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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002
Commission file number 0-25680
WAVERIDER COMMUNICATIONS INC.
(Exact name of small business issuer as specified in its charter)
NEVADA 33-0264030
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
255 Consumers Road, Suite 500, Toronto, Ontario M2J 1R4
(Address of principal executive offices and Zip (Postal) Code)
(416) 502-3200
(Issuer's telephone number)
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirement for the past 90 days.
Yes __X__; No _____
-
Applicable only to corporate issuers:
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: November 5, 2002
116,083,227 Common shares, $.001 par value.
Transitional Small Business Disclosure Format: (check one):
Yes _____; No __X__
-
WAVERIDER COMMUNICATIONS INC.
FORM 10 - Q
For the Period Ended September 30, 2002
INDEX
Page
PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements 3-10
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6-10
Item 2. Management's Discussion and Analysis
or Plan of Operation 11-14
PART II OTHER INFORMATION 14
Item 6. Reports on Form 8-K 14
Signatures 15
2
PART I. FINANCIAL INFORMATION
WaveRider Communications Inc.
CONSOLIDATED BALANCE SHEETS
(in U.S. dollars)
September 30, December 31,
2002 2001
(Unaudited) (Audited)
ASSETS
Current
Cash and cash equivalents $ 1,679,555 $ 2,244,625
Accounts receivable 1,146,123 898,432
Due from contract manufacturers 82,438 41,295
Inventories 1,399,877 1,402,703
Current portion of notes receivable 45,129 32,800
Prepaid expenses and other assets 148,810 297,282
------------- --------------
4,501,932 4,917,137
Notes receivable - 32,801
Property, plant and equipment 904,852 1,671,088
Goodwill - 3,997,477
------------- --------------
$ 5,406,784 $ 10,618,503
============= ==============
LIABILITIES
Current
Accounts payable and accrued liabilities $ 2,569,480 $ 2,314,920
Consideration payable on business combination - 105,256
Promissory notes - 168,893
Deferred revenue 277,597 265,505
Current portion of obligation under capital lease 24,788 131,145
------------- --------------
2,871,865 2,985,719
Obligation under capital lease 23,989 36,312
------------- --------------
2,895,854 3,022,031
SHAREHOLDERS' EQUITY
Preferred Stock, $.01 par value per share: authorized - 5,000,000 shares;
issued and outstanding 17,200 shares at September 30, 2002 and
29,000 at December 31, 2001 172 290
Common Stock, $.001 par value per share: authorized - 400,000,000 shares;
issued and outstanding - 115,905,840 shares at September 30, 2002
72,973,681 shares at December 31, 2001 115,906 72,974
Additional paid in capital 71,032,293 65,830,352
Other equity 13,770,301 13,748,732
Accumulated other comprehensive loss (71,091) (104,586)
Deficit (82,336,651) (71,951,290)
-------------- ---------------
2,510,930 7,596,472
-------------- ---------------
$ 5,406,784 $ 10,618,503
============== ===============
Going concern (note 1)
See accompanying notes to financial statements.
3
WaveRider Communications Inc.
CONSOLIDATED STATEMENTS OF LOSS, DEFICIT AND COMPREHENSIVE LOSS
(in U.S. dollars)
Three Months ended Nine Months ended
September 30 September 30 September 30 September 30
2002 2001 2002 2001
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
--------------------------------------------------------------
CONSOLIDATED STATEMENT OF LOSS
REVENUE
Product sales $ 2,080,536 $ 1,640,499 $ 5,943,411 $ 5,843,949
Internet sales 43,874 48,710 138,854 149,081
-------------- ----------- -------------- ------------
2,124,410 1,689,209 6,082,265 5,993,030
COST OF PRODUCT AND INTERNET SALES 1,821,554 1,252,119 4,658,539 4,280,265
-------------- ---------- -------------- ------------
GROSS MARGIN 302,856 437,090 1,423,726 1,712,765
-------------- ----------- -------------- -----------
EXPENSES
Selling, general and administration 1,443,638 2,143,988 5,008,374 8,131,987
Employee stock based compensation 12,000 - 172,500 -
Research and development 497,753 1,075,479 1,313,518 4,018,532
Depreciation and amortization 273,736 1,237,478 826,828 2,763,445
Bad debt expense 8,127 234,923 37,622 497,935
Write down of goodwill 4,069,696 155,050 4,069,696 155,050
Interest expense 42,902 84,050 402,131 4,956,709
Interest income (7,087) (4,872) (21,582) (93,974)
-------------- ------------ --------------- ------------
6,340,765 4,926,096 11,809,087 20,429,684
-------------- ------------ -------------- ------------
NET LOSS $ (6,037,909) $ (4,489,006)$ (10,385,361) $(18,716,919)
============= ============== ============== ============
BASIC AND FULLY DILUTED LOSS PER SHARE $ (0.05) $ (0.07) $ (0.10) $ (0.33)
============== ============ ============== ============
Weighted Average Number of Common Shares 114,790,464 61,365,893 101,554,237 59,143,938
============== ============ ============== ============
CONSOLIDATED STATEMENTS OF DEFICIT
OPENING DEFICIT (76,298,742) (64,686,253) (71,951,290) (49,414,508)
NET LOSS FOR THE PERIOD (6,037,909) (4,489,006) (10,385,361) (18,716,919)
BENEFICIAL CONVERSION ON PREFERRED STOCK - - - (1,043,832)
-------------- ------------ -------------- ------------
CLOSING DEFICIT $ (82,336,651) $(69,175,259) $ (82,336,651) $(69,175,259)
============== ============= ============== ============
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
NET LOSS FOR THE PERIOD (6,037,909) (4,489,006) (10,385,361) (18,716,919)
OTHER COMPREHENSIVE INCOME/(LOSS)
Cumulative translation adjustment (20,658) (3,318) 33,495 (174,094)
--------------- ------------ -------------- ------------
COMPREHENSIVE LOSS $ (6,058,567) $ (4,492,324) $ (10,351,866) $(18,891,013)
============= ============ ============== ============
See accompanying notes to financial
statements.
4
WaveRider Communications Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in U.S. dollars)
Nine months ended September 30
2002 2001
------------------------------------
(Unaudited) (Unaudited)
OPERATIONS
Net loss $ (10,385,361) $ (18,716,919)
Items not involving cash
Depreciation 826,828 773,052
Amortization of goodwill - 1,990,393
Write-down of goodwill 4,069,696 155,050
Non-cash financing charges 263,607 4,688,652
Charges for shares released from escrow 710,813 183,200
Compensatory shares released from escrow to employee 172,500 629,000
Non-employee stock options 21,569 85,612
Warrants issued to consultants - 117,128
Bad debt expense 37,622 497,935
Loss on disposal of fixed assets 40,295 -
Foreign exchange gain (15,649) (48,265)
Accrued interest expense on promissory notes - 56,875
Accrued interest expense on consideration payable
on business acquisition - 60,000
Net changes in non-cash operating working capital items 63,190 (88,151)
-----------------------------------
(4,194,890) (9,616,438)
-----------------------------------
INVESTING
Acquisition of property, plant and equipment (99,671) (282,557)
Proceeds on disposal of property, plant and equipment 20,837 -
-----------------------------------
(78,834) (282,557)
-----------------------------------
FINANCING
Proceeds from sale of shares net of issue fees 4,357,962 2,739,154
Payment of consideration payable on business combination (105,256)
Repayment of promissory notes (432,500) -
Payments on capital lease obligations (104,822) (175,205)
------------------------------------
3,715,384 2,563,949
-----------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (6,730) 2,002
-----------------------------------
Increase (decrease) in cash and cash equivalents (565,070) (7,333,044)
Cash and cash equivalents, beginning of period 2,244,625 7,720,902
-----------------------------------
Cash and cash equivalents, end of period $ 1,679,555 $ 387,858
===================================
Supplementary disclosures of cash flow information:
Cash paid during the period for:
Interest 26,294 26,386
Repayment premium on redemption of promissory notes 68,775 -
Noncash investing and financing activities:
Stock released from escrow 883,313 2,201,500
Capital lease additions - 16,620
Disposal of capital lease (19,103) (27,601)
Stock issued for payment of consideration payable on business combination - 924,917
Conversion of a portion of convertible notes to common shares - 3,481,699
Payment in warrants of financing fee - 22,007
Beneficial conversion of preferred stock - 1,043,832
See accompanying notes to financial statements.
5
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002 (unaudited) and December 31, 2001 (audited)
1) GOING CONCERN
These 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 $10,385,361 for the nine months ended September 30,
2002 (2001 - $18,716,919) and reported a deficit at that date of
$82,336,651 (2001 - $69,175,259). In addition, the requirements to
continue investing in research and development activities to meet the
Company's growth objectives, without assurance of broad commercial
acceptance of the Company's products, lend significant doubt as to the
ability of the Company to continue in normal business operations.
Furthermore, the current financial markets and the Company's current
financial position make it unlikely in management's view that the
Company will be able to raise any additional capital or debt financing
within the next twelve months.
In recognition of these circumstances, the Company took significant
steps in October 2002 (Note 11) to reduce its workforce and operating
costs. In addition, management will consider other financing
alternatives should market conditions and Company performance
indicators improve. However, the outcome of these initiatives is not
certain.
The ability of the Company to continue as a going concern is dependent
upon it achieving and maintaining profitable and cash flow positive
operations or securing additional external funding to meet its
obligations as they come due. Should the Company be unable to continue
as a going concern, assets and liabilities would require restatement on
a liquidation basis which would differ materially from the going
concern basis.
2) BASIS OF PRESENTATION
The Financial statements for the three and nine months ended September
30, 2002 and 2001 include, in the opinion of Management, all
adjustments (which consist only of normal recurring adjustments)
necessary to present fairly the results of operations for such periods.
Results of operations for the three and nine months ended September 30,
2002 are not necessarily indicative of results of operations for the
year ending December 31, 2002. These financial statements should be
read in conjunction with the Company's Form 10-K for the year ended
December 31, 2001.
3) GOODWILL AND OTHER INTANGIBLE ASSETS
On January 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets
("SFAS 142") and, accordingly, the Company reclassified acquired labor
force intangibles, in the amount of $98,949, to goodwill in compliance
with the requirements of the standard. In addition, the Company ceased
the amortization of goodwill, totaling $3,997,477, as of the beginning
of fiscal 2002.
SFAS 142 requires goodwill to be tested for impairment on an annual
basis and under certain circumstances, written down when impaired, and
requires purchased intangible assets other than goodwill to be
amortized over their useful lives unless these lives are determined to
be indefinite.
The continued and, more recently, sharp decline in the
telecommunications sector prompted a revision of all key assumptions
underlying management's goodwill valuation judgments, including those
relating to short and longer-term growth rates and discount factors
reflecting increased risks in a declining market. As a result of
management's analysis, it was determined that an impairment charge of
$4,069,696 was required on the basis that the carrying value of
goodwill exceeded its fair value.
Prior to the impairment charge, during the nine month period ended
September 30, 2002, goodwill increased by $72,219 due to foreign
exchange.
6
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002 (unaudited) and December 31, 2001 (audited)
The following tables reflect consolidated results adjusted as though
the Company's adoption of SFAS 142 had occurred as of January 1, 2001:
Three months ended September 30, Nine months ended September 30
2002 2001 2002 2001
------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net Loss - as reported $ (6,037,909) $ (4,489,006) $(10,385,361) $ (18,716,919)
Amortization of goodwill - 951,569 - 1,990,393
------------------------------ -------------------------------
Net Loss - as adjusted $ (6,037,909) $ (3,537,437) $(10,385,361) $ (16,726,526)
=============================== ===============================
Basic and fully diluted loss per share $ (0.05) $ (0.07) $ (0.10) $ (0.33)
- as reported Amortization of goodwill - 0.01 - 0.03
------------------------------ -------------------------------
Basic and full diluted loss per share $ (0.05) $ (0.06) $ (0.10) $ (0.30)
- as adjusted =============================== ===============================
4) ACCOUNTS RECEIVABLE
September December
30, 2002 31, 2001
--------------------------------
(Unaudited) (Audited)
Accounts receivable - trade $ 1,267,109 $ 1,370,805
Other receivables 145,761 163,037
Allowance for doubtful accounts (266,747) (635,410)
---------------------------------
$ 1,146,123 $ 898,432
================================
5) INVENTORIES
September December
30, 2002 31, 2001
--------------------------------
(Unaudited) (Audited)
Finished products $ 1,281,709 $ 959,786
Raw materials 118,168 442,917
--------------------------------
$ 1,399,877 $ 1,402,703
================================
6) PROMISSORY NOTES
Under the terms of the promissory notes issued October 19, 2001, the
promissory note holders had the right to demand repayment of the
outstanding notes as a result of the Company completing additional
financing with net proceeds in excess of $5 million. As a result, on
March 28, 2002, the Company repaid the principal amount of $432,500
plus accrued interest and repayment premium.
During the quarter ended March 31, 2002, $263,607 and $64,726 was
charged to the consolidated statements of loss for accretion of the
promissory notes and accrual of interest and repayment premium,
respectively.
7
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002 (unaudited) and December 31, 2001 (audited)
7) SHAREHOLDERS' EQUITY
a) Public Offering - During March, 2002, the Company issued
30,096,662 shares of common stock for cash consideration of $4,497,000,
less costs of $165,734.
b) Conversion of Preferred Stock - During the nine months ended September
30, 2002, 11,800 shares of the Series D 5% convertible preferred stock
were converted to 7,229,909 shares of common stock. Conversions by
quarter were:
Preferred Shares Common Shares
Quarter ended Converted Issued
---------------- -------------
March 31, 2002 9,000 5,017,500
June 30, 2002 1,000 644,330
September 30, 2002 1,800 1,568,079
----------------- -----------------
Total 11,800 7,229,909
----------------- -----------------
c) Release of Escrow Shares - With the change in terms in September 2001,
the escrow arrangement ceased to be related to the original Major
Wireless acquisition and is now considered to be in the substance of a
stock compensation arrangement. Accordingly, the fair value of the
remaining 5.4 million shares held in escrow was charged to the
consolidated statement of loss (and not recorded as goodwill) at March
31, 2002, when it was determined probable that the escrow milestones
would be met.
Prior to the determination, one of the escrow shareholders, through
mutual agreement, returned 18,750 shares of common stock to the Company
for cancellation. The remaining 5,381,250 common shares held in escrow
were recorded at a fair value of $914,813 based on the stock price of
$0.17 at March 31, 2002. The Company charged $204,000 and $710,813 to
the consolidated statement of loss as compensation and selling, general
and administration expenses respectively.
On April 24, 2002, the Company achieved the fourth milestone and
accordingly released 1,345,313 shares of common stock. Based on the
stock price of $0.13 on that date, the intrinsic value of the shares
released to an employee was reduced by $12,000 from the amount recorded
in March. This recovery amount was included in compensation expenses in
the consolidated statement of loss.
On or about June 6, 2002, the Company achieved the fifth milestone and
released 1,345,313 shares of common stock. Based on the average stock
price of $0.145 during that period, the intrinsic value of the shares
released to an employee was reduced by $7,500 from the amount recorded
in March. This recovery amount was included in compensation expenses in
the consolidated statement of loss.
At June 30, 2002, the intrinsic value of the shares held in escrow for
an employee was reduced by $24,000 from the amount recorded in March,
based on the stock price of $0.13 on that date. This recovery amount
was included in compensation expenses in the consolidated statement of
loss.
On July 16, 2002, the Company achieved the final milestone and released
the remaining 2,690,625 shares of common stock. Based on the stock
price of $0.15 on that date, the intrinsic value of the shares release
to an employee was increased by $12,000 from the amount recorded at
June 30, 2002. This expense amount was included in compensation
expenses in the consolidated statement of loss.
As a result of the determination that achievement of milestones was
probable, an amount of $21,569, being the fair value of certain
performance based non-employee options, was charged to consulting
expense,, in March 2002.
d) Employee Stock Purchase Plan - On May 1, 2002, the Company issued
224,338 shares of common stock for cash consideration of $26,696 to
employees under the Company's Employee Stock Purchase Plan.
8
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002 (unaudited) and December 31, 2001 (audited)
8) COMMITMENTS AND CONTINGENCIES
a) Employee Stock Option Agreements
The Company has four existing employee stock option plans -- the
Employee Stock Option (1997) Plan, the 1999 Incentive and Nonqualified
Stock Option Plan, the Employee Stock Option (2000) Plan and the
Employee Stock Option (2002) Plan which have authorized shares of
6,250,000, 3,000,000, 6,000,000 and 6,000,000 shares, respectively.
Through September 30, 2002, the Company had awarded 5,941,592 options
under the Employee Stock Option (1997) Plan, 2,356,724 options under
the 1999 Incentive and Nonqualified Stock Option Plan, 5,248,355
options under the Employee Stock Option (2000) Plan. No awards had been
made under the Employee Stock Option (2002) Plan.
b) Employee Stock Purchase Agreement
On July 7, 2000, the shareholders approved the establishment of the
Company's Employee Stock Purchase (2000) Plan, which has 3,000,000
authorized shares. Under the terms of the plan, employees are eligible
to purchase shares of the Company's common stock at 85% of the lower of
the opening or closing price during any plan period. By the end of the
second quarter of 2002, 392,736 shares of common stock had been
purchased under the Plan. The offerings under the plan run for
six-month periods commencing May 1 and November 1.
9) SEGMENTED INFORMATION
OPERATING SEGMENTS
The Company operates in one operating segment: wireless data
communications product.
GEOGRAPHIC SEGMENTS
The Company operated in the following geographic segments;
Three Months ended Nine Months ended
September 30 September 30
2002 2001 2002 2001
----------------------------------------------------------------------------
Revenue by Region (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Canada $ 175,232 $ 81,342 $ 525,499 $ 371,185
Australia 477,417 635,803 1,454,506 2,455,431
United States 1,220,637 596,919 3,208,076 1,226,393
Rest of World 251,124 375,145 894,184 1,940,021
----------------------------------------------------------------------------
$2,124,410 $ 1,689,209 $ 6,082,265 $ 5,993,030
============================================================================
9
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002 (unaudited) and December 31, 2001 (audited)
Nine months ended September 30, 2002 (Unaudited)
Canada Australia Total
---------------------------------------------------
Property, plant and equipment $ 797,458 $ 107,394 $ 904,852
Year ended December 31, 2001 (Audited)
Canada Australia Total
---------------------------------------------------
Property, plant and equipment $ 1,524,076 $ 147,012 $ 1,671,088
Goodwill 2,843,090 1,154,387 3,997,477
---------------------------------------------------
$ 4,367,166 $ 1,301,399 $ 5,668,565
===================================================
10) COMPARATIVE FIGURES
Certain comparative amounts have been reclassified, where appropriate,
to correspond with the current period's presentation.
11) SUBSEQUENT EVENTS
Due to the continuing decline and uncertainty in the telecommunications
sector, on October 15, 2002, the Company announced a restructuring plan
that included headcount reductions and salary deferrals. Included in
the plan was a commitment to pay terminated employees deferred
severance payments of approximately $190,500. These amounts will be
accrued in the fourth quarter of 2002 and paid during the fourth
quarter of 2003. Additionally, the Company will accrue, but not pay
until the fourth quarter of 2003, approximately $83,000 in compensation
to senior staff. The Company also structured its sales compensation to
reduce fixed salary costs and increase the variable achievement-based
component.
On November 6, 2002, principally as compensation for accepting salary
deferrals or reductions, the Board of Directors of the Company
authorized the award of 2,650,000 stock options, exercisable at $0.01
per share, to the Company's staff and certain management. These options
will vest equally over four quarters and will be recorded as
compensation options. As such, the $206,700 excess of the current
market value over their exercise price will be recorded as other equity
in shareholder's equity with a corresponding deferred compensation
charge. The deferred compensation charge will be amortized in the
consolidated statement of loss over the vesting period.
10
ITEM 2.
Management's Discussion and Analysis or Plan of Operation.
The following discussion is intended to assist in an understanding of the
Company's financial position and results of operations for the quarter ended
September 30, 2002.
Forward-Looking Information.
This report contains certain forward-looking statements and information
relating to the Company that are based on the beliefs of its management as well
as assumptions made by and information currently available to its management.
When used in this report, the words "anticipate", "believe", "estimate",
"expect", "intend", "plan", and similar expressions as they relate to the
Company or its management, are intended to identify forward-looking statements.
These statements reflect management's current view of the Company with respect
to future events and are subject to certain risks, uncertainties and
assumptions. Should any of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those described in this report as anticipated, estimated or expected. The
Company's realization of its business aims could be materially and adversely
affected by any technical or other problems in, or difficulties with, planned
technologies, third party technologies which render the Company's technologies
obsolete, the unavailability of required third party technology licenses on
commercially reasonable terms, the loss of key research and development
personnel, the inability or failure to recruit and retain qualified research and
development personnel, or the adoption of technology standards which are
different from technologies around which the Company's business ultimately is
built. The Company does not intend to update these forward-looking statements.
Overview
We design, develop, market and support fixed wireless Internet access
products. Our products are designed to deliver efficient, reliable, and
cost-effective solutions to bringing high-speed Internet access to markets
around the world.
We are focused on providing the solution to the "last mile" problem faced
by traditional wired telecommunications services: how to profitably build out a
network that provides the level of services demanded by end users. In medium to
small markets, and in areas of the world with limited or no existing
telecommunications infrastructure, the cost to install or upgrade wired services
to provide the level of access customers expect can be prohibitive.
We believe that our fixed wireless Internet access products are faster and
less expensive to deploy than traditional wired services, with a lower
cost-per-user to install, deploy and manage.
Our wireless network products are designed to operate in the license-free
ISM radio spectrum, which facilitates a more rapid and low-cost market
introduction for service providers than for licensed or hardwire solutions. Our
products utilize direct sequence spectrum or DSS communications, which ensures
reliable, secure, low-interference communications.
Market Environment and Strategic Direction
Over the past two years, the global telecommunications market deteriorated,
reflecting a significant reduction in capital spending by established service
providers and a lack of venture capital for new entrants. This trend is expected
to continue at least throughout calendar 2002. Reasons for this market
deterioration include the economic slowdown in the technology sector, network
overcapacity, customer bankruptcies, network build-out delays and limited
capital availability. As a result, our sales and results of operations have been
significantly adversely affected.
During this prolonged sector downturn, we have concentrated on the things
we can control, such as working closely with our customers to get our products
and services established in a number of markets, significantly reducing our cost
structure, reducing our breakeven revenue figure and improving our balance
sheet. However, if capital investment levels continue to decline, or if the
telecommunications market does not improve or improves at a slower pace than we
anticipate, our revenues and profitability will continue to be adversely
affected. In addition, if our sales volume and product mix does not improve, or
we do not continue to realize cost reductions or reduce inventory related
charges, our gross margin percentage may not improve as much as we have
targeted, resulting in lower than expected results of operations.
11
Liquidity and Capital Resources.
The Company has funded its operations for the most part through equity
financing and has had no line of credit or similar credit facility available to
it. ___ The Company's outstanding shares of Common stock, par value $.001 per
share, are traded under the symbol "WAVC" in the over-the-counter market on the
OTC Electronic Bulletin Board by the National Association of Securities Dealers,
Inc. The majority of funds raised have been allocated to the development of the
WaveRider(R) line of wireless data communications products and the operations of
the Company.
During the first nine months of 2002, the Company raised $4,497,000, less
cash expenses of $165,734, through the sale of 30,096,662 shares of common stock
registered by the Company on an S-3 shelf registration statement and $26,696
through the sale of 224,338 shares of common stock to employees through the
Company's Employee Stock Purchase (2000) Plan.
Up to the current period, the Company has had to rely on its ability to
raise money through equity financing to pursue its business endeavors. With the
ongoing stock market declines in the technology sector and the Company's current
financial position and results, management has determined that it is unlikely
that the Company can raise further capital or debt financing at this time. As a
result, subsequent to the quarter end, on October 15, 2002, the Company
announced a new round of restructuring, which included headcount reductions,
reductions and deferrals of senior level salaries and even stricter
discretionary spending controls. Based on the Company's current plans and
projections, management believes that the Company has the funds to meet its
current and future financial commitments until it achieves positive cash flows
from operations. However, the significant slowdown in capital spending in our
target markets has created unanticipated uncertainty as to the level of demand
in those markets. In addition, the level of demand can change quickly and can
vary over short periods of time, including from month to month. The uncertainty
and variations in our markets means that accurately projecting future results,
earnings and cash flow is increasingly difficult. As a result, management has
determined that a going concern note should be included in the Company's
financial statements until such time as adequate funding can be obtained through
operations or external financing arrangements.
Current Activities.
The Company currently has approximately 41 employees located in its head
office in Toronto, Ontario, and its sales offices and subsidiaries in the United
States, Canada, and Australia, as well as at its subsidiary, JetStream Internet
Services in Salmon Arm, British Columbia. The majority of these employees are
involved in the design, development and marketing of the WaveRider(R) line of
wireless data communications products.
Results of Operations
Revenue
The following table presents our North American and non-North American
revenues and the approximate percentage of total revenues ($000's):
Three months ended September 30, Nine months ended September 30,
-------------------------------- -------------------------------
2002 2001 % Change 2002 2001 % Change
-------------------------------------------------------------------------------
North America $ 1,396 $ 678 105.9% $ 3,733 $ 1,598 133.6%
Non-N.A. 728 1,011 (28.0%) 2,349 4,395 (46.6%)
-------------------------------------------------------------------------------
Total revenues $ 2,124 `1,689 25.8% 6,082 5,993 1.5%
===============================================================================
Percentage of total revenue
North America 65.7% 40.1% 61.4% 26.7%
Non-N.A. 34.3% 59.9% 38.6% 73.3%
12
Total revenue increased 25.8% in Q3 2002, compared to Q3 2001, but declined
9.4% compared to Q2 2002. Quarter on quarter declines were seen in all
regions, with North American revenue declining 9.0% during the quarter and
Non-North American revenue declining 10.2%.
Revenue during the quarter mainly was the result of sales of the Company's
900 MHz LMS 3000 product line. Sales were for the initial installation of
systems in numerous jurisdictions and, in certain instances, for additional
equipment to expand operations. While the Company anticipates most, if not all,
customers will purchase additional equipment to expand their systems, we do not
have minimum volume purchase agreements with any of our customers.
Throughout Q3 2002, we maintained our pricing levels, however, we do face
increasing pricing pressures, especially in the highly competitive North
American market. The Company expects to be able to offset the pricing pressures
in the future through economies of scale and product refinements to allow us to
maintain and enhance our margins.
Gross Margin
The following table presents our gross margin and the percentage to total
revenues ($000's):
Three months ended Nine months ended
September 30, September 30,
2002 2001 2002 2001
---- ---- ---- ----
Gross margin $303 $437 $1,424 $1,713
Gross margin rate 14.3% 25.9% 23.4% 28.6%
Declines in gross margin rate were the result of:
1. Specific write-off $275,000 in excess inventories resulting
from the decline in demand for specific product categories,
specifically related to the 2.4 GHz product line.
2. Increase in sales within North America where pricing
competition is stronger resulting in lower on going margins.
To maintain or improve our current gross margin level we will depend upon
our ability to improve sales volumes, introduce cost reduced products and
limit inventory related charges
Expenses
The following table presents our operating expenses ($000's):
Three months ended September 30, Nine months ended September 30,
-------------------------------- -------------------------------
2002 2001 % Change 2002 2001 % Change
-------------------------------------------------------------------------
Selling, general and administrative
(excluding the following) 1,444 2,144 (32.6%) 5,008 8,132 (38.4%)
Employee stock based compensation 12 - n/a 172 - n/a
Bad debt expense 8 235 (96.6%) 38 498 (92.4%)
-------------------------------------------------------------------------
Total SG&A 1,464 2,379 (38.5%) 5,218 8,630 (39.5%)
Research and Development 498 1,075 (53.7%) 1,314 4,019 (67.3%)
Depreciation and amortization 274 1,237 (77.8%) 827 2,763 (70.1%)
Write-down of goodwill 4,070 155 2,525.8% 4,070 155 2,525.8%
Restructuring in Q3 2001 and the transition of our research and
development, logistics and full support operations to our Toronto facilities,
have resulted in a significant reduction in staff and operating costs. Details
of the restructuring are included in the Company's annual report on form 10-K.
13
Selling, general and administrative expenses increased by 9.9% in Q3 2002
from Q2 2002, mainly due to restructuring charges related to the closure of our
Calgary facility. The Calgary facility was closed on September 30, 2002 and
completion of the transition will occur in Q4 2002.
Research and development costs increased by 3.8% in Q3 2002 from Q2 2002,
resulting from an increase in contract development and supplies.
During Q3 2002, due to the continued decline in telecom spending and its
impact on projected future revenues to the Company, management determined that
there had been an impairment of the goodwill arising from the release of escrow
shares and the purchase of ADE Network Technology Pty Ltd. As a result, the
Company wrote off $4,069,696 of goodwill in Q3 2002 compared to a write off of
$155,050 during Q3 2001. With the current write off, the Company no longer has
any goodwill.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
a) The Company held its annual general meeting on July 9, 2002 in Toronto,
Canada. Notice of Meeting, dated May 30, 2000, was distributed to all
shareholders of record, effective May 28, 2002, and filed with the
Security and Exchange Commission on form 14A on May 24, 2002.
c) Three matters were voted upon at the annual general meeting.
1. Mr. Gerry Chastelet, Mr. John Curry, Mr. Cameron Mingay, Mr.
Bruce Sinclair, and Mr. Dennis Wing were elected as directors
of the Company. The votes for the directors were as follows:
For Against Abstained
Gerry Chastelet 87,136,433 36,110 1,156,113
John Curry 87,136,433 36,110 1,156,113
Cameron Mingay 87,136,433 36,110 1,156,113
Bruce Sinclair 87,138,533 34,010 1,156,113
Dennis Wing 87,136,433 36,110 1,156,113
2. The Company's Employee Stock Option (2002) Plan was approved
by the shareholders. Votes were 20,341,821 For, 4,351,040
Against and 500,364 Abstaining.
3. The proposal to amend the Company's Restated Certificate of
Incorporation to increase the authorized number of shares of
Common Stock from 200,000,000 to 400,000,000 was approved by
the shareholders. Votes were 79,302,446 For, 8,848,781 Against
and 177,429 Abstaining.
Item 6. Exhibits and Reports on Form 8-K
None
14
Signatures:
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized,
WaveRider Communications Inc.
Date: November 7, 2002 /s/ D. Bruce Sinclair
-------------------------------
D. Bruce Sinclair
President and Chief Executive Officer
/s/ T. Scott Worthington
-------------------------------
T. Scott Worthington
Chief Financial Officer.
15
November 7, 2002
CERTIFICATIONS
I, D. Bruce Sinclair, Chief Executive Officer of WaveRider Communications Inc.,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of WaveRider
Communications Inc..
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information include in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 7, 2002
By: /s/ D. Bruce Sinclair
------------------------------------------
D. BRUCE SINCLAIR, CHIEF EXECUTIVE OFFICER
16
November 7, 2002
CERTIFICATIONS
I, T. Scott Worthington, Chief Financial Officer of WaveRider Communications
Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of WaveRider
Communications Inc..
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 7, 2002
By: /s/ T. Scott Worthington
----------------------------------------------
T. SCOTT WORTHINGTON, CHIEF FINANCIAL OFFICER
17