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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 2000
Commission File No. 0-25680
WaveRider Communications Inc.
--------------------------------------------
(Name of small business issuer in its charter)
Nevada 33-0264030
- ------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
255 Consumer Road, Suite 500
Toronto, Ontario Canada M2J 1R4
-------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (416) 502-3200
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock par value $.001
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 requirements for the past 90 days.
YES X NO ___
Indicate by checkmark if disclosure of delinquent filers pursuant to
item 405 of Regulation S-K is not herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
State the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $106,301,486 as of March 1,
2001 (based on the closing price for such stock as of March 1, 2001).
As of March 1, 2001, there were 62,854,753 shares of the registrant's
common stock, par value $.001 per share, outstanding.
TABLE OF CONTENTS
PART I Page
Item 1. Business 3
Item 2. Description of Property 7
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 8
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis or Plan of Operation 9
Item 7a Quantitative and Qualitative Disclosures about Market Risk 11
Item 8. Financial Statements 13
Item 9. Changes in and Disagreements with Accountants on Accounting 13
and Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant 14
Item 11. Executive Compensation 16
Item 12. Security Ownership of Certain Beneficial Owners and Management 17
Item 13. Certain Relationships and Related Transactions 18
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 18
2
PART I
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
This Form 10-K contains forward-looking statements that involve risks and
uncertainties, including the risks associated with the effect of changing
economic conditions, trends in the development of the Internet as a commercial
medium, market acceptance risks, technological development risks, seasonality
and other risk factors identified below under "Item 7a - Quantitative and
Qualitative Disclosures about Market Risk". More specifically, within Item 1.
Description of Business there are a number of forward-looking statements
contained within the sections regarding Products, Markets, Sales Strategy,
Competition and the Regulatory Environment
ITEM 1. DESCRIPTION OF BUSINESS
Background
WaveRider Communications Inc. ("WaveRider" or the "Company" and collectively
referred to as we, us or our) commenced activities in the wireless industries
through its acquisition of Major Wireless Communications Inc. in May 1997.
Major Wireless was organized in British Columbia, Canada, as a private company
in 1996 to address an existing and growing market need to provide
cost-effective, high-speed wireless Internet links. In May 1997, Major Wireless
consummated the business combination with Channel i Inc., pursuant to which
Channel i Inc., a company trading on the OTC-BB, issued stock to the
stockholders of Major Wireless, Major Wireless became a subsidiary of the
Company, and the Company changed its name to WaveRider Communications Inc. The
Company then completed the private placement of common and preferred share units
for $1.5 million (U.S.)
On June 11, 1999, the Company acquired Transformation Techniques, Inc (TTI)
through a merger with its newly created subsidiary WaveRider Communications
(USA) Inc.
On October 1, 2000, the Company acquired ADE Network Technology Pty Ltd. (ADE)
of Melbourne, Australia, a privately-held wireless infrastructure company. ADE
operates offices in Melbourne, Sydney, Canberra, Brisbane and Perth in Australia
and provides professional planning, installation and maintenance services to
wireless Internet Service Providers throughout Australia. The Company undertook
this acquisition to provide a sales presence in Australia and South East Asia.
The Company was originally incorporated under the laws of the State of Nevada on
August 6, 1987, as Athena Ventures Inc. From 1987 until its acquisition of
Channel i PLC in November 1993, Athena Ventures had no activities or operations.
From November 1993 until May 1997, the Company operated under the names Channel
i Limited and Channel i Inc. and was in the business of developing an
interactive multimedia kiosk network to provide consumers with convenient access
to an array of products and services. Prior to its acquisition of Major Wireless
Communications Inc. (now "WaveRider Communications (Canada) Inc.") in May 1997,
the Company had become inactive.
WaveRider's executive offices are located at 255 Consumers Road, Suite 500,
Toronto, Ontario, Canada, M2J 1R4. Our telephone number is (416) 502-3200 and
our Web Site address is www.waverider.com.
WaveRider Communications Inc. - Our Business
WaveRider designs, develops, markets and supports fixed wireless Internet access
products. WaveRider's products are intended to deliver efficient, reliable, and
cost-effective solutions to bringing high-speed Internet access to markets
around the world.
WaveRider is 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 need can be prohibitive.
3
We believe that WaveRider's 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.
WaveRider's 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 (DSS) communications,
which ensures reliable, secure, low-interference communications.
WaveRider's Products
WaveRider's existing product portfolio includes the Last Mile Solution(R) (LMS)
product line and the Network Communications Links (NCL) families. These product
families are designed to deliver high-speed, fixed wireless Internet access to
all sizes of businesses, home offices and residential users.
Both the LMS and NCL product families include proprietary WaveRider technologies
developed or under development at its research and development facility in
Calgary, Alberta.
Last Mile Solution(R) (LMS)
The LMS product family includes the LMS2000 and LMS3000 wireless networks. The
LMS family is designed to enable service providers to deliver high-speed
Internet access to both business and residential customers. The LMS series
supports a variety of services including Internet access for e-mail, large file
transfers, web browsing, and streaming audio and video. All LMS products are
optimized for IP networks.
The LMS products enable wireless connectivity to the Internet via
point-to-multipoint communications. Each LMS network includes a Network Access
Point (NAP), that transmit data to a network of Communications Access Points
(CAPs) within the service provider's service area - similar to a cellular
network. The network are designed to be highly scalable, allowing service
providers to begin with a small initial network and gradually build out a larger
network with more users over time.
Connectivity is provided to the end-users via an LMS end-user modem designed
specifically for business or residential use.
LMS2000
The LMS2000 was the first of WaveRider's Last Mile Solution(R) products to
be released and enables service providers to deliver high-speed Internet
access to business customers. Operating in the license-free 2.4 GHz
spectrum, the LMS2000 delivers raw data throughput speeds of up to 11
megabits per second (Mbps) via line-of-sight connectivity.
LMS3000
WaveRider's LMS3000 is designed to deliver high-speed wireless Internet
access to small business and residential users. The LMS3000 operates in the
license-free 900 MHz spectrum and delivers data throughput speeds up to 1
Mbps. The LMS3000 delivers non-line-of-sight communication between the CAP
and the end-user modem, which eliminates the need for an external antenna.
The LMS3000 modem has its own antenna and can be easily installed by the
end-user.
The Last Mile Solution(R) wireless networks include a Network Management System
(NMS) which features subscriber management, data distribution and bandwidth
management, interface to the service provider's network, user authentication and
network security management. The NMS enables service providers to offer varying
levels of services to its customers via a single network, monitor their network
from a single location and to implement detailed customer billing systems.
NCL Products
The NCL product family is a series of wireless bridges and routers designed
specifically for use by ISPs, network managers and IT managers. Offering
point-to-point and point-to-multipoint line of sight wireless connectivity in
the 2.4 to 2.485 GHz license-free frequency band, WaveRider's NCL products can
be used to establish wide area networks and building-to-building links. The NCL
can connect a single computer or computer network to another single computer or
computer network.
4
The operating system built into the NCL products incorporates a complete Simple
Network Management Protocol (SNMP) compliant managed routing solution, which
facilitates the installation and use of these products. The operating system
also integrates IP (Internet Protocol), which provides a variety of network
routing capabilities.
The NCL1155 bridge/router was launched by WaveRider in November, 2000 and
delivers high-speed wireless connections for LAN-to-LAN and LAN-to-Internet
connectivity. The NCL1155 delivers throughput speeds up to 7.75 mbps, using
proprietary WaveRider radio technology that uses an 11 mbps channel. The product
can be used for point-to-point and point-to-multipoint applications and to
extend Ethernet networks without additional telephone lines.
Target Markets
Surveys of businesses and telecommunications carriers indicate the major source
of telecommunications market growth is expected to be in the data services
segment. It is anticipated the growth will be fueled by businesses extending
their local and wide area networks to more locations worldwide and using
telecommunications network services to support an increasing number and variety
of business applications.
The Internet has become and we expect it will continue to grow as a critical
business tool as the market demand for networks that support data services
grows. It is being used by all areas of businesses, from product and marketing
support to information provision and e-commerce transactions.
At the same time, there is increasing competition in the Internet Service
Provider (ISP) industry, which is forcing many to seek alternate access options,
such as wireless networks, to improve their revenue and profitability. WaveRider
expects this increased competition will drive demand for its wireless Internet
access products. We believe that our existing product offerings, ongoing product
development and experience with the initial deployments of our wireless networks
positions WaveRider to capture an early leadership position in the fixed
wireless Internet industry. WaveRider is focused on establishing and building
our presence throughout North America and key international markets.
Sales Strategy
In North America, WaveRider has established a direct sales organization to
market its LMS and NCL product families to the almost 5,000 ISPs in this market.
WaveRider's North American sales team is also targeting major telecommunications
service providers who are looking for a cost-effective, carrier-class solution
to expand their markets and generate additional revenues.
In addition, WaveRider is working with Value Added Resellers (VARs) and Systems
Integrators to develop package solutions and reach more customers in this
market.
WaveRider's international sales team is focused on securing agreements with
Telecommunications Service Providers, Telecommunications Distributors and large
regional ISPs, which dominate the international Internet access market, to
distribute its products around the world.
WaveRider's Web Site and Internet presence has also provided an ongoing source
of potential customers, investors, business partners and employees from around
the world. We plan to continue to enhance our website to serve as a more
effective sales tool and to provide information and support to our customers.
Professional Services
WaveRider has established a Professional Services Group (PSG), which provides
pre- and post-sales engineering support to WaveRider's customers. We believe the
PSG offering distinguishes WaveRider from our competitors in the evolving fixed
wireless Internet market and will provide a significant source of revenue as we
work with customers around the world to plan, install and manage their wireless
networks.
5
WaveRider's PSG is involved in each phase of the sales process, from initial
site surveys to determine which WaveRider solution is most appropriate for the
customer's service area, to post-sales customer support and maintenance.
Manufacturing and Distribution
WaveRider has entered into long term manufacturing agreements with C-MAC
Electronic Systems Inc. (C-MAC) and Electronic Manufacturing Group (EMG) to
manufacture, package and distribute WaveRider products.
C-MAC - Headquartered in Montreal, Quebec, Canada, C-MAC employs more than 7,500
employees and operates 44 manufacturing facilities internationally, including
sites in Belgium, Canada, China, France, Germany, India, Mexico, the United
Kingdom and the United States. C-MAC is a leading internationally diversified
designer and manufacturer of integrated electronic manufacturing solutions, from
components to full systems, primarily serving the communications, automotive,
instrumentation, defense and aerospace equipment markets worldwide. C-MAC
services include product design, supply chain management and assembly and
testing.
Electronics Manufacturing Group - EMG is an ISO 9002 registered Electronics
Manufacturing Services company that provides a complete range of integrated
product development and delivery services to the global technology and
electronics industry. Such services include design, rapid prototyping,
manufacturing and assembly, testing, product assurance, supply chain management,
worldwide distribution and after-sales service. Headquartered in Calgary,
Alberta, Canada, EMG has three manufacturing facilities located in Canada and
employs 355 people. EMG brings extensive insight to the principles of wireless
manufacturing and production.
Through WaveRider's association with C-MAC and EMG, the Company has the
capability to meet the demands of a rapidly growing Internet market, with high
quality efficiently manufactured products.
Competition
There is intense competition in the data communications industry. WaveRider
competes not only with other fixed wireless Internet companies, but also with
companies that deliver hard-wired technologies (wire or fiber optic cable).
Competition is based on design and quality of the products, product performance,
price and service, with the relative importance of each factor varying among
products and markets.
WaveRider competes against companies of various sizes in each of the markets we
serve. Many of these companies have much greater financial and other resources
available to help them withstand adverse economic or market conditions. These
factors, in addition to other influences such as increased price competition and
market and economic conditions could potentially impair WaveRider's ability to
compete.
Regulation of Wireless Communications
Currently, the WaveRider technology is deployed in the highly regulated license
free frequency bands. As such, the WaveRider products are not subject to any
wireless or transmission licensing in the United States, Canada and many other
jurisdictions worldwide. The products do, however, have to be approved by the
Federal Communications Commission, for use in the United States, Industry
Canada, for use in Canada, and other regulator bodies for use in other
jurisdictions, to ensure they meet the rigorous requirements for use of these
bands.
Continued license-free operation will be dependent upon the continuation of
existing government policy and, while we are not aware of any policy changes
planned or expected, this cannot be assured. License-free operation of the
WaveRider products in the 902 to 928 MHz band is subordinate to certain licensed
and unlicensed uses of the band and WaveRider products must not cause harmful
interference to other equipment operating in the band and must accept
interference from any of them. If the Company should be unable to eliminate any
such harmful interference, or should our products be unable to accept
interference caused by others, the Company or our customers could be required to
cease operations in the band in the locations affected by the harmful
interference. Additionally, in the event the 902 to 928 MHz band becomes
unacceptably crowded, and no additional frequencies are allocated, the Company's
business could be adversely affected.
6
Research and Development
The Company intends to continue to invest heavily in research and development to
expand the capabilities of both the NCL and LMS product families. Investments in
the future will focus around three development areas:
1. increasing the speed and user capacity of the networks to
allow more users at greater throughput speeds
2. expanding the product offerings into other licensed and
unlicensed bands, to address additional international markets;
and
3. further enhancing the network capabilities of the systems to
support new developing applications
The markets in which the Company participates and intends to participate are
characterized by rapid technological change. As such, the Company believes that,
for the foreseeable future, it will be required to make significant investments
in research and development in order to achieve its market objectives. Research
and development expenses, net of employee stock-based compensation but including
depreciation and amortization, were $8,239,597, $3,021,548, and $1,814,617 in
2000, 1999, and 1998 respectively. The Company expects research and development
expenses to decline in absolute dollars in future periods as the Company
completes the commercial deployment of the LMS2000 and LMS3000 products.
WaveRider's Staff
The Company, through its subsidiaries, WaveRider Communications (Canada) Inc.,
ADE Network Technology Pty. Ltd. and JetStream Internet Services Inc. currently
has approximately 139 full-time employees, 56 in the Toronto head office and
satellite sales offices, 25 in ADE's 5 Australian offices and the rest directly
involved in or supportive of R&D activities in Calgary and the provision of
Internet Services in the Salmon Arm, British Columbia area. The Company is
actively recruiting additional staff to support its projected growth and to
enhance its research and development activities.
ITEM 2. DESCRIPTION OF PROPERTY
The Company owns no real estate or other properties. WaveRider's main offices
and test sites are in Toronto, Ontario, and Calgary, Alberta in Canada and ADE's
head office is in Melbourne, Australia. These offices house sales,
administration and research operations and are leased from unrelated parties. We
maintain sales offices in Australia, Canada, China, Germany and the United
States. In addition, our subsidiary JetStream Internet Services Inc maintains
offices in Salmon Arm, British Columbia in Canada.
WaveRider's Toronto Office is leased for a period of five years ending May 31,
2004 and our main Calgary facilities are being leased for a period of five years
ending March 31, 2004. The lease for our JetStream's office was renewed
effective January 1, 2001, for a one-year period.
Cost commitments related to present leases are described in Item 8.
ITEM 3. LEGAL PROCEEDINGS
There are no active or pending legal proceedings of a material nature to which
the Company is a party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the shareholders during the fourth
quarter of 2000.
7
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common shares are quoted under the symbol "WAVC" on the NASDAQ
National Market System operated by the National Association of Securities
Dealers, Inc. ("NASD"). The following table sets forth the closing high and low
bid prices of the Common Stock for the periods indicated, as reported by the
NASD. These quotations are believed to be representative inter-dealer prices,
without retail mark-up, markdown or commissions and may not represent prices at
which actual transactions occurred:
2000 Bid 1999 Bid
High Low High Low
First Quarter $15.84 $2.00 $2.97 $1.69
Second Quarter $10.25 $3.31 $2.59 $1.31
Third Quarter $9.81 $4.12 $1.81 $0.78
Fourth Quarter $5.37 $1.03 $2.69 $0.75
Holders: The Company has approximately 598 common shareholders of record as of
February 26, 2001. This number does not include shareholders whose shares are
held in street or nominee names.
Dividends: While there are no restrictions on the ability of the Company to pay
dividends other than those common to all companies incorporated under the laws
of the State of Nevada, no dividends have been paid to common stock shareholders
by the Company in the last two years. The Company does not expect to pay a cash
dividend on its common stock in the foreseeable future and payment of dividends
in the future will depend on the Company's earnings and cash requirements.
ITEM 6. SELECTED FINANCIAL DATA
STATEMENTS OF LOSS DATA:
Year ended December 31
2000 1999 1998 1997 1996
REVENUE $ 4,132,992 $ 1,716,045 $ 205,882 $ 77,459 $ -
COST OF PRODUCT AND INTERNET SALES 5,239,048 1,294,815 75,467 21,798 -
------------------------------------------------------------------------------
GROSS MARGIN (1,106,056) 421,230 130,415 55,661 -
EXPENSES 30,830,871 8,236,805 4,650,066 1,380,621 121,776
------------------------------------------------------------------------------
LOSS FROM OPERATIONS (31,936,927) (7,815,575) (4,519,651) (1,324,960) (121,776)
NET INTEREST INCOME (EXPENSE) 307,267 (136,275) 42,133 - -
------------------------------------------------------------------------------
NET LOSS BEFORE TAXES (31,629,660) (7,951,850) (4,477,518) (1,324,960) (121,776)
DEFERRED TAX RECOVERY 157,045 504,000 - - -
------------------------------------------------------------------------------
NET LOSS (31,472,615) (7,447,850) (4,477,518) (1,324,960) (121,776)
==============================================================================
BASIC AND FULLY DILUTED LOSS PER SHARE $ (0.59) $ (0.25) $ (0.18) (0.11) (0.02)
==============================================================================
Weighted Average Number of Common Shares 53,203,750 34,258,565 29,485,320 12,299,522 5,113,041
==============================================================================
8
BALANCE SHEET DATA:
December 31,
2000 1999
Cash and cash equivalents $ 7,720,902 $ 5,540,918
----------------------------------------
Working capital 7,331,220 5,222,841
Property, plant & equipment 2,395,373 978,160
Total assets 20,933,045 10,080,516
Convertible promissory notes 1,835,299 -
Long term capital leases 224,347 18,625
Shareholders' Equity 12,182,589 8,298,382
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Liquidity and Capital Resources.
We have funded our operations for the most part through equity financing and
have had no line of credit or similar credit facility available to us. The
Company's outstanding shares of Common Stock, par value $.001, are traded under
the symbol "WAVC" on the NASDAQ National Market System.
In 2000, the Company issued 10,318,753 shares of Common Stock and 1,240,740
Common Stock Purchase Warrants, net of cancellations, for cash consideration,
net of cash expenses, of $16,757,800. 6,423,872 shares of Common Stock were
issued pursuant to exercises of warrants, net of 42,478 warrants that were
cancelled through a cashless exercise. The private and public sale of shares and
attached warrants accounted for the issue of 1,437,036 shares of Common Stock
and 940,740 Common Stock Purchase Warrants. 1,693,845 shares of Common Stock
were issued pursuant to exercises under the Company's employee option plans. In
addition, the Company issued 764,000 shares of Common Stock pursuant to the
conversion of shares of Series C Preferred Shares.
In 2000, the Company also sold convertible promissory notes and warrants, for
net cash proceeds, of $4,818,000. The promissory notes plus accrued interest
will be convertible to common stock of the Company upon the effective date of a
registration statement filed with the Security and Exchange Commission on
December 28, 2000. Included with the promissory notes were 2,461,538 Series J
warrants, exercisable at $3.35 per share for 5 years, and 5,607,692 Series L
warrants, exercisable at $2.539 for one year. As part of the agreement, the
Company also issued 25,000 Series M warrants, exercisable at $3.05 for 5 years,
as a finder's fee.
In 1999, the Company issued 11,951,664 shares of Common Stock and 4,309,629
Common Stock Purchase Warrants for cash considerations, net of cash expenses, of
$10,909,353. The private and public sale of shares and attached warrants
accounted for the issue of 10,857,766 shares of Common Stock and 4,309,629
Common Stock Purchase Warrants. 375,440 shares of Common Stock were issued
pursuant to exercises under the Company's employee option plans, 30,000 through
the exercise of warrants and 36,000 shares of Common Stock were issued pursuant
to the conversion of shares of Series C Preferred Stock. In addition, the
Company issued 384,588 shares of Common Stock pursuant to the acquisition of
Transformation Techniques, Inc. and a further 267,870 shares of Common Stock
were awarded pursuant to the Employee Stock Compensation (1997) Plan.
During 1998, the Company issued 4,583,100 shares of Common Stock and 800,000
shares of Preferred Stock and 2,850,000 warrants to purchase common shares for
cash proceeds of $6,350,833, net of cost of $348,419. Private placements and the
exercise of attached warrants accounted for the issue of 3,629,038 shares of
Common Stock and 800,000 shares of Preferred Stock. 951,562 shares of the Common
Stock were issued pursuant to exercises under the Employee Stock Option (1997)
Plan, and 2,500 shares of the Common Stock were awarded under the Employee Stock
Compensation (1997) Plan. In addition, the Company converted the 4,000,000
Series B convertible Preferred Stock, issued in 1997, into 10,000,000 common
shares.
9
The details of these offerings were disclosed in previous filings. The proceeds
from these issues have and will continue to be used to continue the on-going
expansion of the operations of the Company and the development of the
WaveRider(R) product families.
General
The Company reported a net loss for the year ended December 31, 2000, of $31.5
million on revenues of $4.1 million, compared to a net loss for the year ended
December 31, 1999 of $7.4 million on revenues of $1.7 million and a net loss for
the year ended December 31, 1998 of $4.5 million on revenues of $0.2 million.
The Company's reported results for 2000 include one-time non-cash charges, for
the extension of the Company's Employee Stock Option (1997) Plan, of $11.1
million and non-cash accounting charges of $1.3 million related to the release
of shares from escrow.
In the fourth quarter, management determined that the Transformation Techniques
Inc. (TTI) technology could not operate to customer expectations in certain
operating conditions and that the technologies could not be remedied to overcome
the issues. As a result, included in the 2000 loss is the write-off of the
Company's investment in acquired core technology and goodwill, in the amount of
$1,028,430, which was recorded as a result of the purchase of TTI in 1999. In
addition, the Company wrote off inventories and recorded warranty provisions, in
the amount of $1,568,739, related to the TTI technologies, including the amounts
recorded related to the impairment.
The Company's cash balance increased to $7.7 million at December 31, 2000,
compared to $5.5 million at December 31, 1999 and $3.0 million at December 31,
1998. Increases in cash balances are the result of the Company's additional
capital placements. See "Liquidity and Capital Resources" for fuller discussion
of the Company's equity financings.
Revenue
Total revenue increased 141% in 2000, compared to 1999, primarily due to the
commercial release of the Company's LMS2000 network system and to the expansion
of the Company's sales and marketing. Revenues increased 733% in 1999, compared
to 1998, primarily due to the commercial release of the Company's first product
offering, the NCL 135, during the first quarter of 1999 and the acquisition of
TTI in June 1999
Cost of Product and Internet Sales
Cost of Product and Internet Sales in 2000 were adversely affected by the
$1,568,739 write-off of TTI technology related inventories. As a result, the
Company recorded a gross margin deficiency in 2000 of $1,106,056 compared to
gross margins of $421,230 and $130,415 in 1999 and 1998 respectively.
With the introduction of the new NCL 1155 product, which utilizes new
replacement technology at a significantly lower cost, in the fourth quarter of
2000, the Company anticipates significantly higher margins on its NCL wireless
bridging revenues. In addition, the margins related to the Company's LMS
wireless network products have historically been, and are anticipated to be,
greater than the NCL product line. As the LMS network products take on a greater
proportion of the Company's sales, margins will increase.
Expenses
The Company continued to invest heavily in the development of its NCL and LMS
product families, with Research and Development costs, excluding stock related
expenses, depreciation and amortization, in 2000 amounting to $6,127,360 (1999 -
$2,319,707, 1998 - $1,545,510).
The extension of the Company's 1997 Option Plan and the release of shares from
the escrow plan resulted in non-cash accounting charges in 2000 in the amount of
$12,365,177 (1999 - $489,770, 1998 - $0). As of December 31, 2000, the Company
had achieved the first two performance events in the escrow agreement resulting
in the release of 1,350,000 shares of Common Stock or 15% of the escrow shares.
The Company expects that the remaining 7,650,000 shares will be released from
escrow during 2001 and the value of the shares will be recorded at the date the
respective performance events occur.
10
Selling, general and administrative expenses, excluding non-cash stock related
charges, increased to $8,605,887 in 2000 (1999 - $4,634,505, 1998 - $2,800,209).
Throughout the year, the Company expanded its sales operations in the United
States and Internationally and in the fourth quarter acquired ADE Technologies
in Australia. The additions were put in place to provide the Company with the
trained sales and support representatives required to sell and service the LMS
network products.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We Have A Limited Operating History, Therefore There Is A High Degree Of
Uncertainty Whether Our Business Plans Or Our Products Will Be Successful
Up to the beginning of the year, our Company was mainly focused on the research
and development of our products and as a result has had limited sales or
revenues. There can be no assurance that the products that we offer will meet
with market acceptance. In addition, there is no guarantee that even if there
proves to be a market for our products, that the market will allow us to
generate a profit.
None of our current products has achieved widespread distribution or customer
acceptance. Although, some of our products have passed the development stage, we
have not yet established a commercially viable market for them. Although we
believe that we have the expertise to commercialize our products and establish a
market for them, there is no assurance that we will be successful or that such
products will prove to have widespread customer appeal.
We Need Additional Financing And There Is Uncertainty We Can Get It
Management believes the Company will need to receive the additional funding
arranged on December 8, 2000, in order to continue its product development,
sales and marketing. The ability to draw on this additional funding is dependent
on a number of factors, including share pricing, which are outside the Company's
control. If the Company is unable to draw on the additional funding then the
Company will need to raise the additional funds through the sale of its equity
or debt securities in private or public financing or through strategic
partnerships in order to fully exploit the potential of its products and achieve
profitable operations. There can be no assurance that the funds required can be
raised.
We Have A History Of Losses, And Our Future Profitability Is Uncertain
Due to our limited operating history, we are subject to the uncertainties and
risks associated with any new business. Until recently we had no product that
could be commercialized, and therefore we have experienced significant operating
losses every year since incorporation. The Company incurred a net loss of
$31,472,615 for the year ended December 31, 2000 (1999 - $7,447,850 and 1998 -
$4,477,518) and reported a deficit at that date of $49,414,508 (1999 -
$17,910,784).
There can be no assurance that we will ever generate an overall profit from our
products or that we will ever reach profitability on a sustained basis.
Competition In The Data Communication Industry Is Intense And There Is
Uncertainty That Given Our New Technology And Limited Resources That We Will Be
Able To Succeed.
Although our products are based on a wireless technology, we compete not only
against companies that base their products on wireless technology, but also
against companies that base their products on hard-wired technology (wire or
fiber optic cable). There can be no assurance that we will be able to compete
successfully in the future against existing or new competitors or that our
operating results will not be adversely affected by increased price competition.
Competition is based on design and quality of the products, product performance,
price and service, with the relative importance of such factors varying among
products and markets. Competition, in the various markets we serve, comes from
companies of various sizes, many of which are larger and have greater financial
and other resources than we do and, thus, can better withstand adverse economic
or market conditions than we can.
Our future operating results are subject to a number of risks, including our
ability or inability to implement our strategic plan, to attract qualified
personnel and to raise sufficient financing as required. Inability to guide
growth effectively, including implementing appropriate systems, procedures and
controls, could have a material adverse effect on our business, financial
condition and operating results.
11
The Data Communication Industry Is In A State Of Rapid Technological Change
And We May Not Be Able To Keep Up
We may be unable to keep up with technological advances in the data
communications industry. As a result, our products may become obsolete or
unattractive. The data communications industry is characterized by rapid
technological change. In addition to frequent improvements of existing
technology, there is frequent introduction of new technologies leading to more
complex and powerful products. Keeping up with these changes requires
significant management, technological and financial resources. As a small
company, we do not have the management, technological and financial resources
that larger companies in our industry may have. There can be no assurance that
we will be able or successful in enhancing our existing products, or in
developing, manufacturing and marketing new products. An inability to do so
would adversely effect our business, financial condition and results of
operations.
We Have Limited Intellectual Property Protection And There Is Risk That
Our Competitors Will Be Able To Appropriate Our Technology
Our ability to compete depends to a significant extent on our ability to protect
our intellectual property and to operate without infringing the intellectual
property rights of others. We regard our technology as proprietary. We have no
issued patents or pending patent applications, nor do we have any registered
copyrights with respect to our intellectual property rights, but we intend to
file patent applications. We rely on employee and third party non-disclosure
agreements and on the legal principles restricting the unauthorized disclosure
and use of trade secrets. Despite our precautions, it might be possible for a
third party to copy or otherwise obtain our technology, and use it without
authorization. Although we intend to defend our intellectual property, we can
not assure you that the steps we have taken or that we may take in the future
will be sufficient to prevent misappropriation or unauthorized use of our
technology. In addition, there can be no assurance that foreign intellectual
property laws will protect our intellectual property rights. There is no
assurance that patent application or copyright registration that may be filed
will be granted, or that any issued patent or copyrights will not be challenged,
invalidated or circumvented. There is no assurance that the rights granted under
patents that may be issued or copyrights that may be registered will provide
sufficient protection to our intellectual property rights. Moreover, we cannot
assure you that our competitors will not independently develop technologies
similar, or even superior, to our technology.
Use Of Our Products Is Subordinated To Other Uses And There Is Risk That Our
Customers May Have To Limit Or Discontinue The Use Of Our Products.
License-free operation of our products in certain radio frequency bands is
subordinated to certain licensed and unlicensed uses of these bands. This
subordination means that our products must not cause harmful interference to
other equipment operating in the band, and must accept potential interference
from any of such other equipment. If our equipment is unable to operate without
any such harmful interference, or is unable to accept interference caused by
others, our customers could be required to cease operations in some or all of
these bands in the locations affected by the harmful interference. As well, in
the event these bands become unacceptably crowded, and no additional frequencies
are allocated to unlicensed use, our business could be adversely affected.
Currently, our products are designed to operate in frequency bands for which
licenses are not required in the United States, Canada and other countries that
we view as our potential market. Extensive regulation of the data communications
industry by U.S. or foreign governments and, in particular, imposing license
requirements in the frequency bands of our products could materially and
adversely affect us through the effect on our customers and potential customers.
Continued license-free operation will depend upon the continuation of existing
U.S., Canadian and such other countries' government policies and, while no
planned policy changes have been announced or are expected, this cannot be
assured.
Adverse Consequences And Possible Dilution Are Associated With Our Obligation
To Issue Substantial Shares Of Common Stock Upon Conversion Of
Convertible Securities
We are obligated to issue a substantial number of shares of Common Stock upon
the conversion or exercise of our outstanding warrants and convertible notes.
The price which we may receive for the Common Stock issuable upon conversion or
exercise of such convertible securities may be less than the market price of the
Common Stock at the time of such exercise. Consequently, for the life of such
convertible securities, the holders of such convertible securities may have been
given, at nominal cost, the opportunity to profit from a rise in the market
price of the Common Stock.
12
The exercise of all of the aforementioned securities may also adversely affect
the terms under which we could obtain additional equity capital. In addition,
should a significant number of these securities be exercised or converted, the
resulting increase in the amount of the Common Stock in the public market could
have a substantial dilutive effect on our outstanding Common Stock.
We May Be Subject To Product Liability Claims And, We Lack Product
Liability Insurance
We face an inherent risk of exposure to product liability claims in the event
that the products designed and sold by us contain errors, "bugs" or defects.
There can be no assurance that we will avoid significant product liability
exposure. We do not currently have product liability insurance and there can be
no assurance that insurance coverage will be available in the future on
commercially reasonable terms, or at all. Further, there can be no assurance
that such insurance, if obtained, would be adequate to cover potential product
liability claims, or that a loss of insurance coverage or the assertion of a
product liability claim or claims would not materially adversely affect our
business, financial condition and results of operations.
We Depend Upon Third Party Manufacturers And There Is Risk That, If These
Suppliers Become Unavailable For Any Reason, We May For An Unknown Period Of
Time Have Difficulty Finding Alternate Sources of Supply
We depend upon a limited number of third party manufacturers to make our
products. If our suppliers are not able to manufacture for us for any reason, we
would, for an unknown period of time, have difficulty finding alternate sources
of supply. Accordingly, no assurance can be given that manufacturing capacity
will continue to be available to us on commercially reasonable terms or
otherwise. Inability to obtain manufacturing capacity would have a material
adverse effect on our business, financial condition and results of operations.
Some of the information in this annual report, on form 10-K, contains
forward-looking statements that involve substantial risks and uncertainties. Any
statement in this annual report and in the documents incorporated by reference
into this annual report that is not a statement of an historical fact
constitutes a "forward-looking statement". Further, when we use the words "may",
"expect", "anticipate", "plan", "believe", "seek", "estimate", "internal", and
similar words, we intend to identify statements and expressions that may be
forward-looking statements. We believe it is important to communicate certain of
our expectations to our investors. Forward-looking statements are not guarantees
of future performance. They involve risks, uncertainties and assumptions that
could cause WaveRider's future results to differ materially from those expressed
in any forward-looking statements. Many factors are beyond our ability to
control or predict. You are accordingly cautioned not to place undue reliance on
such forward-looking statements. We have no obligation or intent to update
publicly any forward-looking statements whether in response to new information,
future events or otherwise. Important factors that may cause our actual results
to differ from such forward-looking statements include, but are not limited to,
the risk factors discussed above. Before you invest in our common stock, you
should be aware that the occurrence of any of the events described under "Risk
Factors" above or elsewhere in this annual report could have a material adverse
effect on our business, financial condition and results of operation. In such a
case, the trading price of our common stock could decline and you could lose all
or part of your investment.
ITEM 8. FINANCIAL STATEMENTS
The information required hereunder in this report as set forth in the "Index to
Financial Statements" on page 22.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
13
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
Directors and Executive Officers
The present directors and officers of the Company, their ages and their
positions held in the Company are listed below. Each director will serve until
the next annual meeting of the stockholders or until his successor has been
elected and duly qualified. Directors serve one year terms and officers hold
office at the pleasure of the Board of Directors, subject to employment
agreements. There are no family relationships between or among directors or
executive officers.
NAME AGE POSITION
Bruce Sinclair 49 Director, President and Chief Executive Officer
Cameron A. Mingay 49 Director and Corporate Secretary.
Gerry Chastelet 54 Director
John Curry 54 Director
Guthrie Stewart 45 Director
Dennis Wing 52 Director
Charles Brown 45 Vice President, Marketing
James Chinnick 54 Vice President, Engineering
Scott Worthington 46 Vice President and Chief Financial Officer
The following describes the business experience of the Company's directors and
executive officers, including, for each director, other directorships held in
reporting companies and naming each Company.
D. Bruce Sinclair is an experienced management professional with a Masters
Degree in business administration from the University of Toronto. He has worked
in sales and management with companies including IBM Canada, Northern Telecom
and Harris Systems Limited. From 1988 to 1991, Mr. Sinclair was with Dell
Computer Corporation, a computer manufacturing company, where he held the office
of President of its Canadian subsidiary. In 1991 he was appointed
Vice-President, Europe for Dell Computer Corporation and subsequently CEO of
Dell in Europe, a position he held until 1994. He resigned from Dell in 1995 and
operated his own independent consulting business until joining the Company in
November 1997.
Cameron A. Mingay is a partner at Cassels Brock & Blackwell LLP, Toronto,
Ontario, Canada and specializes in the areas of securities and corporate
commercial law, with an emphasis on public offerings, mergers and acquisitions,
and corporate reorganizations. He has extensive experience in representing
companies and investment dealers in all manners of public and private corporate
finance transactions. He acts as lead counsel for a number of public clients and
he serves as counsel to a number of investment dealers on corporate finance
matters. He is currently on the board of Kinross Gold Corporation and is the
Corporate Secretary of Nextair Inc. He completed his undergraduate degree at the
University of Wisconsin and York University and his law degree at Queen's
University.
Gerry Chastelet, a 30-year veteran of the telecommunications industry, is
currently president, chairman and CEO of Digital Lightwave Inc. of Clearwater,
Florida. Prior to Digital Lightwave, he served as president and CEO of Wandel
and Goltermann Techologies Inc. a global supplier of communication test and
measurement equipment. From 1993 to 1995 he served as vice president, Sales
Marketing and Service - Americas and Asia Pacific for Network Systems
Corporation. He has also held senior management roles with other high-tech
companies including Gandalf Systems Corporation, Paradyne Corporation and IBM.
14
John E. Curry, C.A. is President of Karina Ventures Inc., a venture capital
consulting company. He previously was a founding partner in Bedford Curry & Co.,
Chartered Accountants, a Vancouver based firm specializing in public companies
and business financing which he built over a sixteen year period. Mr. Curry is a
member of the British Columbia Institute of Chartered Accountants and has a BA
from the University of Western Ontario.
Guthrie J. Stewart acts as a Board member or consultant to emerging companies.
Prior to October, 2000 he was the Executive Vice-President, Global Development
for the Teleglobe Group and Chairman and Chief Executive Officer of Teleglobe
Media Enterprises. From 1992, he had held various executive positions within the
Teleglobe Group including President and Chief Executive Officer of Teleglobe
Canada Inc., Canada's international telecommunications carrier.
Dennis R. Wing is Director of International Operations for Fahnestock & Co.
Inc., an U.S. investment bank. Previously, he was founding partner and Board
Member of First Marathon Securities Inc. and was Director of International
Operations for 18 years. His other Board memberships include Cryptologic Inc.,
Vengold Inc. and the University of Waterloo. He holds a Bachelor of Arts degree
in Economics from University of Waterloo.
Charles W. Brown, MBA, was Clearnet Communications' first Vice President and CIO
from 1994 to 1997. Prior to this Mr. Brown has held numerous senior Sales and
Marketing positions including Vice President, Sales and Marketing for Trillium
Communications (1993-1994) and Director, Strategic Planning and Marketing for
BCE Mobile (1990-1993)
James H. Chinnick, was vice president and general manager of Harris
Corporation's Wireless Access Division in Calgary, AB, from 1995 to 1998. Prior
to this, Mr. Chinnick held several senior positions with NovAtel (1988-1995),
Northern Telecom (1985-1988), Foundation Electronic Instruments (1980-1984) and
the Communications Research Centre in Ottawa (1971-1980). In addition to a B.Sc.
Engineering (Physics), he has an M.Sc. in Electrical Engineering
(Communications) and a Diploma in Business Administration. He is a member of the
Association of Professional Engineers, Geologists and Geophysicists of Alberta
(APEGGA).
T. Scott Worthington is a Chartered Accountant. From 1988 to 1996, he worked at
Dell Computer Corporation, in Canada, where he held numerous positions including
CFO of the Canadian subsidiary. Subsequent to leaving Dell, he was a financial
and business consultant until his joining the Company in January 1998.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, (the "Exchange
Act"), requires officers, directors and persons who beneficially own more than
10% of a class of the Company's equity securities registered under the Exchange
Act to file reports of ownership and changes in ownership with the Securities
and Exchange Commission. Based solely on a review of the forms it has received
and on representation from certain reporting persons, the Company believes that,
during the year ended December 31, 2000, all Section 16(a) filing requirements
applicable to its officers, directors and 10% beneficial owners were complied
with by such persons.
15
ITEM 11. EXECUTIVE COMPENSATION
The following table describes the compensation earned in fiscal 2000 by
the Chief Executive Officer of the Company and all executives officer who
received compensation in excess of $100,000 in 2000, 1999 and 1998. The
directors of the Company received $1,000 per meeting attended during the year
and in total were awarded 375,000 options under the Employee Stock Option (2000)
Plan for their participation in the board of directors and each of its
subcommittees.
SUMMARY COMPENSATION TABLE 2000
Annual Compensation
Name and
Principal Position Year Salary Bonus Stock Options
Bruce Sinclair 2000 235,627 67,322 500,000
Pres./CEO/Director 1999 204,730 134,617 100,000
1998 182,002 Note 1
Charles Brown 2000 138,683 42,692 200,000
Vice Pres., Sales & Marketing 1999 128,156 50,885 535,000
1998 101,112 39,045 465,000
James Chinnick 2000 97,482 71,631 200,000
Vice Pres., Engineering 1999 87,748 76,732 630,000
Scott Worthington 2000 111,665 25,784 200,000
Vice President & CFO 1999 103,863 26,923 450,000
1998 76,845 15,369 550,000
(1) Mr. Sinclair's 1998 compensation was based on an annualized amount of
Can.$500,000 payable Can.$270,000 in cash salary with the balance payable
in shares out of the Employee Stock Compensation (1997) Plan subject to
certain performance criteria. Despite having achieved the bonus
requirements, Mr. Sinclair waived receipt of the $155,038 bonus in
conjunction with an agreement with other shareholders who returned
1,000,000 shares for cancellation. This agreement allowed the Company to
issue 1,495,000 options to the other senior executives without significant
further dilution for the shareholders.
The following table summarizes option grants during 2000 to the executive
officers named in the Summary Compensation Table (the "Named Executive
Officers")
Individual Grants
Percent of Total
Number of Options Potential Realizable Value
Securities Granted to Exercise Market at Assumed Annual Rates
Underlying Employees or Base Price on of Stock Price Appreciation
Options in Fiscal Price Date of Expiration for Option Term
Granted Year ($/sh) Grant Date 0% 5% 10%
Bruce Sinclair 200,000 6.3% $9.03 $9.03 2/25/10 0 90,300 180,600
300,000 9.4% $9.03 $9.03 2/25/10 0 135,450 270,900
Charles Brown 200,000 6.3% $9.03 $9.03 2/25/10 0 90,300 180,600
James Chinnick 200,000 6.3% $9.03 $9.03 2/25/10 0 90,300 180,600
Scott Worthington 200,000 6.3% $9.03 $9.03 2/25/10 0 90,300 180,600
16
Exercises during 2000
Number of
securities Value of
underlying unexercised in-
unexercised the-money
options/SARs at options/SARs at
fiscal year end fiscal year end
(#) ($)
Shares ____________________________________
acquired on Value Exercisable/ Exercisable/
Name exercise (#) Realized ($) unexercisable unexercisable
Bruce Sinclair 225,000 1,962,345 1,290,000/ 849,022/
1,085,000 819,978
Charles Brown 125,400 881,013 419,850/ 45,702/
654,750 0
James Chinnick 70,000 463,773 226,500/ 0/
633,500 0
Scott Worthington 47,600 430,045 669,900/ 99,700/
482,500 0
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following tables set forth, as of February 23, 2001, the stock ownership of
each officer and director of the Company, of all officers and directors of the
Company as a group, and of each person known by the Company to be a beneficial
owner of 5% or more of its Common Stock, $0.001 par value. Except as otherwise
noted, each person listed below is the sole beneficial owner of the shares and
has sole investment and voting power with respect to such shares. No person
listed below has any option, warrant or other right to acquire additional
securities of the Company, except as may otherwise be noted. The Company had
62,854,753 shares of Common Stock issued and outstanding as of such date, which
numbers do not include any options or warrants issued and outstanding.
Name and Address of Amt. Of Common % of Common Stock
Beneficial Owner Stock benef. Owned outstanding
- ------------------- ------------------ ----------------
Bruce Sinclair, Director, CEO, President, Director 3,290,000 5.05%
Cameron A. Mingay, Secretary/Director 127,500 0.20%
Gerry Chastelet, Director 150,000 0.24%
John Curry, Director 120,000 0.24%
Guthrie Stewart, Director 100,000 0.16%
Dennis Wing, Director 100,000 0.16%
Charles Brown, Vice President, Sales & Marketing 422,826 0.67%
Scott Worthington, Vice-President & CFO 672,249 1.06%
Jim Chinnick, Vice President, Engineering 229,590 0.36%
------------ --------
All Directors and Executive Officers (9) 5,212,165 7.77%
------------ --------
17
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
There were no transactions or series of transactions, for the fiscal year ended
December 31, 2000, to which the Company is a party, in which the amount exceeds
$60,000 and in which, to the knowledge of the Company, any director, executive
officer, nominee, 5% or greater stockholder, or any member of the immediate
family of any of the foregoing persons, have or will have any direct or indirect
material interest other than as disclosed in the 10 K filed by the Company for
the year ended December 31, 2000.
PART IV
ITEM 14. 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. References to the "Company"
below includes Channel i Inc., the Company's previous name under which exhibits
may have been filed.
Exhibit No. Description.
3.1 Articles of Incorporation of the Company, incorporated by
reference to Exhibit 3.1 registration statement on Form S-18,
File no. 33-25889-LA.
3.2 Bylaws of the Company, incorporated by reference to Exhibit
3.2 to the annual report on Form 10-KSB for the year ended
December 31, 1996.
3.3 Certificate of Amendment to the Articles of Incorporation of
the Company filed with the Nevada Secretary of State on
October 8th, 1993, incorporated by reference to Exhibit 3.3 to
the quarterly report on Form 10-QSB for the period ended
September 30th, 1994.
3.3 Certificate of Amendment to the Articles of Incorporation of
the Company filed with the Nevada Secretary of State on
October 25th, 1993, incorporated by reference to Exhibit 2(d)
to the registration statement on Form 8-A, File No. 0-25680.
3.5 Certificate of Amendment to the Articles of Incorporation of
the Company filed with the Nevada Secretary of State on March
25th, 1995, incorporated by reference to Exhibit 2(e) to
registration statement on Form 8-A, File no. 0-25680.
3.6 Certificate of Amendment to the Articles of Incorporation of
the Company, designating the Series A Voting Convertible
Preferred Stock, filed with the Nevada Secretary of State on
March 24th, 1997, incorporated by reference to Exhibit 3.6 on
Form 10KSB for the year ended December 31, 1996.
3.8 Certificate of Amendment to the Articles of Incorporation of
the Company designating the Series B Voting Convertible
Preferred Stock, filed with the Nevada Secretary of State on
May 16, 1997 incorporated by reference to Exhibit 3.7 on Form
10KSB for the year ended December 31, 1997.
3.9 Certificate of Amendment to the Memorandum of the Company
changing the name to WaveRider Communications Inc., filed with
the Nevada Secretary of State on May 27, 1997 incorporated by
reference to Exhibit 3.8 on Form 10KSB for the year ended
December 31, 1997.
3.10 Certificate of Amendment to the Certificate of Designation of
the Series B Voting Convertible Preferred Stock, filed with
the Nevada Secretary of State on May 16, 1997 incorporated by
reference to Exhibit 99.1 on Form 8-K filed May 5, 1998.
3.11 Certificate of Amendment to the Articles of Incorporation of
the Company designating the Series C Voting 8% Convertible
Preferred Stock, filed with the Nevada Secretary of State on
June 3, 1998 incorporated by reference to Exhibit 4 on Form
8-K filed June 18, 1998.
3.12 Certificate of Amendment to the Articles of Incorporation of
the Company filed with the Nevada Secretary of State on July
17, 2000, incorporated by reference to Appendix D on Form DEF
14A filed May 25, 2000.
4.1 Specimen common stock certificate, incorporated by reference
to Exhibit 4.1 to registration statement on Form S-18, File
no. 33-25889-LA.
4.2 Warrant Terms dated December 15, 1998, relating to the Class G
Common Stock Purchase Warrants, incorporated by reference to
Exhibit 4.9 on Form 10KSB for the year ended December 31,
1998.
18
4.3 Warrant Terms dated December 29, 1998, relating to the Common
Stock Purchase Warrants, incorporated by reference to Exhibit
4.10 on Form 10KSB for the year ended December 31, 1998.
4.4 Warrant Terms dated June, 1999, relating to the Class H Common
Stock Purchase Warrants, incorporated by reference to Exhibit
4.11 on a registration statement on Form S-3, File no.
333-82855
4.5 Warrant Terms dated December 1999, relating to Common Stock
Purchase Warrants, incorporated by reference to Exhibit 4.13
on a registration statement on Form S-3, File no. 333-92591.
4.6 Warrant Terms dated December 8, 2000, relating to the Class J
Common Stock Purchase Warrants, incorporated by reference to
Exhibit 10.4 on Form 8-K filed December 14, 2000.
4.7 Warrant Terms dated December 8, 2000, relating to the Class K
Common Stock Purchase Warrants, incorporated by reference to
Exhibit 10.5 on Form 8-K filed December 14, 2000.
4.8 Form of Warrant Terms dated December 8, 2000, relating to the
Class L Common Stock Purchase Warrants, incorporated by
reference to Exhibit 10.6 on Form 8-K filed December 14, 2000.
4.9 Warrant Terms dated December 8, 2000, relating to the Class M
Common Stock Purchase Warrants, incorporated by reference to
Exhibit 4.9 on Form S-3 filed December 28, 2000.
10.1 Share Exchange Agreement executed the 13th day of May, 1997
between the Company and the shareholders of Major Wireless
Communications Inc., ("Major Wireless"), with respect to the
purchase by the Company of all the issued and outstanding
shares in the capital stock of Major Wireless, incorporated by
reference to Exhibit 2.1 in Form 8-K filed May 29, 1997
10.2 Agreement supplemental to the Share Exchange Agreement
executed the 13th day of May, 1997 (see 10.6 supra)
incorporated by reference to Exhibit 10.1 in Form 8-K filed
May 29, 1997.
10.3 Employee Stock Option (1997) Plan incorporated by reference to
Exhibit 99 in Form S-8 filed August 29th, 1997. 10.4 Amendment
to the Share Exchange Agreement executed the 13th day of May,
1997 (see 10.6 supra) incorporated by reference to Exhibit
10.1 in Form 8-K filed May 4,1998.
10.5 Amendment to the Employee Stock Option (1997) Plan
incorporated by reference to Form S-8 filed May 13, 1998
10.6 Convertible Debenture Agreement between WaveRider and
International Advisory Services Ltd. and Wyndel Consulting
Ltd. dated December 15, 1998 incorporated by reference to
Exhibit 10.11 on Form S-3 filed January 19, 1999.
10.7 Letter of termination of the Convertible Debenture, dated
January 8, 1999, incorporated by reference to Exhibit 10.11 on
Form S-3 filed January 19, 1999.
10.8 Common Stock Purchase Agreement between WaveRider and
Sovereign Partners LP and Canadian Advantage Limited
Partnership, dated December 31, 1998, including the exhibits
to such agreement incorporated by reference to Exhibit 10.13
on Form S-3 filed January 19, 1999.
10.9 Amendment to the Common Stock Purchase Agreement between
WaveRider and Sovereign Partners LP and Canadian Advantage
Limited Partnership, dated June 14, 1999, incorporated by
reference to Exhibit 10.14 on Form S-3, File No. 333-82855.
10.10 Merger Agreement between WaveRider Communications Inc and TTI
Merger Inc and Transformation Techniques, Inc. and Peter Bonk,
incorporated by reference to Exhibit 10.1 in Form 8-K filed
June 30, 1999
10.11 Employment agreement between Mr. Peter Bonk and WaveRider
Communications (USA) Inc., dated June 11, 1999, incorporated
by reference to Exhibit 10.2 in Form 8-K filed June 30, 1999.
10.12 Loan Agreement between WaveRider Communications Inc. and AMRO
International, S.A. dated October 15, 1999, incorporated by
reference to Exhibit 10.1 in Form 10-Q for the quarter ended
September 30, 1999.
10.13 Common Stock Purchase Agreement between WaveRider
Communications Inc. and Radyr Group Investments dated October
18, 1999, incorporated by reference to Exhibit 10.2 in Form
10-Q for the quarter ended September 30, 1999.
10.14 Underwriting Agreement between WaveRider Communications Inc.
and Groome Capital.com Inc. dated December 17, 1999
incorporated by reference to exhibit 10.19 on Form S-3A, File
No. 333-92591.
10.15 Share Sale and Subscription Agreement between WaveRider
Communications Inc. and ADE Network Technology Pty Ltd. and
Philip William Anderson, Maureen Anderson and Wayne Anderson
dated September 29, 2000, incorporated by reference to exhibit
10.1 on Form 8-K filed October 16,2000.
19
10.16 Amendment #1 to Share Sale and Subscription Agreement between
WaveRider Communications Inc. and ADE Network Technology Pty
Ltd. and Philip William Anderson, Maureen Anderson and Wayne
Anderson dated October 9, 2000, incorporated by reference to
exhibit 10.2 on Form 8-K filed October 16,2000.
10.17 Security Purchase Agreement between WaveRider Communications
Inc. and Capital Ventures International dated December 8,
2000, incorporated by reference to exhibit 10.1 on Form 8-K
filed December 14, 2000.
21 * Subsidiaries
(b) Reports on Form 8-K
8-K Share Sale and Subscription Agreement between WaveRider
Communications Inc. and ADE Network Technology Pty Ltd. and
Philip William Anderson, Maureen Anderson and Wayne Anderson
dated September 29, 2000, filed October 16,2000.
8-K Security Purchase Agreement between WaveRider Communications
Inc. and Capital Ventures International dated December 8,
2000, filed December 14, 2000.
8-K/A Financial Statements required to be filed in connection with
the Share Sale and Subscription Agreement between WaveRider
Communications Inc. and ADE Network Technology Pty Ltd. and
Philip William Anderson, Maureen Anderson and Wayne Anderson
dated September 29, 2000, filed December 15, 2000.
8-K/A Amendment to the Financial Statements required to be filed in
connection with the Share Sale and Subscription Agreement
between WaveRider Communications Inc. and ADE Network
Technology Pty Ltd. and Philip William Anderson, Maureen
Anderson and Wayne Anderson dated September 29, 2000, filed
December 27, 2000.
20
Exhibit 21
SUBSIDIARIES
The company has a wholly owned subsidiary, ADE Network Technologies Pty. Ltd.
ACN 006 395 026, incorporated under the laws of the State of Victoria, Australia
on April 1, 1985
The company has a wholly owned subsidiary, WaveRider Communications (USA) Inc.
(formerly TTI Merger, Inc.), incorporated under the laws of the State of Nevada,
on May 19, 1999.
The company has a wholly owned subsidiary, WaveRider Communications (Canada)
Inc. (formerly Major Wireless Communications Inc.), incorporated under the laws
of the Province of British Columbia, Canada the 9th day of October, 1996 under
no. 0528772.
WaveRider Communications (Canada) Inc. has a wholly owned subsidiary, JetStream
Internet Services Inc., incorporated under the laws of the Province of British
Columbia, Canada the 29th day of July, 1997, under no. 0547668.
21
CONSOLIDATED FINANCIAL STATEMENTS
WaveRider Communications Inc.
TORONTO, ONTARIO, CANADA
DECEMBER 31, 2000
1. AUDITORS' REPORT
2. CONSOLIDATED BALANCE SHEETS
3. CONSOLIDATED STATEMENTS OF LOSS
4. CONSOLIDATED STATEMENTS OF CHANGES IN CASH FLOWS
5. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
6. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
22
[Letterhead of PricewaterhouseCoopers LLP]
February 16, 2001
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of WaveRider Communications Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of loss, cash flows and shareholders' equity present
fairly, in all material respects, the financial position of WaveRider
Communications Inc. (the "Company") at December 31, 2000 and 1999 and the
results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. As described in note 22, the consolidated
financial statements as of December 31, 1997 have been restated. The restated
1997 consolidated financial were audited by other auditors whose revised report
dated March 20, 1998 (except for note 4 which is as of March 22, 1999) expressed
an unqualified opinion on those statements. We conducted our audits of these
consolidated financial statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and estimates made
by management and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in note 1 to the
consolidated financial statements, the Company has incurred a significant
operating loss for the year and has a deficit as at the end of the year, which
raises substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in note 1. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/PricewaterhouseCoopers LLP
Chartered Accountants
Toronto, Canada
February 16, 2001
- --------------------------------------------------------------------------------
PricewaterhouseCoopers refers to the Canadian firm of PricewaterhouseCoopers LLP
and other members of the worldwide PricewaterhouseCoopers organization.
23
WaveRider Communications Inc.
CONSOLIDATED BALANCE SHEETS
December 31
2000 1999
ASSETS
Current
Cash and cash equivalents $ 7,720,902 $ 5,540,917
Accounts receivable 1,996,473 707,619
Due from contract manufacturers 1,127,792 -
Inventories 2,193,502 609,363
Prepaid expenses and other assets 983,361 128,451
-------------------------------
14,022,030 6,986,350
Property, plant and equipment 2,395,373 978,160
Acquired core technologies - 1,203,837
Acquired labor force 400,659 -
Goodwill 4,114,983 912,169
-------------------------------
$ 20,933,045 $ 10,080,516
===============================
LIABILITIES
Current
Accounts payable and accrued liabilities $ 4,372,365 $ 1,654,401
Consideration payable on business combination 1,621,917 -
Deferred revenue 423,677 41,035
Current portion of obligation under capital lease 272,851 68,073
-------------------------------
6,690,810 1,763,509
Convertible promissory notes 1,835,299 -
Obligation under capital lease 224,347 18,625
-------------------------------
8,750,456 1,782,134
SHAREHOLDERS' EQUITY
Preferred Stock, $.001 par value per share: authorized - 5,000,000 shares;
issued and outstanding 0 shares in 2000 and 764,000 shares in 1999 - 764
Common Stock, $.001 par value per share: authorized - 200,000,000 shares;
issued and outstanding - 55,121,898 shares in 2000 and 43,903,145 shares
in 1999 55,122 43,903
Additional paid in capital 46,014,398 22,599,172
Other equity 15,482,719 3,565,327
Accumulated other comprehensive income 44,858 -
Accumulated deficit (49,414,508) (17,910,784)
-------------------------------
12,182,589 8,298,382
$ 20,933,045 $ 10,080,516
===============================
Going Concern (Note 1) Commitments and Contingencies (Note 16)
Approved by the Board Director Director
REFER TO ACCOMPANYING NOTES
24
WaveRider Communications Inc.
CONSOLIDATED STATEMENTS OF LOSS
Year ended December 31
2000 1999 1998
REVENUE
Product sales $ 3,592,253 $ 1,519,469 $ 41,133
Service sales 540,739 196,576 164,749
--------------------------------------------
4,132,992 1,716,045 205,882
COST OF PRODUCT AND INTERNET SALES
Product sales 4,983,048 1,225,194 13,445
Service sales 256,000 69,621 62,022
--------------------------------------------
5,239,048 1,294,815 75,467
--------------------------------------------
GROSS MARGIN (1,106,056) 421,230 130,415
--------------------------------------------
EXPENSES
Selling, general and administration 8,605,887 4,634,505 2,800,209
Employee stock-based compensation 10,386,498 482,763 -
Research and development 6,127,360 2,319,707 1,545,510
Employee stock-based compensation 1,978,679 7,007 -
Depreciation and amortization 2,164,638 736,875 304,347
Bad debt expense 539,379 55,948 -
Impairment of assets 1,028,430 - -
--------------------------------------------
30,830,871 8,236,805 4,650,066
--------------------------------------------
Loss from operations (31,936,927) (7,815,575) (4,519,651)
Interest expenses (274,347) (184,371) (6,972)
Interest income 581,614 48,096 49,105
--------------------------------------------
NET LOSS BEFORE INCOME TAX EXPENSE (31,629,660) (7,951,850) (4,477,518)
DEFERRED TAX RECOVERY 157,045 504,000 -
--------------------------------------------
NET LOSS (31,472,615) (7,447,850) (4,477,518)
=============================================
BASIC AND FULLY DILUTED LOSS PER SHARE $ (0.59) $ (0.25) $ (0.18)
=============================================
Weighted Average Number of Common Shares 53,203,750 34,258,565 29,485,320
=============================================
REFER TO ACCOMPANYING NOTES
25
WaveRider Communications Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31
2000 1999 1998
OPERATIONS
Net loss $ (31,472,615) $ (7,447,850) $ (4,477,518)
Items not involving cash
Depreciation and amortization 2,164,638 736,875 304,347
Extension of Employee Stock Option (1997) plan 11,099,858 - -
Options issued to non-employees 92,301 70,412 341,809
Compensatory shares released from escrow to employee 712,500 - -
Compensatory shares issued to employees - 457,007 -
Compensatory options issued to employees 552,819 32,763 -
Warrants issued on financing and other services - 360,098 313,325
Unrealized foreign exchange loss included in selling,
general & administration 19,150 22,044 (18,340)
Write off of acquired core technologies and goodwill 1,028,430 - -
Write off of inventories 1,568,739 - -
Bad debt expense 539,379 55,948 -
Accretion of interest expense on convertible promissory notes 102,954 - -
Accrued interest expense on consideration payable 45,000 - -
Amortization of call option included in prepaid expenses and
other assets 107,433 - -
Deferred tax recovery (157,045) (504,000) -
Net changes in non-cash
working capital items (3,671,541) (907,113) 560,144
---------------------------------------------
(17,268,000) (7,123,816) (2,976,233)
----------------------------------------------
INVESTING
Acquisition of property, plant and equipment (1,474,040) (376,767) (612,184)
Purchase of Transformation Techniques Inc. - (655,288) -
Purchase of ADE Network Technology Pty. Ltd. (492,082) - -
--------------------------------------------
(1,966,122) (1,032,055) (612,184)
----------------------------------------------
FINANCING
Proceeds from sale of shares and warrants (net of issue fees) and
exercise of options and warrants 16,757,800 10,909,353 6,350,833
Proceeds from sale of convertible promissory notes 4,818,000 - -
Dividends on preferred shares (31,109) (158,144) (80,000)
Payments on capital lease obligations (132,753) (105,848) (68,216)
----------------------------------------------
21,411,938 10,645,361 6,202,617
---------------------------------------------
Effect of exchange rate changes on cash 2,169 4,170 (4,689)
----------------------------------------------
Increase in cash and cash equivalents 2,179,985 2,493,660 2,609,511
Cash and cash equivalents, beginning of year 5,540,917 3,047,257 437,746
---------------------------------------------
CASH AND CASH EQUIVALENTS,
end of year $ 7,720,902 $ 5,540,917 $ 3,047,257
=============================================
Supplementary disclosures of cash flow information:
Cash paid during the year for:
Interest 61,860 32,349 6,972
Noncash investing and financing activities
Conversion of warrants (Note 15B(v)) 103,686 - -
Consideration payable for acquisition 1,534,917 - -
Capital lease additions 370,711 125,830 134,932
REFER TO ACCOMPANYING NOTES
26
WaveRider Communications Inc.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31
Additional
Common Shares Preferred Shares Paid-in Share
Number Par Value Number Par Value Capital Capital
December 31, 1997 26,918,381 $ 26,919 -- -- $ 4,479,370 $ 4,506,289
Issuances 1,670,360 1,670 800,000 800 4,787,697 4,790,167
(Notes 15B(ii), (iv), (v), (vi), 15F)
Conversions & exercises 12,912,740 12,912 1,550,008 1,562,920
(Notes 15B (I), (ii), (iii), 15E)
Options to non-employees (note 15E)
Dividends on preferred stock
Net loss
Shares in escrow (note 15B(iii)) (10,000,000) (10,000) (10,000)
December 31, 1998 31,501,481 31,501 800,000 800 10,817,075 10,849,376
Issuances (Notes 15B(v), (viii), (ix),(x),(xi),15F) 10,857,766 10,858 10,026,885 10,037,743
Conversions & exercises (Notes 15B(ii), (vi), 15E) 441,440 441 (36,000) (36) 322,933 323,338
Release of shares from escrow (Note 15B(iii)) 450,000 450 533,925 534,375
Issue for purchase of subsidiary (Note 15B(vii)) 384,588 385 441,615 442,000
Issued as compensation (Note 15F) 267,870 268 456,739 457,007
Compensatory options to employees (Note 15E)
Options to non-employees (Note 15E)
Dividends on preferred stock
Net loss
December 31, 1999 43,903,145 $ 43,903 764,000 $ 764 $ 22,599,172 $ 22,643,839
Extension of option plan (Note 15E)
Issuances (Notes 15B(x), (xi), 14) 1,437,036 1,437 1,495,031 1,496,468
Conversions & exercises (Notes 15B(iv), (v), 8,881,717 8,882 (764,000) (764) 18,714,845 18,722,963
(viii), (ix), (x), (xi), 15E)
Release of shares from escrow (Note 15B(iii)) 900,000 900 3,205,350 3,206,250
Compensatory options to employees (Note 15E)
Options to non-employees (Note 15E)
Dividends on preferred stock
Beneficial conversion (Note 14)
Cumulative Translation Adjustment Account
Net loss
Comprehensive net loss
December 31, 2000 55,121,898 $ 55,122 -- $ - $ 46,014,398 $ 46,069,520
27
WaveRider Communications Inc.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (continued)
Years ended December 31
Accumulated
Warrants Other Comprehensive
Number Amount Other equity Deficit Income/(Loss) Total
December 31, 1997 1,491,178 $ 10,479 $ 118,158 $ 128,637 $ (3,985,007) $ 649,919
Issuances 2,850,000 1,387,004 1,387,004 (712,265) 5,464,906
(Notes 15B(ii), (iv), (v), (vi), 15F)
Conversions & exercises (1,961,178) (100,049) (253,619) (353,668) 1,209,252
(Notes 15B (I), (ii), (iii), 15E)
Options to non-employees (note 15E) 341,809 341,809 341,809
Dividends on preferred stock (80,000) (80,000)
Net loss (4,477,518) (4,477,518)
Shares in escrow (note 15B(iii)) (10,000)
December 31, 1998 2,380,000 1,297,434 206,348 1,503,782 (9,254,790) 3,098,368
Issuances (Notes 15B(v),
(viii), (ix),(x),(xi),15F) 4,309,629 2,063,717 2,063,717 (1,050,000) 11,051,460
Conversions & exercises
(Notes 15B(ii), (vi), 15E) (30,000) (5,717) (99,630) (105,347) 217,991
Release of shares from escrow
(Note 15B(iii)) 534,375
Issue for purchase of subsidiary
(Note 15B(vii)) 442,000
Issued as compensation (Note 15F) 457,007
Compensatory options to employees
(Note 15E) 32,763 32,763 32,763
Options to non-employees (Note 15E) 70,412 70,412 70,412
Dividends on preferred stock (158,144) (158,144)
Net loss (7,447,850) (7,447,850)
December 31, 1999 6,659,629 $ 3,355,434 $ 209,893 $ 3,565,327 $(17,910,784) $ 8,298,382
Extension of option plan (Note 15E) 11,099,858 11,099,858 11,099,858
Issuances (Notes 15B(x), (xi), 14) 9,334,970 2,250,180 2,250,180 3,746,648
Conversions & exercises (Notes 15B(iv), (6,466,350) (3,311,347) (678,024) (3,989,371) 14,733,592
(v), (viii), (ix), (x), (xi), 15E)
Release of shares from escrow
(Note 15B(iii)) 3,206,250
Compensatory options to employees
(Note 15E) 552,819 552,819 552,819
Options to non-employees (Note 15E) 92,301 92,301 92,301
Dividends on preferred stock (31,109) (31,109)
Beneficial conversion (Note 14) 1,911,605 1,911,605 1,911,605
Cumulative Translation
Adjustment Account 44,858 44,858
Net loss (31,472,615) (31,472,615)
Comprehensive net loss (31,427,757)
December 31, 2000 9,528,249 $ 2,294,267 $ 13,188,452 $ 15,482,719 ($49,414,508) $44,858 $ 12,182,589
28
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2000 and 1999
1. GOING CONCERN
These consolidated financial statements are prepared on a going-concern basis
which assumes that the Company will realize its assets and discharge its
liabilities in the normal course of business. The Company incurred an operating
loss of $31,472,615 for the year ended December 31, 2000 (1999 - $ 7,447,850 and
1998 - $4,477,518) and reported a deficit at that date of $49,414,508 (1999 -
$17,910,784). In addition, projected cash flows from the Company's current
operations are not sufficient to finance the Company's current and projected
working capital requirements. These circumstances, together with the
requirements to continue investing in research and development activities to
meet the Company's growth objectives, lend significant doubt as to the ability
of the Company to continue in normal business operations.
In recognition of this issue, the Company entered into a Security Purchase
Agreement on December 8, 2000 thereby raising $5,000,000 initially (Note 14)
and, with certain conditions, to raise a further funding of $7,000,000 in early
2001. In addition, if the conditions to receive the funds from the Security
Purchase Agreement are not met, Management is considering various other funding
alternatives, including a private placement, to raise capital in early 2001, but
there is no assurance that these undertakings will be successful. The ability of
the Company to continue as a going concern is dependent upon obtaining adequate
sources of financing and developing and maintaining profitable operations.
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. NATURE OF OPERATIONS
WaveRider Communications Inc., incorporated in 1987 under the laws of the state
of Nevada, is a public company traded on the NASDAQ National Market System using
the trading symbol WAVC.
The Company develops and markets wireless data communications products
throughout the world, focusing on Internet connectivity. The Company's primary
market is telecommunications companies and Internet Service Providers (ISP's)
supplying high speed wireless internet connectivity to their customers. A
significant secondary market is that of Value Added Resellers, to allow them to
supply their customers with wireless connectivity for local area networks.
3. 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, ADE Network Technology Pty Ltd. ("ADE"), an Australian
Corporation, WaveRider Communications (USA) Inc., a Nevada Corporation,
WaveRider Communications (Canada) Inc., a British Columbia company, and
JetStream Internet Services Inc., a British Columbia company.
The Company's consolidated financial statements are prepared in accordance with
generally accepted accounting principles in the United States of America.
Use of estimates in the preparation of financial statements - The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reporting period.
Actual results could differ from those estimates.
Revenue recognition and deferred revenue - In December 1999, the Securities and
Exchange Commission (SEC) issued Staff Accounting Bulletin No. 101 (SAB 101),
"Revenue Recognition in Financial Statements". SAB 101 provides guidance
regarding the recognition, presentation and disclosure of revenue in financial
statements filed with the SEC. In June 2000, the SEC issued SAB 101B that had
the effect of delaying the required adoption of SAB 101 for the Company until
the fourth quarter of 2000. The adoption of SAB 101 in the fourth quarter of
2000 did not have a material impact on the Company's financial position or
results of operations for any prior period.
29
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2000 and 1999
Revenue for product sales to end-user and Value-Added Reseller customers is
recognized when all of the following criteria have been met: (a) evidence of an
agreement exists, (b) delivery to the customer has occurred, (c) the price to
the customer is fixed and determinable, and (d) collectibility is reasonably
assured. Delivery occurs when the product is shipped, except when the terms of
the contract include substantive customer acceptance.
Revenue from maintenance is recognized ratably over the term of the contract.
Revenue from installation and consulting services is recognized as earned and
the associated costs and expenses are recognized as incurred. In cases in which
extended warranty, maintenance or installation services are bundled with the
sale of product, the Company unbundles these components and defers the
recognition of revenue for the services at the time the product sales revenue is
recognized based upon the estimated fair value of the service element.
Fees billed for internet services on long-term service contracts are recognized
over the period of the contracts.
Financial instruments - Financial instruments are initially recorded at
historical cost. If subsequent circumstances indicate that a decline in the fair
value of a financial asset is other than temporary, the financial asset is
written down to its fair value.
By their nature, all financial instruments involve risk, including credit risk
for non-performance by counterparties. The contract or notional amounts of these
instruments reflect the extent of involvement WaveRider has in particular
classes of financial instruments. The maximum potential loss may exceed any
amounts recognized in the Consolidated Balance Sheets. However, WaveRider's
maximum exposure to credit loss in the event of nonperformance by the other
party to the financial instruments for commitments to extend credit and
financial guarantees is limited to the amount drawn and outstanding on those
instruments. Exposure to credit risk is controlled through credit approvals,
credit limits and monitoring procedures. WaveRider seeks to limit its exposure
to credit risks in any single country or region.
At December 31, 2000, included in other receivables was an amount of $902,639
due to the Company from one of its contract manufacturers.
By virtue of its international operations, the Company is exposed to
fluctuations in currency. WaveRider manages its exposure to these market risks
through its regular operating and financing activities. The Company is subject
to foreign currency risk on its Canadian and Australian business activities.
The fair values of cash and cash equivalents, accounts receivable, due from
contract manufacturers, accounts payable and accrued liabilities, consideration
payable on business combination and convertible promissory notes approximate
their recorded amounts unless otherwise stated.
Cash and cash equivalents - All liquid investments having an original maturity
not exceeding three months are treated as cash equivalents.
Inventory - Raw materials are recorded at the lower of cost or replacement cost.
Finished goods are recorded at the lower of cost and net realizable value. Cost
is determined on the weighted average cost basis and includes material, labor
and overheads, where applicable.
Property, plant and equipment - Property, plant and equipment are recorded at
historic cost. Effective for the first quarter of 2000, the Company adopted a
change in its method of depreciation from a declining balance to a straight line
basis, as follows:
Computer software 3 years
Computer equipment 4 years
Lab equipment and tools 4 years
Equipment and fixtures 5 years
Leasehold improvements over the term of the lease
or estimated useful lives
30
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2000 and 1999
The change in policy had no significant effect on current or prior period
reported amounts for depreciation.
Foreign currency translation - The Company's functional currency is the United
States dollar, except as noted below. Foreign denominated non-monetary assets,
liabilities and operating items of the Company are measured in United States
dollars at the exchange rate prevailing at the respective transaction dates.
Monetary assets and liabilities denominated in foreign currencies are measured
at exchange rates prevailing at the balance sheet date.
The functional currency of ADE, the Company's subsidiary in Australia, is
Australian dollars. Accordingly, ADE's assets and liabilities are translated
into US dollars using the rate of exchange in effect at the balance sheet date,
whereas ADE's revenues, expenses, gains and losses are translated at the average
rate of exchange in effect throughout the reporting period. Resulting
translation adjustments are included as a separate component of comprehensive
income within shareholders' equity (deficit) in the accompanying consolidated
financial statements.
Income taxes - Income taxes are accounted for in accordance with the Statement
of Financial Accounting Standards ("SFAS") No. 109 "Accounting for Income
Taxes". Under this method, deferred tax assets and liabilities are determined
based on differences between the financial reporting and income tax bases of
assets and liabilities and are measured using the tax rates and laws currently
enacted. Valuation allowances are established, when necessary, to reduce
deferred tax assets when realization is not more likely than not.
Stock options - The Company applies SFAS 123, together with APB 25 as permitted
under SFAS 123, in accounting for its stock option plan. 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 statement of loss over the option
vesting period or upon meeting certain performance criteria. In accordance with
SFAS 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 statement of loss in the period in which
the services are rendered.
Research and development costs - Research and development costs are charged to
expense as incurred.
Acquired core technologies - Acquired core technologies are recorded at cost and
amortized using the straight-line method over a period of three years.
Acquired labor force - Acquired labor force costs are recorded at cost and
amortized using the straight-line method over a period of three years.
Goodwill - Goodwill is recorded at cost and amortized using the straight-line
method over a period not exceeding five years. Effective 2000, the Company
modified the amortization period for goodwill from a period of three years to a
period not exceeding five years. This modification was adopted prospectively and
had the effect of increasing the total asset and decreasing the net loss as at
and for the year ended December 31, 2000 by $162,000.
Valuation of long-lived assets - The Company periodically evaluates the carrying
value of its long-lived assets, including, but not limited to, property, plant
and equipment, acquired core technologies, acquired labor force and goodwill.
The carrying value of a long-lived asset is considered to be impaired when the
undiscounted cash flow from such asset is estimated to be less than its carrying
value. In that event, a loss is recognized based on the amount by which the
carrying value exceeds the fair market value of the long-lived asset. Fair
market value is determined primarily using the anticipated cash flows discounted
at a rate commensurate with the risk involved. Losses on long-lived assets to be
disposed of would be determined in a similar manner, except that fair market
values would be reduced by the cost of disposal.
Comprehensive income (loss) - Under SFAS No. 130 "Reporting Comprehensive
Income" the Company displays all items required to be recognized under
accounting standards as components of its comprehensive income. Comprehensive
loss differs from net loss as a result of foreign currency translation
adjustments.
31
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2000 and 1999
Recently issued accounting standards - In June 1998, the Financial Accounting
Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires all derivatives to be
recognized as either assets or liabilities on the Consolidated Balance Sheet at
fair value. The corresponding change in fair value of the derivative instrument
will be recognized either in the Consolidated Statement of Operations, net of
any change in fair value of the related hedged item, or as a component of
comprehensive income depending upon the intended use and designation of the
instrument. In June 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the Effective Date
of FASB Statement No. 133 -- an amendment of FASB Statement No. 133." SFAS No.
137 had the effect of delaying the required adoption date of SFAS No. 133 for
the Company until the first day of the Company's fiscal year 2001. In June 2000,
the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities -- an amendment of SFAS No. 133." SFAS No. 138
addresses a number of implementation issues associated with SFAS No. 133. The
Company adopted SFAS No. 133 and its associated interpretations on the first day
of its fiscal year 2001. The adoption of these new accounting standards will not
have a material impact on the Company's financial position or results of
operations.
4. ACQUISITION OF SUBSIDIARIES
ADE Network Technology Pty Ltd. - Effective October 1, 2000, the Company
acquired ADE Network Technology Pty Ltd. of Melbourne, Australia, ("ADE") a
privately-held wireless infrastructure company. The Company undertook this
acquisition to provide a sales presence in Australia and South East Asia.
Under the terms of agreement, the Company committed to pay a minimum of
$2,227,000 ($4,000,000 Australian) in 4 equal quarterly installments commencing
on the closing date. In addition, the former shareholders of ADE could receive
up to $501,000 ($900,000 Australian) additional consideration based on 40% of
any revenue in excess of $4,175,000 ($7.5 Million Australian) earned by ADE
during the 12 months ended September 30, 2001. When the final revenues are
determined, any additional compensation will be recorded as goodwill and
amortized over the balance of the useful life.
Payment of the first installment of $1,000,000 Australian was made in cash at
the Closing. Subsequent to the year-end, on January 3, 2001, the Company made
the second payment of $1,000,000 Australian in cash. Payment of the balance of
the consideration can be made, at the Company's sole discretion, in the form of
shares, cash or a combination of each.
The transaction, accounted for as a purchase, is summarized as follows:
Current assets $ 1,038,352
Fixed assets 271,537
Current liabilities (1,160,762)
Non-current liabilities (199,825)
----------------
Net liabilities assumed (50,698)
Expenses incurred on acquisition (51,237)
Acquired labor force 425,000
Deferred income tax liability (153,000)
Goodwill 1,917,917
---------------
Purchase price $ 2,087,982
===============
Cash paid on closing $ 553,065
Consideration payable 1,534,917
---------------
Total consideration given $ 2,087,982
===============
32
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2000 and 1999
The cash effect of this transaction is summarized as follows:
Bank indebtedness assumed $ 75,631
Cash paid on closing 553,065
Cash acquired (136,614)
---------------
Net cash paid $ 492,082
===============
The following summarizes certain supplementary pro forma disclosure assuming
that the acquisition had occurred at the beginning of 1999:
2000 1999
--------------------------------
(unaudited) (unaudited)
Proforma consolidated revenue $ 7,276,639 $ 5,883,252
================================
Proforma consolidated net loss $ (32,529,320) $ (8,188,491)
================================
Proforma consolidated basic and
fully diluted loss per share $ (0.61) $ (0.27)
================================
Goodwill will be amortized on a straight-line method over a period of three
years.
WaveRider Communications (USA) Inc. - In December 2000, the Company determined
that there was significant impairment of its investment in WaveRider
Communications (USA) Inc. and, accordingly, wrote off a number of assets
relating to this acquisition (Note 5 - Impairment of Assets).
Effective June 11, 1999, the Company acquired, through a merger with the
Company's newly formed subsidiary, TTI Merger Inc., all of the issued and
outstanding shares of Transformation Techniques, Inc. ("TTI"). Subsequently the
subsidiary changed its name to WaveRider Communications (USA) Inc.
TTI was a designer and manufacturer of wireless radio frequency communications
systems, offering wireless data, bridging and LAN connectivity systems in both
licensed and unlicensed frequencies. It had product design, manufacturing and
head office facilities in Cleveland, Ohio as well as sales and support
operations in California and Louisiana.
The transaction, accounted for as a purchase, is summarized as follows:
Other current assets $ 345,265
Bank indebtedness (401,303)
Accounts payable and accrued liabilities (593,582)
Deferred income tax liability (504,000)
---------------
Net liabilities assumed (1,153,620)
Goodwill 504,000
Acquired core technologies 1,444,605
--------------
Purchase price $ 794,985
==============
Cash paid on closing $ 253,985
Issuance of shares, including reset shares issued pursuant to certain market value
share performance provisions - 384,588 shares of common stock 442,000
Note payable, included in accounts payable and accrued liabilities 99,000
--------------
Total consideration given $ 794,985
==============
33
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2000 and 1999
The cash effect of this transaction is summarized as follows:
Bank indebtedness assumed $ 401,303
Cash paid on closing 253,985
--------------
Net cash paid $ 655,288
==============
The following summarizes certain supplementary pro forma disclosure assuming
that the acquisition had occurred at the beginning of 1998:
1999
------------
(unaudited)
Pro forma consolidated revenue $ 2,369,510
================
Pro forma consolidated net loss $ (7,755,009)
================
Pro forma consolidated basic and fully diluted loss per share $ (0.26)
=================
5. IMPAIRMENT OF ASSETS
During the fourth quarter of fiscal 2000, it was determined that products built
from technologies acquired from TTI in 1999 did not meet customer expectations
under certain operating conditions and that these technologies, in fact, could
not be remedied.
Accordingly, the Company developed replacement technologies and abandoned the
TTI technologies. All TTI amounts carried on the Company's balance sheet have
appropriately been written off, and related costs recorded, as follows:
Write off of acquired core technology $ 762,430
Write off of goodwill 266,000
-------------
Impairment of assets recorded in operating expenses 1,028,430
-------------
In addition, the Company recorded in cost of goods sold, inventory write-downs
and warranty provisions during the fourth quarter in the amount of $1,218,216.
The products built from the TTI technologies were included in the Company's
wireless data communications segment.
6. ACCOUNTS RECEIVABLE
2000 1999
-----------------------------------
Accounts receivable - trade $ 2,453,565 $ 665,525
Other receivables 134,785 108,410
Allowance for doubtful accounts (591,877) ( 66,316)
-----------------------------------
$ 1,996,473 $ 707,619
===================================
7. INVENTORIES
2000 1999
------------------------------------
Finished products $ 1,116,651 $ 161,350
Raw materials 1,076,851 448,013
------------------------------------
$ 2,193,502 $ 609,363
====================================
34
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2000 and 1999
8. PREPAID EXPENSES AND OTHER ASSETS
2000 1999
------------------------------------
Prepaid expenses $ 430,914 $ 128,451
Call option 408,795 -
Deferred financing expense 143,652 -
------------------------------------
$ 983,361 $ 128,451
====================================
9. PROPERTY, PLANT AND EQUIPMENT
Accumulated Net Book Accumulated Net Book
Depreciation/ Value Depreciation/ Value
Cost Amortization 2000 Cost Amortization 1999
---------------------------------------------------------------------------------
Computer software $ 1,162,873 $ 498,515 $ 664,358 $ 520,254 $ 275,933 $ 244,321
Computer equipment 1,198,592 426,399 772,193 411,122 121,688 289,434
Lab equipment and tools 840,922 375,637 465,285 445,023 139,773 305,250
Equipment and fixtures 581,255 186,763 394,492 142,977 33,406 109,571
Leasehold improvements 193,867 94,822 99,045 73,113 43,529 29,584
-----------------------------------------------------------------------------------
$ 3,977,509 $1,582,136 $ 2,395,373 $ 1,592,489 $ 614,329 $ 978,160
===================================================================================
Computer software includes $5,141 (1999 - $6,346) net of accumulated
depreciation of $5,141 (1999 - $3,935), Computer equipment includes $183,968
(1999 - $11,584) net of accumulated depreciation of $30,688 (1999 - $3,838), Lab
Equipment and tools includes $211,231(1999 - $ 144,329) net of accumulated
depreciation of $125,123 (1999 - $53,052) and Equipment and fixtures includes
$230,403 (1999 - $29,933) net of accumulated depreciation of $71,386 (1999 -
$2,112) related to capital leases.
9. ACQUIRED CORE TECHNOLOGIES
2000 1999
----------------------------------
Cost (Notes 4 and 5) $ - $ 1,444,605
Less: accumulated amortization - (240,768)
----------------------------------
$ - 1,203,837
==================================
11. ACQUIRED LABOR FORCE
2000 1999
----------------------------------
Cost (Note 4) $ 436,076 $ -
Less: accumulated amortization (35,417) -
----------------------------------
$ 400,659 -
==================================
35
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2000 and 1999
12. GOODWILL
2000 1999
----------------------------------
Cost (Notes 4, 5 and 15B(iii)) $ 5,070,449 $ 1,117,031
Less: accumulated amortization (955,466) (204,862)
----------------------------------
$ 4,114,983 $ 912,169
==================================
12. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
2000 1999
----------------------------------
Accounts payable $ 2,006,608 $ 1,082,733
Accrued liabilities 1,449,700 241,703
Accrued salaries and benefits 558,276 309,179
Accrued warranty provision 240,045 20,786
Put option (Note 14) 117,736 -
----------------------------------
$ 4,372,365 $ 1,654,401
==================================
14. CONVERTIBLE PROMISSORY NOTES
On December 8, 2000, the Company issued convertible promissory notes in the
aggregate principal amount of $5,000,000 to Capital Ventures International
("CVI") and received cash proceeds of $5,000,000, less cash fees of $182,000 and
warrants valued at $23,680. The notes bear an interest rate of 6%, compounded
annually and are repayable on December 8, 2002, if not converted prior to that
date. The principal amount of the notes plus accrued and unpaid interest
automatically convert, subject to certain terms and conditions, into shares of
the Company's common stock upon the effectiveness of a registration statement
filed with the Securities and Exchange Commission ("SEC") on December 28, 2000.
The conversion price is initially $2.4375 per share and, upon the effective date
of the registration statement, will be reduced (if lower) to 90% of the lower of
the average closing bid price of the Company's common stock during the 20
trading days immediately prior to the effective date of the registration
statement and the closing bid price on the last trading day immediately prior to
the effective date of the registration statement.
In connection with the private placement, the Company also issued to CVI Series
J and Series K warrants to purchase up to 2,461,538 and 5,907,692 shares of
common stock at an exercise price of $3.35 per share and $2.539 per share,
respectively. The Series J warrants have a term of five years and contain a
cashless exercise feature. The Series K warrants have a one-year term.
Additionally, beginning on June 8, 2001, if the average closing bid price for
the Company's common stock for 20 consecutive days is greater than $3.81, the
Company can cause CVI to exercise the Series K warrants.
In addition, in connection with the private placement, the Company agreed,
subject to the satisfaction or waiver of certain conditions, to issue to CVI, on
the later of (i) March 8, 2001 and (ii) the 30th day after the registration
statement is declared effective by the SEC, additional 6% convertible promissory
notes in the aggregate principal amount of $7,000,000 and Series L Warrants. The
Series L common stock purchase warrants contain a cashless exercise feature and
are exercisable for 5 years from the date of issuance. The ability of CVI to
purchase, and the ability of the Company to require the purchase of, these notes
have been accounted for as Put and Call Options respectively. The conversion
price of the notes will initially be set at $2.64 and upon the effective date of
a future registration statement will be reduced (if lower) to 90% of the lower
of the average closing bid price of the Company's common stock during the 20
trading days immediately prior to the effectiveness of the second registration
statement and the closing bid price on the last trading day immediately prior to
the effective date of the second registration statement. The Series L Warrants
will cover a number of shares of the Company's common stock equal to $7,000,000
divided by the average closing bid price of the common stock during the 20
trading days immediately prior to the date of issuance of such warrants at an
exercise price equal to 165% of the average closing bid price of the common
stock during such 20 trading day period.
36
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2000 and 1999
In connection with the private placement, the Company agreed to pay Avondale
Capital Partners Inc. ("Avondale") a fee equal to 2% of the total aggregate
amount financing received by the Company pursuant to the Securities Purchase
Agreement, to a maximum fee of $400,000 plus 50,000 Series M warrants, for its
involvement as a consultant in connection with the Securities Purchase
Agreement. Upon the First Closing, the Company issued to Avondale Series M
warrants to purchase 25,000 shares of common stock at an exercise price of $3.05
per share. In addition, upon the Second Closing, the Company will issue to
Avondale warrants to purchase a further 25,000 shares of common stock at a price
equal to 150% of the market price at the time of the second closing. The First
Closing warrants will expire on December 8, 2005 and the Second Closing warrants
will expire five years from the Second Closing date. The fair value of $23,680
for the warrants has been included in the cost of financing.
The net proceeds of the transaction have been allocated to the primary financial
instruments as follows:
Convertible promissory notes $ 1,732,346
Beneficial conversion feature 1,911,605
Series J warrants 1,195,663
Series K warrants 503,097
Series M warrants 23,680
Put option 117,736
Call option (516,229)
Deferred financing costs (149,898)
------------
Net cash proceeds $ 4,818,000
============
The proceeds received were first allocated to the convertible promissory note,
the warrants and the options based on the relative fair values of the respective
instruments. Then the beneficial conversion feature embedded in the convertible
promissory note was calculated and measured using the intrinsic value of the
feature based on the most beneficial conversion available to the investor on the
commitment date. If the reset conversion price were to result in an additional
benefit to the investor, the beneficial conversion feature would increase.
The convertible promissory note is being accreted over the period to its
redemption date of December 7, 2002. If the note is converted prior to the
redemption date, the remaining portion of the discount on the note will be
charged to interest expense.
The Put Option reflects the value of the investor's right to require the company
to issue additional convertible promissory notes and warrants. The Call Option
reflects the value of the company's right to require the investor to purchase
additional convertible promissory notes and warrants.
The Call Option is being amortized over the period of the option and for the
year ended December 31, 2000, $107,433 has been charged to the statement of
loss. In addition, $102,954 was charged to the statement of loss relating to the
accretion of interest expense on the convertible promissory notes.
14. SHARE CAPITAL
A Authorized share capital
Preferred shares issuable in series, par value of $0.001 - 5,000,000
shares Common shares, par value of $0.001 - 200,000,000 shares
37
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2000 and 1999
B Issued share capital
i) Series A preferred share units - On February 6, 1997, the Company issued
298,125 preferred share units at a price of $0.65 per unit for cash proceeds of
$193,782. Each unit consisted of one Series A voting preferred share,
convertible immediately into 10 common shares for no additional consideration,
and three warrants (Series B, C and D). Based on the fair value of the
underlying instruments within the preferred share unit, $130,934 of the total
proceeds was allocated to preferred shares and $26,239, $20,426 and $16,183 was
allocated to the Series B warrants, Series C warrants and Series D warrants,
respectively. As the preferred shares were immediately convertible into common
shares, the $62,848 difference between the proceeds allocated to preferred
shares and the fair value of the underlying common shares has been recorded as a
dividend in 1997. Each warrant entitled the holder to purchase one common share
at the following respective exercise prices of $0.085 (Series B), $0.105 (Series
C) and $0.125 (Series D) on or before February 6, 1998.
Immediately after the units were sold, the preferred shares were converted into
2,981,250 common shares. During 1997, 7,452,572 warrants were exercised for cash
proceeds of $782,520. During 1998, the remainder of the warrants, 1,491,178,
were exercised for cash proceeds of $156,573.
ii) Common share units - On February 16, 1998, the Company issued 500,000 common
share units, at a price of $1.00 per unit, for cash proceeds of $500,000. Each
unit consisted of one common share and a Series E warrant. Based on the fair
value of the underlying instruments within the common share unit, $404,713 of
the total proceeds was allocated to common shares and the balance of $95,287 was
allocated to the Series E warrants. The Series E warrants entitled the holder to
purchase one common share at $1.25 per share on or before February 16, 1999.
During 1998, 470,000 of the warrants were exercised for cash proceeds of
$587,500. The remaining 30,000 were exercised in 1999 for cash proceeds of
$37,500.
iii) Series B preferred shares - 4,000,000 Series B preferred shares were issued
upon the acquisition of Major Wireless Communication Inc. (note 4). The shares
were voting and convertible into common shares at a ratio of ten common shares
for each preferred share. Each preferred share entitled the holder to 10 votes.
The shares were held in escrow to be released upon occurrence of certain
performance related events. If the events had not occurred by May 13, 2002, the
remaining shares held in escrow would be cancelled. On April 15, 1998, the
Company and the Series B preferred shareholders agreed to amend the terms of the
preferred shares. The conversion ratio was amended to a ratio of 2.5 common
shares for each preferred share. On the same date, the preferred shares were
converted into 10,000,000 common shares. These common shares are held in escrow
and will be released upon the occurrence of certain performance related events.
If the specified criteria have not been met by May 13, 2002, the remaining
common shares held in escrow will be cancelled. The Board of Directors can
extend the escrow period by up to two years.
In 1999, and prior to any release of the escrow shares, two of the shareholders
agreed to donate back to the Company 500,000 shares each. These shares have been
received by the Company and returned to treasury.
The first milestone related to the release of the common shares held in escrow
was met with the delivery of prototype product on August 18, 1999. As a result,
the Company requested and the Escrow Agent released the first 5% of the shares
held under the Escrow Agreement, valued at $534,375. The valuation was based on
the closing price of the common stock on August 18, 1999, of $1.1875 per share
and was charged to Goodwill.
38
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2000 and 1999
During the second quarter of 2000, the second milestone was met with the first
of the LMS systems becoming operational in at least one community. As a result,
the Company requested and the Escrow Agent released, on May 26, 2000, the second
10% of the shares held under the Escrow Agreement, 900,000 shares of common
stock, valued at $3,206,250. The Company charged $712,500 to compensation
expense and charged $2,493,750 to Goodwill. The valuation was based on the
closing price of the common stock on May 26, 2000 of $3.5625 per share.
The remaining 7,650,000 shares held in escrow are not included in the number of
shares outstanding and the par value ascribed is not recorded in the respective
share capital accounts. The shares will be considered to be issued when and if
the respective performance events have occurred and the value of the shares will
be measured and recorded at that date.
iv) Series C Preferred share units - On June 11, 1998, the Company issued
800,000 preferred share units at a price of $2.50 per unit for cash proceeds of
$2,000,000, less costs of $50,000. Each unit consisted of an 8% voting,
convertible preferred share and one Series F warrant. Each preferred share may
be converted at the option of the holder into one common share for no additional
consideration on or before April 30, 2000. Based upon the fair value of the
underlying instruments within the preferred share unit, $1,536,343 of the total
proceeds, net of costs, was allocated to preferred shares and $413,657 was
allocated to the Series F warrants. As the preferred shares were immediately
convertible into common shares, the $712,265 difference between the proceeds
allocated to preferred shares and the fair value of the underlying common shares
has been recorded as a dividend in 1998.
Each Series F warrant entitles the holder to purchase one common share at the
exercise price of $2.50 on or before June 11, 2000. During 2000, all of the
Series F warrants were exercised for cash proceeds of $2,000,000.
During 1999, 36,000 shares of preferred stock were converted to shares of common
stock and, in 2000, the balance of 764,000 shares of preferred stock were
converted to shares of common stock.
v) Common share purchase agreement - Under a Common Share Purchase Agreement
dated December 29, 1998, the Company entered into an arrangement to sell up to
an aggregate amount of $10,000,000 of common stock in three tranches and to
issue four groups of warrants.
On December 29th, 1998 the Company issued 1,167,860 common shares in the First
Tranche at $2.57 per share for cash proceeds of $3,000,000. On June 4, 1999, the
Company issued 1,660,945 common share in the Second Tranche at $1.81 per share
for cash proceeds of $3,000,000.
Pursuant to the agreement, the Company was required to issue additional shares
to the investors if the average bid price for the common stock for 30 days prior
to certain future dates ("Reset Price") is below the initial purchase price
multiplied by 117.5 per cent. The number of shares to be issued will be based on
the following formula: ((Number of shares subject to repricing) X (Initial
Purchase Price X 117.5% - Reset Price)) / Reset Price.
During 1999, the Company issued 1,002,441 common shares pursuant to the reset
provisions of the First Tranche and 1,753,812 common shares pursuant to the
reset provisions of the Second Tranche. In addition, the Company issued 70,198
common shares pursuant to an agreement to amend the timing of the resets of the
Second Tranche. The $92,100 fair value of this transaction was included in share
issue costs for the year. The $1,050,000 value of the 17.5% premium over the
Reset Price has been recorded as a dividend in 1999.
During the third quarter of 1999, the Company informed the investors that it
would not be taking up its option to sell the Third and Final Tranche of shares
to the investors.
In 1998, as part of the agreement, the Company issued to the investors four
groups of warrants as follows: 225,000 with an exercise price of $2.00, 225,000
with an exercise price of $2.61, 225,000 with an exercise price of $3.00 and
225,000 with and exercise price of $4.00. Each warrant entitles the holder to
acquire one common share at the specified exercise price, and contain a cashless
exercise feature. The warrants expire on December 29, 2003.
39
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2000 and 1999
Cost of the transactions included fees of $142,508 related to the Second Tranche
and $298,419 related to the First Tranche. In addition, 150,000 warrants with a
fair value of $103,686 were issued, in 1998, to a placement agent. Each warrant
entitles the holder to acquire one common share at an exercise price of $3.00
per share. The warrants expire on December 29, 2003.
The initial proceeds less costs of the First Tranche have been allocated between
common stock and warrants, based on the respective relative fair values, as
follows:
Common stock $2,136,846
$2.00 warrant 124,980
$2.61 warrant 117,662
$3.00 warrant 113,607
$4.00 warrant 104,800
During 2000, the investors exercised all of the warrants with exercise prices of
$2.00, $2.61 and $3.00 and 191,249 warrants with an exercise price of $4.00, for
total proceeds of $2,477,246. In addition, the placement agent's warrants to
purchase 150,000 shares of common stock at $3.00, with an assigned value of
$103,686, were exercised using the cashless exercise feature. This resulted in
the issuance of 107,522 common shares and the return and cancellation of the
balance of 42,478 warrants.
vi) Series G Warrants - As a commitment fee for the right to issue up to
$2,000,000 in convertible debentures to certain investors, the Company issued
the investors warrants to purchase 500,000 common shares at an exercise price of
$1.50 per share. The warrants expire on December 15, 2003. The warrants have
been recorded at their fair value of $313,325 with the costs charged to the
consolidated statement of loss in 1998. The Company terminated the debenture
agreement on January 8, 1999 without drawing any funds.
vii) Common Stock issued upon acquisition - On June 15, 1999, the Company
finalized a merger agreement between Transformation Techniques, Inc. ("TTI") and
a newly incorporated subsidiary, TTI Merger Inc. The new subsidiary subsequently
changed its name to WaveRider Communications (USA) Inc.
As part of the consideration, the Company issued 256,232 shares of common stock,
having a market value of $442,000 to Mr. Peter Bonk, the sole shareholder of
TTI, and TTI was merged into TTI Merger Inc. Prior to the merger agreement Mr.
Bonk had no shareholding in or affiliation with the Company.
Pursuant to the Acquisition Agreement, the Company was required to issue
additional shares to Mr. Peter Bonk if the average bid price for the common
stock for 5 days prior to certain future dates ("Reset Price") fell below the
original price of the shares at acquisition. During the third quarter of 1999,
the Company issued 57,463 common shares pursuant to the first reset. During the
fourth quarter of 1999, the Company issued a further 70,893 common shares
pursuant to the second and the third resets. The additional shares issued did
not affect the cost of the acquired company. The Company has now satisfied this
requirement and there are no further resets (Note 4).
viii) Series H Warrants - On June 29, 1999, the Company issued, for services
rendered, warrants to purchase 500,000 common shares at an exercise price of
$2.00 per share, up to June 29, 2004. The warrants have been recorded at their
fair value of $295,120 with the costs charged to the consolidated statement of
loss in 1999. During 2000, all of the warrants were exercised for cash proceeds
of $1,000,000.
ix) Loan Agreement - On October 15, 1999, the Company entered into a loan
agreement with AMRO International, S.A. ("AMRO") under which the Company
borrowed from AMRO $1,500,000 payable on or before May 23, 2000. Under the terms
of the agreement, the Company paid interest at 10% per annum and was subject to
a repayment premium of 5% of the outstanding balance if the loan was repaid
within 120 days or a 10% premium if paid after 120 days.
40
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2000 and 1999
Pursuant to a loan agreement the Company issued warrants to purchase 180,000
common shares at an exercise price of $1.01 per share, up to October 31, 2003.
The warrants have been recorded at their fair value of $64,978 with the costs
charged to the consolidated statement of loss in 1999.
The loan was repaid in full on December 23, 1999. During 2000, all of the
warrants were exercised for cash proceeds of $181,800.
x) Common Stock Purchase Agreement - Under a Common Stock Purchase Agreement,
dated October 18, 1999, the Company agreed to sell and the investor to buy up to
$5,000,000 in common shares of the Company. Pursuant to the agreement the
Company issued warrants to purchase 200,000 common shares at an exercise price
of $1.01 per share, up to October 31, 2003. The warrants have been recorded at
their fair value of $72,198 with the costs charged against the investment made
in December 1999. During 2000, all of the warrants were exercised for cash
proceeds of $202,000.
In December 1999, the investor purchased 400,000 shares of common stock at $1.35
per share, for cash proceeds of $540,000 less fees $33,400.
In connection with the public underwriting completed on December 23, 1999, the
investor agreed to the termination of the Common Stock Purchase Agreement and
committed to purchase $4,000,000 in common stock units.
During 1999, the investor purchased 1,525,926 common share units, consisting of
one common share and a half of a common share purchase warrant, at $1.35 per
unit, for cash proceeds of $2,060,000, less fees of $125,600. Based on the fair
value of the underlying instruments within the common share unit, $1,625,815 of
the total proceeds was allocated to common shares and the balance of $308,585
was allocated to the warrants. During 2000, the investor exercised all of the
762,963 warrants for cash proceeds of $1,525,926.
In January 2000, the investor purchased the balance of 1,437,036 common share
units for cash proceeds of $1,940,000, less fees of $117,408. Based on the fair
value of the underlying instruments within the common share unit, $1,496,468 of
the total proceeds was allocated to common shares and the balance of $326,124
was allocated to the warrants. During 2000, the investor exercised all of the
718,518 warrants for cash proceeds of $1,437,036.
xi) Public Underwriting - On December 20, 1999, the Company entered into an
Underwriting Agreement with Groome Capital.com Inc. ("Groome"). Under the terms
of the agreement, the Company sold 4,444,444 common stock units, consisting of
one common share and one-half common share purchase warrant, for $1.35 per unit.
The sale of units was completed on December 23, 1999 and the Company received
cash proceeds of $6,000,000, less fees of $607,500. In addition, the Company
issued to Groome with 444,444 Underwriter warrants, which provide Groome with
the right to purchase 444,444 common share units at $1.35 per unit for up to 2
years after the offering. Based on the fair value of the underlying instruments
within the common share unit, $4,069,664 of the total proceeds was allocated to
common shares, $898,792 was allocated to the share purchase warrants and
$424,044 was allocated to the Underwriter warrants.
During 2000, all of the Underwriter warrants were exercised for cash proceeds of
$600,000. This resulted in the issuance of 222,222 additional common share
purchase warrants, valued at $201,616. In addition, during the year, 1,844,176
of the common share purchase warrants, valued at $857,626, were exercised for
cash proceeds of $3,688,352.
xii) Warrants issued in connection with a Strategic Partnership Agreement - On
March 9, 2000, the Company entered into a Strategic Partnership Agreement with
VoIP International S.A. de C.V. ("VoIP"), a company incorporated in Mexico.
Under the terms of the agreement, the Company granted VoIP exclusive rights to
market the Company's products in Mexico in exchange for commitments from VoIP to
procure a minimum of $28,000,000 of the Company's products. As an incentive, the
Company issued to VoIP 4,500,000 Common Stock Purchase Warrants which VoIP would
earn based on achievement of the minimum procurement commitments. In addition,
the Company issued 55,000 Common Stock Purchase Warrants to an agent in
connection with this transaction.
41
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2000 and 1999
On December 8, 2000, the Company notified VoIP that it had cancelled the
Agreement for lack of performance. With the cancellation of the Agreement, the
warrants for both VoIP and the agent cannot be earned and are, therefore,
cancelled.
C Warrants
The Company has several series of warrants outstanding at December 31,
2000 as follows:
Number Weighted-Average
Exercise Prices Outstanding Remaining Life
$2.00 1,100,268 22 months
$2.539 11 months
$3.05 25,000 59 months
$3.35 59 months
$4.00 35 months
33,751
--------------------------
$2.00 - $4.00 9,528,249
--------------------------
D Other Equity
2000 1999 1998
------------------------------------------
Stock option extension from 1997 plan $ 10,661,518 $ - $ -
Stock options to non-employees 29,747 177,130 206,348
Stock options to employees that
vested on performance 585,582 32,763 -
Beneficial conversion 1,911,605 - -
Warrants 2,294,267 3,355,434 1,297,434
--------------------------------------------
$ 15,482,719 $ 3,565,327 $1,503,782
============================================
E Employee Stock Option Plans
Employee Stock Option (1997) Plan -
During 1997, the Company authorized an Employee Stock Option Plan for a total of
5,000,000 common shares that may be awarded to employees and certain
consultants. During 1998, the Company amended the plan to authorize an
additional 1,250,000 common shares. Each option under the incentive plan allows
for the purchase of one common share and expires not later than three years from
the date granted. The options are subject to various vesting and performance
requirements as outlined in the plan and any unvested options may be cancelled
if employment is terminated. Generally, for employees the options vest at 5% per
complete month from date of award and for non-employees are earned out over
their contract period.
On July 7, 2000, at the Company's annual general meeting of stockholders, a
resolution was passed extending the life of all outstanding warrants awarded to
the then current employees and non-employee consultants under the Company's
Employee Stock Option (1997) Plan.
42
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2000 and 1999
A modification that either renews a fixed award or extends the award's period
(life) results in a new measurement of compensation cost as if the award were
newly granted. Accordingly, for the fixed awards to employees, the difference
between the fair market value of the shares of Common Stock at the time of the
extension and the time of the original award was recorded as a compensation
expense to the Company. At July 7, 2000, the total charge to compensation
expense, related to the extension of the fixed awards, based on a closing stock
price of $8.75 per share, was $11,099,858.
During 2000, employees exercised 58,000 of the extended options, with a value of
$438,000.
1999 Incentive and Nonqualified Stock Option Plan -
During 1999, the Company authorized a new option plan for a total of 3,000,000
common shares that may be awarded to the employees and certain consultants. Each
option under the incentive plan allows for the purchase of one common share
which expire not later than ten years from the date of grant. The options are
subject to various vesting and performance requirements as outlined in the plan
and any unvested options may be cancelled if employment is terminated.
Generally, for employees the options vest equally over a three year period
following the date of award.
Employee Stock Option (2000) Plan -
During 2000, the Company authorized a new option plan for a total of 6,000,000
common shares that may be awarded to the employees and certain consultants. Each
option under the incentive plan allows for the purchase of one common share
which expire not later than ten years from the date of grant. The options are
subject to various vesting and performance requirements as outlined in the plan
and any unvested options may be cancelled if employment is terminated.
Generally, for employees, the options vest equally over a three year period
following the date of award.
Stock options to employees, directors and consultants are summarized as follows:
Weighted
Average
Granted to employees and directors Number Exercisable exercise price
Balance at December 31, 1997 1,818,252 262,466 $ 0.48
Granted to employees & directors @ $0.94 - $3.44 2,709,400 1.32
Cancelled on termination (140,080) 0.99
Exercised (372,062) 0.46
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 4,015,510 2,596,641 0.92
Granted to employees & directors @ $0.78 - $2.66 2,754,610 1.82
Cancelled on termination (259,180) 2.61
Exercised (282,440) 0.49
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 6,228,500 3,196,447 $ 1.31
Granted to employees & directors @ $1.31 - $13.81 3,193,192 7.55
Cancelled on termination (175,270) 3.23
Exercised (1,507,220) 1.14
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 7,739,202 3,302,360 $ 3.93
- ------------------------------------------------------------------------------------------------------------------------------------
43
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2000 and 1999
Weighted
Average
Granted to consultants Number Exercisable exercise price
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 2,060,000 390,000 $ 0.47
Granted to consultants @ $0.98 - $1.82 95,000 1.22
Cancelled (890,465) 0.51
Exercised (579,500) 0.49
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 685,035 189,125 0.51
Granted to consultants @ $2.09 6,000 2.09
Cancelled (70,000) 0.44
Exercised (93,000) 0.45
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 528,035 154,102 $ 0.54
Granted to consultants @ $10.00 10,000 10.00
Cancelled (22,075) 3.34
Exercised (186,625) 0.53
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 329,335 15,230 $ 0.67
- ------------------------------------------------------------------------------------------------------------------
Number Weighted average Number Weighted average
Range of Outstanding at exercise price of Weighted average Exercisable at Exercise price
Exercise December 31 outstanding remaining life December 31, of exercisable
Prices 2000 options (months) 2000 options
- ----------------------- --------------------- -------------------- --------------------- ----------------- ---------------------
$0.50 - $0.56 1,318,535 $ 0.55 85 154,430 $ 0.56
$0.78 - $1.22 1,196,000 $ 1.05 93 1,048,950 $ 1.07
$1.31 - $2.03 2,130,745 $ 1.97 101 758,660 $ 1.86
$2.06 - $5.00 929,745 $ 2.87 109 353,250 $ 2.36
$5.34 - $9.00 545,697 $ 7.49 113 37,500 $ 8.04
$9.03 - $13.81 1,947,815 $ 9.07 110 964,800 $ 9.05
--------- ------ --- --------- ------
$0.50 - $13.81 8,068,537 $ 3.80 101 3,317,590 $ 3.76
========= ====== === ========= ======
Non-employee and Performance Based Options -
Options granted to consultants and performance based options awarded to
employees are valued when it is probable that the options will vest and will
continue to be adjusted until actual vesting is achieved. Included in options
granted are 314,105 non-employee options and 2,207,750 performance based
employee options which vest on the same basis as the release of shares from the
escrow agreement [Note 15B(iii)].
The fair value of each stock option granted to consultants was estimated on the
date the consultant earned the option using the Black-Scholes option-pricing
model. The following weighted average assumptions were used in the model: nil
annual dividends (1999 - nil, 1998 - nil), expected volatility of 90% (1999 -
90%, 1998 - 90%), risk-free interest of 5.76% (1999 - 5.76%, 1998 - 5.47%) and
expected life of 3 years (1999 - 3 years, 1998 - 3 years). The weighted average
fair value of the stock options granted in 2000 was $2.98 (1999 - $1.41, 1998 -
$0.71).
44
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2000 and 1999
The resulting values have been charged to the consolidated statement of loss
over the contract period of the consultant. The amount charged to the
consolidated statement of loss in 2000 was $92,301 (1999 - $70,412, 1998 -
$341,809).
The fair value of the performance based options awarded to employees is
calculated using the intrinsic value at the valuation date. The amount charged
to compensation expense in 2000 was $552,819 (1999 - $32,763, 1998 - $0)
Fixed Option Awards
For disclosure purposes, the fair value of each stock option granted to
employees was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions used for
stock options granted in 2000: nil annual dividends (1999 - nil, 1998 - nil),
expected volatility of 90% (1999 - 90%, 1998 - 90%), risk-free interest of 5.76%
(1999 - 5.76%, 1998 - 5.36%) and expected life of 5 years (1999 - 2 years, 1998
- - 2 years). The weighted average fair value of the stock options granted in 2000
was $7.55 (1999 - $1.08, 1998 - $0.53).
Under the above model, the total value of stock options granted to employees and
directors in 2000 was $14,002,639 (1999 - $2,612,610, 1998 - $1,397,068), which
would be amortized on a pro forma basis over the option vesting period. Had the
Company determined compensation cost for these plans in accordance with SFAS No.
123, the Company's loss and loss per share would have been $36,025,438 and $0.68
respectively (1999 - $10,086,384 and $0.29, 1998 - $5,662,881 and $0.20).
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's stock option plans have characteristics significantly different
from those of traded options, and because change in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
Shareholder option agreement -
In November 1997, certain shareholders agreed to provide the Company's President
with a private option to purchase 1,000,000 common shares directly from the
shareholders. These options vested at the rate of 150,000 options per month of
employment.
For disclosure purposes, the fair value of this private option was estimated on
the date of grant using the Black-Scholes option-pricing model with the
following weighted average assumptions used for stock options granted in 2000:
nil annual dividends (1999 - nil, 1998 - nil), expected volatility of 90% (1999
- - 90%, 1998 - 90%), risk-free interest of 5.76% (1999 - 5.76%, 1998 - 5.36% )
and expected life of 2 years (1999 - 2 years, 1998 - 2 years). Had the Company
determined compensation cost for these options in accordance with SFAS No. 123,
the Company's 2000 pro forma loss and pro forma loss per share would not have
changed (1999 - no change, 1998 -increased by $238,000 and $0.01)
F Employee Stock Compensation (1997) Plan
In 1999, the Employee Stock Compensation (1997) Plan, authorized by the Company
in 1997, which allowed for a total of 2,500,000 common shares that could be
awarded to employees and certain consultants, expired. As such, during 2000, the
Company did not authorize any issuance of common shares (1999 - 267,870, 1998 -
2,500) pursuant to the plan. In the prior years, the value of the shares at the
date of the award was recorded in the Statement of Loss during the year.
45
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2000 and 1999
16. COMMITMENTS AND CONTINGENCIES
Obligation under Capital Lease
2000 1999
--------------------------------
Gross Lease commitments:
2000 $ - $ 95,820
2001 326,138 24,919
2002 184,348 273
2003 53,653 -
--------------------------------
564,139 121,012
Less: imputed interest (66,941) (34,314)
--------------------------------
497,198 86,698
Less: current portion (272,851) (68,073)
--------------------------------
Long-term obligation under capital lease $ 224,347 $ 18,625
================================
Operating Leases
2001 $ 632,403
2002 607,949
2003 567,474
2004 179,467
The Company incurred rental expenses in 2000 of $652,104 (1999 - $421,242, 1998
- - $65,690).
Contract Manufacturers
The Company provides its contract manufacturers with ongoing production
forecasts to enable them to forecast and procure required parts. Under the terms
of the Agreements with the contract manufacturers, the Company has committed to
assume liability for all parts required to manufacture the Company's forecast
products for the next 13 weeks and all final assembly costs for the forecast
products for the next 4 weeks, on a rolling basis.
Escrow Shares
As at December 31, 2000, the Company had 7,650,000 shares of common stock
outstanding which were held under an escrow agreement (Note 15B(iii)). The
shares will be considered to be issued when and if the respective performance
events have occurred and the value of the shares will be measured and recorded
at that date.
17. NET CHANGES IN NON-CASH WORKING CAPITAL ITEMS RELATING TO OPERATIONS
2000 1999 1998
--------------------------------------------------
Accounts receivable $ (1,536,885) $ (558,662) $ (10,932)
Due from contract manufacturers (1,127,792) - -
Prepaid expenses and other assets (190,224) (98,027) (18,602)
Inventory (2,653,078) (250,946) (136,664)
Accounts payable and accrued liabilities 1,650,008 (955) 708,658
Deferred revenue 186,430 1,477 17,684
---------------------------------------------------
$ (3,671,541) $ (907,113) $ 560,144
===================================================
46
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2000 and 1999
18. RELATED PARTY TRANSACTIONS
During the year, a total of $25,283 (1999 - $29,093, 1998 - $117,767) was paid
or payable to directors and officers or to companies related to them for the
fair value of their management and administrative services.
19. INCOME TAXES
Net loss before income tax expense for the period is summarized as follows:
2000 1999 1998
-------------------------------------------
United States 21,458,701 4,947,362 4,451,609
Canada 9,810,052 3,004,488 25,909
Australia 360,907 - -
----------------------------------------------
Net loss before taxes $ 31,629,660 $ 7,951,850 $ 4,477,518
===============================================
US statutory rate at 35% 11,070,000 2,783,000 1,567,000
Amounts permanently not deductible for tax purposes (4,734,000) (190,000) (144,000)
Foreign tax rate differential 1,045,000 319,000 (42,000)
Net operating loss and temporary differences for which
no benefit was recognized (7,223,955) (2,408,000) (1,381,000)
-------------------------------------------------
Deferred tax recovery $ 157,045 $ 504,000 $ -
===============================================
Deferred tax assets/(liabilities) consist of the following:
2000 1999 1998
-------------------------------------------
Net operating loss carry forwards $ 11,776,000 $ 4,878,000 $ 2,159,000
Property, plant and equipment 722,000 280,000 131,000
Acquired labor force - (420,000) -
-----------------------------------------------
Net deferred tax assets 12,498,000 4,738,000 2,290,000
Deferred tax valuation allowance (12,498,000) (4,738,000) (2,290,000)
-----------------------------------------------
$ - $ - $ -
===============================================
The Company provides a valuation allowance for deferred tax assets when it is
more likely than not that some portion or all of the net deferred tax assets
will not be realized. Based on a number of factors, including the lack of a
history of profits and that the market in which the Company competes is
intensely competitive and characterized by rapidly changing technology,
management believes that there is sufficient uncertainty regarding the
realization of deferred tax assets that a full valuation allowance has been
provided. The deferred tax valuation allowance increased in 2000 by $7,760,000
(1999 - $2,448,000, 1998 - $1,847,000).
As of December 31, 2000, the Company had available net operating loss
carryforwards for United States, Canadian and Australian purposes of
approximately $18,212,000, $11,557,000 and $361,000, respectively. The United
States net operating loss carryforwards begin to expire in 2008, the Canadian
net operating loss carryforwards begin to expire in 2006 and the Australian net
operating losses begin to expire in 2020. The net operating losses are subject
to certain Canadian and United States restrictions that may apply on any change
in the control of the Company and which could adversely affect the amounts and
benefits to be derived therefrom.
47
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2000 and 1999
20. LOSS PER SHARE
The warrants, which could result in the issue of 9,528,249 additional shares of
common stock [Note 15C] and the options, which could result in the issue of
8,068,537 additional shares of common stock [Note 15E] have not been included in
the loss per share calculation as they are anti-dilutive. The shares held in
escrow pertaining to the Major Wireless transaction [Note 15B(iii)] have not
been included from the loss per share calculation as they are contingently
issuable shares. Also, the number of shares issuable upon payment of the
consideration payable [Note 4] and the conversion of the convertible promissory
notes [Note 13] are not included as the actual number is indeterminable and
would be anti-dilutive.
Year ended December 31, 2000
Loss Shares Per share
(Numerator) (Denominator) Amount
Net Loss $ 31,472,615
Add: Cash dividends paid on preferred stock in year 31,109
--------------
Basic LPS
Loss attributable to common shareholders $31,503,724 53,203,750 $0.59
=========================================
Year ended December 31, 1999
Loss Shares Per share
(Numerator) (Denominator) Amount
Net Loss $ 7,447,850
Add: Cash dividends paid on preferred stock in year 158,144
Deemed dividend on share resets [Note 15B(v)] 1,050,000
------------
Basic LPS
Loss attributable to common shareholders $ 8,655,994 34,258,565 $0.25
==========================================
Year ended December 31, 1998
Loss Shares Per share
(Numerator) (Denominator) Amount
Net Loss $ 4,477,518
Add: Dividends paid in year 80,000
Convertible preferred stock [Note 15 B(iv)] 712,265
------------
Basic LPS
Loss attributable to common shareholders $ 5,269,783 29,485,320 $0.18
==========================================
48
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2000 and 1999
21. SEGMENTED INFORMATION
INDUSTRY SEGMENTS
The Company operates in two industry segments: wireless data communications and
Internet services.
Year ended December 31, 2000
Wireless Data Internet Services Total
REVENUE $ 3,920,657 $ 212,335 $ 4,132,992
COST OF SALES 5,174,719 64,329 5,239,048
--------------------------------------------------------
GROSS MARGIN (1,254,062) 148,006 (1,106,056)
---------------------------------------------------------
EXPENSES
Selling, general and administration 8,458,533 147,354 8,605,887
Employee stock based compensation 10,386,498 - 10,386,498
Research and development 6,127,360 - 6,127,360
Employee stock based compensation 1,978,679 - 1,978,679
Depreciation and amortization 2,112,237 52,401 2,164,638
Bad debt expense 539,379 539,379
Impairment of assets 1,028,430 - 1,028,430
--------------------------------------------------------
30,631,116 199,755 30,830,871
-------------------------------------------------------------
Loss from operations (31,885,178) (51,749) (31,936,927)
Interest expense (274,347) - (274,347)
Interest income 579,287 2,327 581,614
--------------------------------------------------------
NET LOSS BEFORE INCOME TAX EXPENSE $ (31,580,238) $(49,422) $(31,629,660)
DEFERRED TAX RECOVERY 157,045 - 157,045
--------------------------------------------------------
NET LOSS $ (31,423,193) $ (49,422) $ (31,472,615)
=========================================================
Year ended December 31, 1999
Wireless Data Internet Services Total
REVENUE $ 1,519,469 $ 196,576 $ 1,716,045
COST OF SALES 1,225,194 69,621 1,294,815
--------------------------------------------------------
GROSS MARGIN 294,275 126,955 421,230
--------------------------------------------------------
EXPENSES
Selling, general and administration 4,517,863 116,642 4,634,505
Employee stock based compensation 482,763 - 482,763
Research and development 2,319,707 - 2,319,707
Employee stock based compensation 7,007 - 7,007
Depreciation and amortization 701,841 35,034 736,875
Bad debt expense 55,948 55,948
--------------------------------------------------------
8,085,129 151,676 8,236,805
--------------------------------------------------------
49
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2000 and 1999
Loss from operations (7,790,854) (24,721) (7,815,575)
Interest expense (184,371) - (184,371)
Interest income 47,118 978 48,096
--------------------------------------------------------
NET LOSS BEFORE INCOME TAX EXPENSE $ (7,928,107) $(23,743) $(7,951,850)
DEFERRED TAX RECOVERY 504,000 - 504,000
--------------------------------------------------------
NET LOSS $ (7,424,107) $ (23,743) $ (7,447,850)
=========================================================
Year ended December 31, 1998
Wireless Data Internet Services Total
REVENUE $ 41,133 $ 164,749 $ 205,882
COST OF SALES 13,445 62,022 75,467
--------------------------------------------------------
GROSS MARGIN 27,688 102,727 130,415
--------------------------------------------------------
EXPENSES
Selling, general and administration 2,714,553 85,656 2,800,209
Research and development 1,545,304 - 1,545,304
Depreciation and amortization 269,313 35,240 304,347
--------------------------------------------------------
4,529,170 120,896 4,650,066
--------------------------------------------------------
Loss from operations (4,501,482) (18,169) (4,519,651)
Interest expense (6,972) - (6,972)
Interest income 49,105 - 49,105
--------------------------------------------------------
NET LOSS $ (4,459,349) $(18,169) $ (4,477,518)
========================================================
The total assets for the Internet Service segment was less than $50,000 in each
of the years presented. All Internet Service revenue was generated in Canada.
GEOGRAPHIC SEGMENTS
For the year ended December 31, 2000, the Company operated in four geographic
segments;
REGION 2000 1999
Canada $ 1,314,968 $ 492,060
Asia/Pacific 1,222,014 22,329
United States 899,334 739,826
Rest of world 696,676 461,830
---------------------------------
$ 4,132,992 $ 1,716,045
=================================
50
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2000 and 1999
Year ended December 31, 2000
Canada Australia Total
Property, plant and equipment $ 2,111,984 $ 283,389 $ 2,395,373
Acquired labor force 400,659 400,659
Goodwill 2,305,738 1,809,245 4,114,983
-----------------------------------------------
$ 4,417,722 $ 2,493,293 $ 6,911,015
===============================================
Prior to 2000, all long lived assets of the Company were in Canada.
22. PRIOR PERIOD ADJUSTMENTS
During the year ended December 31, 1998, it was determined that the Company had
not accounted for stock options issued for services rendered by outside
consultants, nor for the purchase of Major Wireless Communications Inc., as
required by generally accepted accounting principles. As a result, the 1997
consolidated financial statements were restated to include the fair value of
options issued to consultants. These changes, which had no net impact on the
Company's cash flow results, affected the prior reported financial results as
follows:
Year Ended December 31, 1997 Inception to Dec. 31, 1997
----------------------------- ------------------------------------
Restated Originally Restated Originally
Information Reported Information Reported
Selling, general and administration $ 962,346 $ 702,492 $ 3,429,558 $ 3,169,704
Research and development 405,705 379,729 491,403 465,427
Depreciation and amortization 12,570 12,570 80,427 80,427
--------------------------------------------------------------------
Total expenses 1,380,621 1,094,791 4,001,388 3,715,558
--------------------------------------------------------------------
NET LOSS $ (1,324,960) $ (1,039,130) $ (3,922,159) $ (3,636,329)
====================================================================
BASIC AND FULLY DILUTED
LOSS PER SHARE $ (0.11) $ (0.08) $ (1.62) $ (1.48)
====================================================================
SHAREHOLDERS' EQUITY
Share Capital $ 4,506,289 $ 4,286,248
Other Equity 128,637 -
Deficit accumulated
during development stage (3,985,007) (3,636,329)
---------------------------
$ 649,919 $ 649,919
==============================
23. COMPARATIVE FIGURES
Certain comparative amounts have been reclassified to correspond with the
current year's presentation.
51
SIGNATURES
In accordance with Section 13 or 15 (d) of the Securities Exchange Act
of 1934, the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: March 5, 2001 WAVERIDER COMMUNICATIONS INC.
By /s/ D. Bruce Sinclair
D. Bruce Sinclair, President, Chief Executive
Officer and Director
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Company and in the capacities and on
the dates indicated.
Name Title Date
/s/ D. Bruce Sinclair President, Chief Executive March 5, 2001
- ---------------------
D. Bruce Sinclair Officer and Director
/s/ T. Scott Worthington Chief Financial Officer March 5, 2001
- ------------------------
T. Scott Worthington
/s/ Cameron A. Mingay Secretary/Director March 5, 2001
- ---------------------
Cameron A. Mingay
/s/ Gerry Chastelet Director March 5, 2001
- -------------------
Gerry Chastelet
/s/ John Curry Director March 5, 2001
- --------------
John Curry
/s/ Guthrie Stewart Director March 5, 2001
- -------------------
Guthrie Stewart
/s/ Dennis R. Wing Director March 5, 2001
- ------------------
Dennis R. Wing
52