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 JUNE 30, 1998.
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)
235 Yorkland Blvd., Suite 1101, Toronto, Ontario
M2J 4Y8 (Address of principal executive offices and Zip (Postal) Code)
(416) 502-3200
(Issuer's telephone number)
604 Edward Ave., Unit # 3, Richmond Hill, Ontario
L4C 9Y7 (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: July 29, 1998 - 40,021,221
Common shares, $.001 par value.
Transitional Small Business Disclosure Format: (check one):
Yes _____; No __X__
1
WAVERIDER COMMUNICATIONS INC.
FORM 10 - QSB
For the Period Ended June 30, 1998
INDEX
Page
PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements 4-9
Balance Sheets 4
Statements of Operations 5
Statements of Cash Flows 6
Notes to Financial Statements 7-9
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 4. Submission of Matters to a Vote of Security Holders 10
Item 6. Reports on Form 8-K 10
Signatures 11
2
PART I. FINANCIAL INFORMATION
Unaudited Consolidated Financial Statements
WAVERIDER COMMUNICATIONS INC.
( A Development Stage Company)
Quarter ended June 30, 1998 and year ended December 31, 1997
The Financial statements for the three and six months ended June 30, 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 and six months
ended June 30, 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 June 30, 1998 and year ended December 31, 1997
June 30, 1998 December 31, 1997
(Unaudited) (Audited)
-----------------------------------
CURRENT ASSETS
Cash and Equivalent $ 2,146,292 $ 437,746
Accounts Receivable 97,660 57,045
Prepaid Expenses 13,475 9,387
Inventory 58,739 19,656
-----------------------------------
Total Current Assets $ 2,316,166 $ 523,834
-----------------------------------
EQUIPMENT
Equipment and Fixtures $ 911,601 $ 407,635
Less Accumulated depreciation (149,893) (67,036)
-----------------------------------
Net Equipment $ 761,708 340,599
-----------------------------------
GOODWILL
Cost $ 72,318 78,656
Amortization (19,314) (10,928)
-----------------------------------
$ 53,004 67,728
-----------------------------------
Total assets $ 3,130,878 932,161
===================================
LIABILITIES
CURRENT LIABILITIES
Accounts Payable $ 181,574 108,060
Accrued Liabilities 127,406 150,027
Current Portion of Long-term Capital Lease 95,786
Deferred Revenue 36,088 24,155
-----------------------------------
Total Current Liabilities $ 440,854 $ 282,242
Long-term Capital Lease $ 28,485 $ -
-----------------------------------
Total Liabilities $ 469,339 282,242
-----------------------------------
STOCKHOLDER'S EQUITY
Preferred stock, $.001 par value:
authorized 5,000,000 shares: issued
and outstanding 800,000 shares as
of June 30, 1998 and 4,000,000 as
of December 31,1997 $ 800 $ 4,000
Common Stock $.001 par value;
authorized 100,000,000 shares;
issued and outstanding 39,992,921
shares at June 30, 1998 and 26,918,381
shares at December 31, 1997 39,993 26,918
Paid in capital 7,740,717 4,255,329
Accumulated deficit (5,119,971) (3,636,329)
-----------------------------------
Total Stockholder's Equity $ 2,661,539 $ 649,919
-----------------------------------
Total Liabilities and
Stockholder's Equity $ 3,130,878 $ 932,161
===================================
See accompanying notes to financial statements.
4
WaveRider Communications Inc.
( A Development Stage Company)
Statements of Operations
Quarter Ending June 30, 1998
Inception
Three Months Ended Six Months Ended (August 6, 1987)
June 30, June 30, to June 30,
1998 1997 1998 1997 1998
------------------------------------------------------------------------------------------
REVENUE
Internet Sales $ 39,913 $ 76,695 $ 154,154
Interest and other income 46 22 779 22 24,347
------------------------------------------------------------------------------------------
39,959 22 77,474 22 178,501
------------------------------------------------------------------------------------------
EXPENSES
Research and development
Salaries and benefits 281,288 96,455 461,088 96,455 762,675
Equipment and materials 108,626 11,383 122,150 11,383 188,359
Consulting 125,833 168,633 168,633
Depreciation 42,195 82,310 147,704
Overhead 57,425 60,256 95,265 60,256 127,502
Office and general 264,609 30,250 371,905 34,911 1,732,883
Consulting fees 87,432 36,460 108,504 36,460 1,294,625
Legal and accounting 36,588 58,757 348,422
Internet services 29,704 47,069 68,867
Depreciation and amortization 12,288 17,138 97,565
Salaries and benefits 12,877 28,297 361,237
------------------------------------------------------------------------------------------
$ 1,058,865 $ 234,804 $ 1,561,116 $ 239,465 $ 5,298,472
------------------------------------------------------------------------------------------
NET (LOSS) $ (1,018,906) $ (234,782) $ (1,483,642) $ (239,443) $ (5,119,971)
==========================================================================================
LOSS PER COMMON SHARE $ (0.03) $ (0.03) $ (0.05) $ (0.04) $ (1.58)
==========================================================================================
Weighted Average Number Of Common Shares 37,076,002 7,510,320 32,046,598 6,150,013 3,247,029
==========================================================================================
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
Six Months Ended Inception
30-Jun (August 6, 1987)
------------------------------------------------------------
1998 1997 to June 30, 1998
------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (1,483,642) $ (239,443) $ (5,119,971)
Adjustments to reconcile net (loss) to cash
Depreciation 99,448 245,269
Exchange loss on net long term assets 22,870 22,870
Loss on sale of fixed assets 13,855 91,616
Decrease (increase) in accounts receivable (40,615) (74,897) (97,660)
Decrease (increase) in other current assets (43,171) (1,368) (72,214)
Increase (decrease) in accounts payable 73,514 3,366 181,574
Increase (decrease) in accrued liabilities (22,621) 7,890 127,406
Increase (decrease) in capital leases 124,271 124,271
Increase (decrease) in deferred revenue 11,933 36,088
------------------------------------------------------------
Net Cash Flows Used for Operating Activities $ (1,258,013) $ (290,597) $ (4,460,751)
------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment $ (528,703) $ (219,421) $ (1,095,811)
Goodwill (78,656)
------------------------------------------------------------
Net Cash Flows Used for Investing Activities $ (528,703) $ (219,421) $ (1,174,467)
------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Loans from Affiliate - net of repayment $ 134,267
Advance on sale of stock 76,012
Sale of stock, net of offering costs 3,495,262 319,281 7,781,510
------------------------------------------------------------
Net Cash Flows Provided by Financing Activities $ 3,495,262 $ 529,560 $ 7,781,510
------------------------------------------------------------
Net increase in cash $ 1,708,546 $ 19,542 $ 2,146,292
Cash and cash equivalents-beginning of period 437,746 1,809 0
------------------------------------------------------------
Cash and cash equivalents-end of period $ 2,146,292 $ 21,351 $ 2,146,292
============================================================
See accompanying notes to financial statements.
6
WaveRider Communications Inc.
(A Development Stage Company)
Notes to Financial Statements
June 30, 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. Prior to its takeover of Major Wireless Communications Inc., in May
of 1997, the Company had become dormant and all prior business activities had
been discontinued.
The Company is in the process of developing and marketing digital wireless
Internet access technology.
The Company incurred an operating loss of $1,483,642 (1997 - $239,443) for the
six months ended June 30, 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
six months ended June 30, 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 completed the acquisition of 100 percent of
the 1,600 common stock and 1,600 preferred stock outstanding of Major Wireless
Communications Inc. ("MWCI") 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 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, 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, 75,000 common share options,
pursuant to the Employee Stock Option (1997) Plan, were exercised for $18,750.
During the second quarter, the Company raised $2,000,000 through the private
placement of 800,000 preferred share units. Each unit consisted of one 8%
convertible preferred share and one common share purchase warrant, exercisable
for two years at $2.50 per share. In addition, 410,000 of the Series E Warrants
were exercised for $512,500 and 595,862 common share options, pursuant to the
Employee Stock Option (1997) Plan, were exercised for $307,439. As well, the
Company awarded 2,500 shares pursuant to the Employee Stock Compensation (1997)
Plan.
NOTE 4: COMMITMENTS
Agreements
On June 10, 1997 the Company authorized an Employee Stock Option (1997)
Plan for 5,000,000 common shares and an Employee Compensation (1997) Plan for
2,500,000 common shares. On February 16, 1998, the Company authorized an
increase to the Employee Stock Option (1997) Plan to 6,250,000.
As of June 30, 1998, the Directors had awarded 5,713,487 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 average price of the stock on the date of the date of the award.
NOTE 5: INCOME TAXES
WaveRider Communications Inc. incurred an operating loss for the six months
ended June 30, 1998 and the year ended December 31, 1997 of $1,483,643 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.
8
NOTE 6: GOING CONCERN AND DISCONTINUED OPERATIONS
At June 30, 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.
NOTE 7: COMPARATIVE FIGURES
Certain comparative amounts have been reclassified, where appropriate, to
correspond with the current year's presentation
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
June 30, 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(R) line of wireless Internet
products.
During the first six months of 1998, the Company has raised $2,500,000 through
two private placements, $669,073 through the exercise of warrants and $326,189
through the exercise of Employee Stock options.
Current Activities.
The Company currently has 39 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(R) line of wireless Internet products.
Results of Operations - Second Quarter 1998
During the second quarter of the year, the Company incurred a net loss of
$1,018,906. Cash and equivalents amounted to $2,146,293 and current liabilities
were $440,854 including accruals for expenses. Expenses during the second
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. Non-recurring costs of $60,000 related to the Company's
annual general meeting and $50,000 in fees related to the Company's 4th private
placement were also included in the expenses of the quarter.
9
Activities during the quarter centered on developing production and marketing
plans for WaveRider(R) products.
Results of Operations - Second Quarter 1997
During the quarter ended June 30, 1997 the Company incurred a net loss of
$234,804. Expenses during the second quarter related primarily to R&D.
Activities during the quarter centered around the completion of the acquisition
of Major Wireless Communications Inc. (now WaveRider Communications (Canada)
Inc.) and the continuing development of the WaveRider(R) products. A closely
related event was the change of the company's name to "WaveRider Communications
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 24, 1998. On May 28, 1998, the Company's Board of
Directors adopted a resolution providing for the designation of the Company's
Series C Voting 8% Convertible Preferred Stock, par value $.001 per share (the
"Series C Preferred Stock"). On June 3, 1998, the Company filed a Certificate of
Designation (the "Certificate") with the Secretary of State of Nevada. A copy of
the Certificate is attached as an exhibit to the Form 8-K filed June 18, 1998
Item 4. Submission of Matters to a Vote of Security Holders
a) The Company held it annual general meeting on June 19, 1998 in Vancouver,
British Columbia, Canada. Notice of Meeting, dated May 19, 1998, was
distributed to all shareholders of record, effective May 11, 1998, and
filed with the Security and Exchange Commission on form 14A on May 22,
1998.
c) Two matters were voted upon at the annual general meeting.
1) Mr. Bruce Sinclair, Mr. William Krebs and Mr. William Laird were
re-elected as directors of the Company. Votes for the directors were
25,658,158 For, 0 Against, 10,000 Withheld and 52,135 Abstaining.
2) The appointment of Price Waterhouse as independent public accountants
was ratified by the shareholders. Votes for ratification were
25,690,519 For, 9,950 Against and 19,824 Abstaining.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - The exhibits below marked with an asterisk (*) are included with
and filed as part of this report. Other exhibits have previously been filed
with the Securities and Exchange Commission and are incorporated by
reference to another report, registration statement or form.
Exhibit No.
10.1 Registration of additional shares pursuant to the Employee Stock Option
(1997) plan incorporated by reference to Form S-8 filed May 13, 1998.
(b) Reports on Form 8-K
May 4, 1998 Completion of Sale of Equity Security (previously reported
on form 8-K on February 25, 1998)
10
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.
May 20, 1998 Change of Certifying Accountant
May 29, 1998 Change of Principal Office
Former Accountant's agreement to information disclosed in
May 20 8-K
June 18, 1998 Designation of Series "C" Voting 8% Convertible Preferred Shares
Sale of Equity Securities pursuant to Regulation S.
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 30, 1998 /s/ Bruce Sinclair
-------------------------------------
D. Bruce Sinclair
President and Chief Executive Officer
/s/ Scott Worthington
-------------------------------------
T. Scott Worthington
Chief Financial Officer.
11