing to find cost savings,
through economies of scale and product refinement. It expects that future cost
reductions will be offset by volume discounts offered to its customers and
competitive pricing pressures. As such, the Company expects that overall gross
margin percentages will be at or near the mid thirty percent range over the
balance of the fiscal year.
Selling, General and Administrative expenses
Selling, general and administrative expenses decreased to $1,010,731 from
$1,272,630 in Q1 2004 and $1,103,805 in Q4 2004. The decline was mainly due to a
reduction in compensation expense and other discretionary expenses. The Company
anticipates that selling, general and administrative expenses, barring a
significant change in foreign exchange rates, will remain at or near the current
levels for the balance of the year.
Research and Development expenses
Research and development expenses decreased to $110,856 from $489,044 in Q1
2004 and $289,901 in Q4 2004. With the completion of the development work on the
integrated outdoor modem, the Company curtailed development expenditures in Q1
2005. New development work is being undertaken on the Company's products and we
expect to incur higher expenditures over the balance of the year.
Depreciation and Amortization expense
Depreciation and amortization expense declined to $33,954 compared to
$95,230 in Q1 2004 and $48,442 in Q4 2004. During the last three years, the
Company has withheld spending on new capital assets and does not plan any major
capital acquisitions through the balance of fiscal 2005.
Interest expense
Interest expense amounted to $279,582 for the three months ended March 31,
2005 compared to $517,058 for the three months ended March 31, 2004 and $216,523
for the three months ended December 31, 2004. Included in interest expense for
the three months ended March 31, 2005 is $272,023 (Q1 2004 - $507,105, Q4 2004 -
$202,482) of non-cash charges related to the accretion and conversion of
convertible debentures issued in July 2003, April 2004 and November 2004. With
the issuance of the convertible debentures the Company will continue to incur
non-cash financial expenses through the accretion of the beneficial conversion
feature and otherdiscounts included in the debentures.
Foreign Exchange
The Company incurred a foreign exchange loss for the three months ended
March 31, 2005 in the amount of $8,967 compared to a loss of $28,296 for the
three months ended March 31, 2004 and a gain of $43,815 for the three months
ended December 31, 2004. The Company incurs foreign exchange losses when the
U.S. dollar strengthens versus the Canadian and Australian dollars. The
currencies were relatively stable in Q1 2005 versus a significant weakening of
the US dollar in Q4 2004 and a significant strengthening in Q1 2004.
13
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations for the most part through equity and
convertible debenture financing and has had no line of credit or similar credit
facility available to it. The Company's outstanding shares of Common stock, par
value $.001 per share, are traded under the symbol "WAVC" in the
over-the-counter market on the OTC Electronic Bulletin Board by the National
Association of Securities Dealers, Inc. The Company must rely on its ability to
raise money through equity and convertible debenture financing to pursue its
business endeavors. The majority of funds raised have been allocated to the
development of the WaveRider(R) line of wireless data communications products
and the operations of the Company.
We used $183,386 of cash in operating activities in Q1 2005 (2004 -
$795,908). We expect to return to revenue and gross margin growth and to control
cash expenditures though the remainder of 2005. However, based on our long term
plans and projections, Management believes that we will have to raise additional
funds in 2005 to meet our current and future financial commitments until we
achieve positive cash flows from operations.
While we have a long-term plan that we believe will allow us to achieve
profitability and cash flow positive operations, Management believes that we
will have to raise additional funds in 2005 to meet our current and future
financial commitments until we achieve positive cash flows from operations. In
the past, the Company has obtained financing primarily through the sale of
convertible securities. If the Company is unable to obtain additional financing
and achieve its planned cash flow positive operations and profitability, it
will, in all likelihood, be obliged to seek protection under the bankruptcy
laws; in which event the Company believes it is unlikely that its common stock
will have any value.
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.
CURRENT ACTIVITIES
We currently have approximately 32 employees located in our head office in
Toronto, Ontario 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.
The majority of these employees are involved in the design, development and
marketing of our line of wireless data communications products.
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ITEM 3.
Controls and Procedures
Disclosure controls and procedures are controls and other procedures
designed to ensure that we timely record, process, summarize and report the
information that we are required to disclose in the reports that we file or
submit with the SEC. These include controls and procedures designed to ensure
that such information is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required disclosure.
As required under the Sarbanes-Oxley Act of 2002, our Chief Executive
Officer and Chief Financial Officer conducted a review of our disclosure
controls and procedures as of the end of the period covered by this report. They
concluded, as of the evaluation date, that our disclosure controls and
procedures are effective.
During the three months ended March 31, 2005, there were no changes in our
internal control over financial reporting that have affected, or are reasonably
likely to affect, materially our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 5. Other Information
During the quarter ended March 31, 2005, we made no material changes to
the procedures by which shareholders may recommend nominees to our Board of
Directors, as described in our most recent proxy statement.
Item 6. Exhibits
31.1 Certification from Charles W. Brown
31.2 Certification from T. Scott Worthington
32.1 Certification pursuant to 18 U.S.C. ss.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: May 13, 2005 /s/ Charles W. Brown
------------------------
Charles W. Brown
Chief Executive Officer
/s/ T. Scott Worthington
------------------------
T. Scott
Worthington Chief
Financial Officer.
15