SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
Form 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED MARCH 31st, 1998.
Commission file number 0-25680
WAVERIDER COMMUNICATIONS INC.
(Exact name of small business issuer as specified in its charter)
NEVADA 33-0264030
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(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
604 Edward Avenue, Unit #3, Richmond Hill, Ontario L4C 9Y7
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(Address of principal executive offices and Zip (Postal) Code)
(416) 410-4843
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(Issuer's telephone number)
(Former name, former address and former fiscal year,
if changed since last report)
595 Howe Street, Suite 204
Vancouver, BC, Canada
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: April 30, 1998 - 39,795,559
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, 1998
INDEX
Page
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PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements 4-8
Balance Sheets 4
Statements of Operations 5
Statements of Cash Flows 6
Notes to Financial Statements 7-8
Item 2. Management's Discussion and Analysis or Plan of Operation 9-10
PART II OTHER INFORMATION 10
Item 2. Changes to Securities 10
Item 6. Reports on Form 8-K 10
Signatures 10
PART I. FINANCIAL INFORMATION
Unaudited Consolidated Financial Statements
WAVERIDER COMMUNICATIONS INC.
( A Development Stage Company)
Quarter ended March 31, 1998 and year ended December 31, 1997
The Financial statements for the three months ended March 31, 1998 and 1997
include, in the opinion of the Company, 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, 1998, are not necessarily indicative of results of operations which
will be realized for the year ending December 31, 1998. The financial statements
should be read in conjunction with the Company's Form 10-KSB for the year ended
December 31, 1997.
3
WaveRider Communications Inc.
( A Development Stage Company)
Balance Sheets
Quarter ended March 31, 1998 and year ended December 31, 1997
March December
31,1998 31, 1997
(Unaudited) (Audited)
------------- -----------
CURRENT ASSETS
Cash and Equivalent $ 587,118 $ 437,746
Accounts Receivable 50,833 57,045
Prepaid Expenses 2,115 9,387
Inventory 20,884 19,656
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Total Current Assets $ 660,950 $ 523,834
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EQUIPMENT
Equipment and Fixtures $ 523,505 $ 407,635
Less Accumulated depreciation 109,455 (67,036)
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Net Equipment $ 414,050 $ 340,599
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GOODWILL
Cost 78,656 78,656
Amortization (13,472) (10,928)
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65,184 67,728
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Total assets $ 1,140,184 $ 932,161
=========== =========
LIABILITIES
CURRENT LIABILITIES
Accounts Payable $ 136,194 $ 108,060
Accrued Liabilities 107,661 150,027
Deferred Revenue 35,778 24,155
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Total Current Liabilities $ 279,633 $ 282,242
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STOCKHOLDER'S EQUITY
Preferred stock, $.001 par value:
authorized 5,000,000 shares: issued
and outstanding 4,000,000 shares as of
March 31, 1998 and December 31,1997 $ 4,000 $ 4,000
Common Stock $.001 par value;
authorized 100,000,000 shares; issued
and outstanding 28,984,559 and
26,918,381 shares at March 31, 1998
and December 31,1997, respectively 28,985 26,918
Paid in capital 4,928,587 4,255,329
Accumulated deficit (4,101,021) (3,636,329)
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Total Stockholder's Equity $ 860,551 $ 649,919
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Total Liabilities and Stockholder's Equity $ 1,140,184 $ 932,161
=========== ==========
See accompanying notes to financial statements.
4
WaveRider Communications Inc.
( A Development Stage Company)
Statements of Operations
Quarter Ending March 31, 1998
Inception
(August 6, 1987)
to
1998 1997 March 31, 1997
------------------------------------------------
REVENUE
Internet Sales $ 36,826 $ -- $ 114,285
Interest and other income 733 -- 24,301
- -------------------------------------------------------------------------------------
37,559 -- 138,586
EXPENSES
Office and general 107,296 4,659 1,468,274
Consulting fees 63,872 -- 1,249,993
Research and development
Salaries and benefits 179,800 -- 496,807
Equipment and materials 13,524 -- 79,733
Depreciation 40,115 -- 105,509
Overhead 37,840 -- 70,077
Legal and accounting 22,169 -- 311,834
Internet services 17,365 -- 39,163
Depreciation and amortization 4,850 -- 85,277
Salaries and benefits 15,420 -- 332,940
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502,251 4,659 4,239,607
- -------------------------------------------------------------------------------------
NET (LOSS) $(464,692) $ (4,659) $(4,101,021)
=====================================================================================
LOSS PER COMMON SHARE $ (0.0166) $ (0.008) $ (1.3393)
=====================================================================================
Weighted Average Number Of
Common Shares 28,000,877 5,113,041 3,062,070
=====================================================================================
See accompanying notes to financial statements.
5
WaveRider Communications Inc.
(A Development Stage Company)
Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
Three Months Inception
to August 6,1987
March 31 to March 31
--------------------------- ---------------
1998 1997 1998
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (464,692) $ (4,659) $ (4,101,021)
Adjustments to reconcile net (loss) to cash
Depreciation 44,965 -- 190,786
Loss on sale of fixed assets -- 13,855 96,467
Increase in accounts receivable 6,212 -- (50,833)
Decrease (increase) in other assets 6,043 (130,030) (22,999)
Increase (decrease) in accounts payable 28,134 (28,792) 136,194
Increase (decrease) in accrued liabilities (42,366) -- 107,661
Increase (decrease) in deferred revenue 11,623 -- 35,778
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Net Cash Flows Used for Operating Activities $ (410,081) $ (149,626) $(3,607,967)
----------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment $ (115,870) $ -- $ (687,831)
Goodwill -- -- (78,656)
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Net Cash Flows Used for Investing Activities $ (115,870) $ -- $ (766,487)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Advance on sale of stock -- 84,376 --
Sale of stock, net of offering costs 675,323 121,500 4,961,572
----------- ----------- -----------
Net Cash Flows Provided by Financing Activities $ 675,323 $ 205,876 $ 4,961,572
----------- ----------- -----------
Net increase in cash $ 149,372 $ 56,248 $ 587,118
Cash and cash equivalents-beginning of period 437,746 -- --
----------- ----------- -----------
Cash and cash equivalents-end of period $ 587,118 $ 58,059 $ 587,118
=========== =========== ===========
See accompanying notes to financial statements.
NON-CASH ACTITIES
2,388,000 shares of common stock have been issued for services performed since
inception.
6
WaveRider Communications Inc.
( A Development Stage Company)
Notes to Financial Statements
March 31, 1998 and December 31, 1997
1. NATURE OF OPERATIONS
WaveRider Communications Inc., incorporated in 1987 under the laws of the state
of Nevada, USA is a public company traded on NASDAQ OTC Bulletin Board, trading
symbol WAVC.
The Company is in the process of developing and marketing digital wireless
internet access technology.
The Company incurred an operating loss of $464,692 (1997 - $4,659) for the
quarter ended March 31, 1998. The Company's ability to discharge liabilities in
the normal course of business is dependent on future profitable operations
and/or obtaining additional debt or equity financing.
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 (Canada) Inc. (formerly Major Wireless
Communications Inc.) and Jetstream Internet Services Inc., both of which are
British Columbia companies with operations in British Columbia, Canada. For the
quarter ended March 31, 1997 the consolidated financial statements include the
accounts of Channel i PLC, which was discontinued in 1997.
The Company's consolidated financial statements are prepared in accordance with
generally accepted accounting principles in the United States of America.
Financial instruments - The Company's financial instruments consist of accounts
receivable, prepaid expenses, accounts payable, and accrued liabilities. It is
management's opinion that the Company is not exposed to significant interest,
currency or credit risks arising from the financial instruments mentioned and
that their fair values approximate their carrying values, unless otherwise
noted.
Use of estimates in the preparation of financial statements - The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reporting period.
Actual results could differ from those estimates.
Foreign currency translation - As all of the Company's operations are in Canada,
the Canadian dollar has been chosen as the Company's functional currency. All
assets and liabilities denominated in Canadian dollars are translated at the
current rate and revenues, expenses, gains and losses are translated at weighted
average exchange rates.
Translation adjustments on US dollar transactions are expensed.
Equipment - Equipment is recorded at cost and depreciated over the estimated
lives of the assets, commencing in the year the assets are put into use, as
follows:
- Modem software - 50% - declining balance method
- Computer equipment - 30% - declining balance method
- Lab equipment - 25% - declining balance method
- Modem housing mold - 25% - declining balance method
- Computer software - 50% - declining balance method
- Office equipment and furniture - 20% - declining balance method
- Leasehold improvements - 2 years - straight line
- Station site development - 40% - declining balance method
Goodwill - Goodwill represents the excess of cost over fair value of the net
assets and liabilities of Jetstream Internet Services Inc. It is amortized using
the straight-line method over a period of three years.
Revenue recognition and deferred revenue - Fees billed for Internet services on
long term service contracts are recognized over the period of the contracts.
Research and development costs - Research and development costs are expensed as
incurred.
7
NOTE 2: ACQUISITION
On May 13, 1997, the Company acquired 100 percent of the 1,600 common stock
and 1,600 preferred stock outstanding of Major Wireless Communications Inc. in
exchange for the Company issuing 4,000,000 shares of Series B Voting Convertible
Preferred Stock with a par value of $0.001 per share (the "preferred shares").
Under an agreement finalized April 15, 1998, the preferred shares were exchanged
by the shareholders for 10,000,000 common shares (the "common shares") of the
Company. The common shares are held in escrow and will be released to the
previous shareholders of MWCI on the occurrence of certain performance-related
events. In the event that any of the events have not occurred by May 13, 2002,
the remaining common shares will be cancelled by the Company. This expiry date
may be extended by up to two years at the discretion of the Company's Board of
Directors. No shares have been released to date.
The acquisition of MWCI has been accounted for using the purchase method of
accounting with the purchase price assigned to the net assets acquired based on
their fair values at the time of acquisition. As the shares become releasable
from escrow in the future, such shares will be recorded at their fair market
value at the date the release test is met. The carrying value of the deficit of
MWCI, being the deemed excess purchase price at the date of acquisition, has
been assigned to research and development and expensed for accounting purposes.
On March 25, 1998, the Company changed the name of Major Wireless
Communications Inc. to WaveRider Communications (Canada) Inc.
NOTE 3: STOCKHOLDER'S EQUITY
Common Stock
In the first quarter of 1998, the Company raised $500,000 through a private
placement of 500,000 units of its common stock. Series E Warrants were attached
entitling the holders to purchase an additional 500,000 shares for $625,000.
During the quarter, the remainder of the Series B, C and D warrants,
attached to units of Series A Convertible Preferred Stock, amounting to
1,491,178 common shares, were exercised for $156,573. In addition, 75,000 common
share options, pursuant to the Employee Stock Option (1997) Plan, were exercised
for $18,750.
NOTE 4: COMMITMENTS
Agreements
On June 10, 1997 the Company authorized an Employee Stock Option (1997)
Plan for 5,000,000 common shares at $0.25 per share and an Employee Compensation
(1997) Plan for 2,500,000 common shares at $0.25 per share. On February 16,
1998, the Company authorized an increase to the Employee Stock Option (1997)
Plan to 6,250,000.
As of March 31, 1998, the Directors had awarded 5,854,797 options under
the Employee Stock Option (1997) Plan and 2,500 shares under the Employee
Compensation (1997) Plan. Awards under the Employee Stock Option (1997) Plan are
made at the closing price of the stock on the date of the date of the award and
are subject to completion of an amendment to the plan under Form S-8, which is
anticipated to be filed on or before May 15, 1998.
NOTE 5: INCOME TAXES
WaveRider Communications Inc. incurred an operating loss for the quarter
ended March 31, 1998 and the year ended December 31,1997 of $464,692 and
$1,039,130, respectively.
As of December 31, 1997 and 1996, the Company had net operating loss
carry-forwards of $1,965,146 and $1,460,089, respectively, which expire between
the years 2004 - 2012.
NOTE 6: GOING CONCERN AND DISCONTINUED OPERATIONS
At March 31, 1998 and December 31, 1997, the Company has not generated
significant revenues from operations.
The Company is actively designing, developing and planning the production
and sale of wireless modem technology for Internet Service Providers. The
Company is entirely dependent upon it's ability to raise the funds necessary for
research and development, manufacturing and operating capital.
8
Item 2.
Management's Discussion and Analysis or Plan of Operation.
The following discussion is intended to assist in an understanding of the
Company's financial position and results of operations for the quarter ending
March 31, 1998.
Forward-Looking Information.
This report contains certain forward-looking statements and information
relating to the Company that are based on the beliefs of its management as well
as assumptions made by and information currently available to its management.
When used in this report, the words "anticipate", "believe", "estimate",
"expect", "intend", "plan", and similar expressions as they relate to the
Company or its management, are intended to identify forward-looking statements.
These statements reflect management's current view of the Company with respect
to future events and are subject to certain risks, uncertainties and
assumptions. Should any of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those described in this report as anticipated, estimated or expected. The
Company's realization of its business aims could be materially and adversely
affected by any technical or other problems in, or difficulties with, planned
funding and technologies, third party technologies which render the Company's
technologies obsolete, the unavailability of required third party technology
licenses on commercially reasonable terms, the loss of key research and
development personnel, the inability or failure to recruit and retain qualified
research and development personnel, or the adoption of technology standards
which are different from technologies around which the Company's business
ultimately is built. The Company does not intend to update these forward-looking
statements.
Liquidity and Capital Resources.
The Company has funded its operations for the most part through equity
financing and has had no line of credit or similar credit facility available to
it. The Company's outstanding shares of Common stock, par value $.001 per share,
are traded under the symbol "WAVC" 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
financing to pursue any business endeavors. The majority of funds raised have
been allocated to the development of the WaveRider(TM) line of wireless Internet
products.
In the first quarter of 1998, the Company raised $500,000 through a private
placement of 500,000 units of its common stock. Series E Warrants were attached
entitling the holders to purchase an additional 500,000 shares for $625,000. As
well, during the quarter, the remainder of the Series B, C and D warrants,
attached to units of Series A Convertible Preferred Stock, amounting to
1,491,178 common shares, were exercised for $156,573 and 75,000 common share
options, pursuant to the Employee Stock Option (1997) Plan, were exercised for
$18,750.
Subsequent to the end of the quarter, 410,000 of the Series E Warrants have
been exercised for $512,500 and 401,000 options have been exercised for
$182,090.
Current Activities.
The Company currently has 32 employees working in its two subsidiaries,
WaveRider Communications (Canada) Inc. and JetStream Internet Services Inc. The
majority of these employees are involved in the design, development and
marketing of the WaveRider(TM) line of wireless Internet products.
Results of Operations First Quarter 1998
During the first quarter of the year, the Company incurred a net loss of
$464,692. Cash and equivalents amounted to $587,118 and current liabilities were
$279,633 including accruals for expenses. Expenses during the first quarter
related primarily to R&D costs and the salaries and benefits of personnel and
consulting fees for experts engaged in management and R&D of the wireless modem
project. Activities during the quarter centered on developing production and
marketing plans for WaveRider(R) products.
9
Results of Operations First Quarter 1997
During the quarter ended March 31, 1997 the Company incurred a net loss of
$4,659. Expenses related primarily to miscellaneous operating and professional
costs. Activities in this quarter centered on the preliminary steps required in
the acquisition of Major Wireless Communications Inc. (now WaveRider
Communications (Canada) Inc.)
PART II. OTHER INFORMATION
Item 2. Changes to Securities
With the unanimous consent of the holders of the Series B Preferred shares,
the rights and restrictions pertaining to these shares were changed by the
Company by resolutions dated March 16th, 1998. These changes included the
reduction of the conversion ratio of the Series B Preferred shares into Common
shares from 10:1 to 2.5:1 and have been more particularly described in a Form
8-K filed on the 4th day of May, 1998. As a result and immediately following
this transaction, all outstanding Series B Preferred shares were converted in
Common shares effective April 24th, 1998. It is possible that the Company may
re-designate and/or re-issue the converted Series B Preferred shares to
facilitate future financing requirements.
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
February 10, 1998 Appointment of CEO effective November 18, 1997 and
change in membership In the Board of Directors of the
Company
February 25, 1998 Sale of Equity Security
May 4, 1998 Completion of Sale of Equity Security (previously
reported on form 8-K On February 25, 1998)
Agreement to amend the conversion rate on the
convertible preferred Shares, convert the preferred
shares to common shares, and place common Shares
under an escrow agreement.
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, 1998 /s/ Bruce Sinclair
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D. Bruce Sinclair
President and Chief Executive Officer
/s/ Scott Worthington
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T. Scott Worthington
Chief Financial Officer.