SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-QSB
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30,
2006
Commission
File Number 0-25356
WAVE
WIRELESS CORPORATION
(Exact
name of Registrant as specified in its charter)
DELAWARE
|
77-0289371
|
(State
or other jurisdiction of
|
(IRS
Employer Identification No.)
|
incorporation
or organization)
|
|
6080
Center Drive, Los Angeles, California 90045
(Address
of principal executive offices and Zip (Postal) code)
310-880-7792
(Issuer’s
telephone number)
Indicate
by check mark whether the Registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 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 o No x
As
of
September 30, 2006, there were 75,111,097 shares of the Registrant's common
stock outstanding, par value $0.0001 per share.
Transitional
Small Business Disclosure Format (Check one): Yes o; No x
This
Quarterly Report on Form 10-QSB consists of 27 pages of which this is Page
1.
The Exhibit Index appears on Page 25.
WAVE
WIRELESS CORPORATION
TABLE
OF CONTENTS
|
|
|
Page
Number
|
|
PART
I. FINANCIAL STATEMENTS
|
|
|
3
|
|
|
|
|
|
|
Item
1 Condensed Consolidated Financial Statements (unaudited)
|
|
|
|
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets
|
|
|
3
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Operations
|
|
|
4
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows
|
|
|
5
- 6
|
|
|
|
|
|
|
Notes
to Condensed Consolidated Financial Statements
|
|
|
7
- 16
|
|
|
|
|
|
|
Item
2 Management's Discussion and Analysis
|
|
|
17 -
21
|
|
|
|
|
|
|
Item
3 Controls and Procedures
|
|
|
21
|
|
|
|
|
|
|
PART
II. OTHER INFORMATION
|
|
|
|
|
|
|
|
|
|
Item
1 Legal Proceedings
|
|
|
21
|
|
|
|
|
|
|
Item
2 Unregistered Sales of Equity Securities and Use of
Proceeds
|
|
|
22
|
|
|
|
|
|
|
Item
3 Defaults Upon Senior Securities
|
|
|
22
|
|
|
|
|
|
|
Item
4 Submission of Matters to a Vote of Securities Holders
|
|
|
22
|
|
|
|
|
|
|
Item
5 Other Information
|
|
|
22
|
|
|
|
|
|
|
Item
6 Exhibits and Reports on Form 8-K
|
|
|
22
|
|
|
|
|
|
|
Signatures
|
|
|
24 |
|
|
|
|
|
|
Certifications
|
|
|
|
|
Wave
Wireless Corporation (the “Company”) has filed for a voluntary petition for
reorganization under Chapter 11 of the U.S. Bankruptcy Code, with the United
States Bankruptcy Court for the District of Delaware (the “Court”). The Company,
along with the Official Committee of Unsecured Creditors, has also proposed
a
Joint Plan of Reorganization (the “Joint Plan”), a copy of which is attached as
an Exhibit to this Quarterly Report on Form 10-QSB. The proposed Joint Plan
is
subject to approval by the Court, at a hearing scheduled on June 14, 2007.
You
should carefully consider all documents filed by us with the Securities and
Exchange Commission before purchasing our common stock.
WAVE
WIRELESS CORPORATION
Debtor
in Possession
CONDENSED
CONSOLIDATED BALANCE SHEETS
(In
thousands)
|
|
September
30,
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
|
|
(unaudited)
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
612
|
|
$
|
380
|
|
Accounts
receivable, net of allowances of $913 (2005 - $756)
|
|
|
133
|
|
|
1,152
|
|
Inventory
|
|
|
168
|
|
|
197
|
|
Assets
from discontinued operations
|
|
|
1,981
|
|
|
-
|
|
Prepaid
expenses and notes receivable
|
|
|
685
|
|
|
447
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
3,579
|
|
|
2,176
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
494
|
|
|
622
|
|
WaveRider
note receivable
|
|
|
-
|
|
|
250
|
|
Goodwill
|
|
|
250
|
|
|
11,990
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
4,323
|
|
$
|
15,038
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Bank
loan
|
|
$
|
-
|
|
$
|
759
|
|
Accounts
payable
|
|
|
1,228
|
|
|
1,683
|
|
Other
accrued liabilities
|
|
|
2,723
|
|
|
2,521
|
|
Deferred
revenue
|
|
|
1,537
|
|
|
862
|
|
Liabilities
of discontinued operations
|
|
|
1,705
|
|
|
184
|
|
Notes
payable
|
|
|
-
|
|
|
898
|
|
Derivative
liability for excess shares
|
|
|
660
|
|
|
-
|
|
Current
maturities of long-term debt
|
|
|
3,325
|
|
|
2,379
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
11,178
|
|
|
9,286
|
|
|
|
|
|
|
|
|
|
Long-term
debt, less current maturities
|
|
|
-
|
|
|
1,544
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
11,178
|
|
|
10,830
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (Note 9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity (deficit):
|
|
|
|
|
|
|
|
Series
E Preferred Stock
|
|
|
332
|
|
|
332
|
|
Series
F Preferred Stock
|
|
|
-
|
|
|
661
|
|
Series
G Preferred Stock
|
|
|
3,224
|
|
|
3,344
|
|
Series
J & J-1 Preferred Stock
|
|
|
16,824
|
|
|
-
|
|
Common
stock, par value $0.0001 per share, 250 million shares
authorized;
|
|
|
|
|
|
|
|
75,111
shares issued; 74,981 shares outstanding at September 30,
2006
|
|
|
|
|
|
|
|
22,162
shares issued; 22,132 shares outstanding at December 31,
2005
|
|
|
8
|
|
|
2
|
|
Treasury
stock, at cost; 30 shares
|
|
|
(74
|
)
|
|
(74
|
)
|
Additional
paid-in capital
|
|
|
391,660
|
|
|
383,778
|
|
Accumulated
deficit
|
|
|
(418,829
|
)
|
|
(383,835
|
)
|
|
|
|
|
|
|
|
|
Total
stockholders' equity (deficit)
|
|
|
(6,855
|
)
|
|
4,208
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity (deficit)
|
|
$
|
4,323
|
|
$
|
15,038
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
WAVE
WIRELESS CORPORATION AND SUBSIDIARIES
Debtor
in Possession
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In
thousands, except per share data)
|
|
Three
Months ended
|
|
Nine
Months ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
Sales
|
|
$
|
222
|
|
$
|
506
|
|
$
|
1,036
|
|
$
|
1,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
89
|
|
|
255
|
|
|
496
|
|
|
655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
133
|
|
|
251
|
|
|
540
|
|
|
589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
295
|
|
|
496
|
|
|
1,281
|
|
|
2,466
|
|
Selling
and marketing
|
|
|
208
|
|
|
564
|
|
|
1,027
|
|
|
2,652
|
|
General
and administrative
|
|
|
575
|
|
|
658
|
|
|
1,281
|
|
|
2,527
|
|
Impairment
and other charges
|
|
|
-
|
|
|
-
|
|
|
24,497
|
|
|
-
|
|
Restructuring
charges
|
|
|
-
|
|
|
310
|
|
|
-
|
|
|
5,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
1,078
|
|
|
2,028
|
|
|
28,086
|
|
|
13,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(945
|
)
|
|
(1,777
|
)
|
|
(27,546
|
)
|
|
(12,653
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing
expense
|
|
|
-
|
|
|
-
|
|
|
(9,851
|
)
|
|
-
|
|
Derivative
financial instrument income
|
|
|
3,290
|
|
|
-
|
|
|
4,510
|
|
|
-
|
|
Interest
expense
|
|
|
(71
|
)
|
|
(201
|
)
|
|
(626
|
)
|
|
(589
|
)
|
Other
income (expense), net
|
|
|
95
|
|
|
(430
|
)
|
|
208
|
|
|
(397
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
(loss) from continuing operations
|
|
|
2,369
|
|
|
(2,408
|
)
|
|
(33,305
|
)
|
|
(13,639
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
(loss) from discontinued operations
|
|
|
439
|
|
|
1,136
|
|
|
(490
|
)
|
|
2,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
|
2,808
|
|
|
(1,272
|
)
|
|
(33,795
|
)
|
|
(11,564
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock accretions
|
|
|
-
|
|
|
(2,670
|
)
|
|
(1,199
|
)
|
|
(3,828
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) attributable to common stockholders
|
|
$
|
2,808
|
|
$
|
(3,942
|
)
|
$
|
(34,994
|
)
|
$
|
(15,392
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
$
|
0.03
|
|
$
|
(0.13
|
)
|
$
|
(0.58
|
)
|
$
|
(0.98
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from discontinued operations
|
|
$
|
0.01
|
|
$
|
0.06
|
|
$
|
0.01
|
|
$
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted income (loss) per common share
|
|
$
|
0.04
|
|
$
|
(0.07
|
)
|
$
|
(0.59
|
)
|
$
|
(0.83
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
used in basic and diluted per share computations
|
|
|
75,044
|
|
|
17,940
|
|
|
57,726
|
|
|
13,931
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
Debtor
in Possession
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In
thousands, unaudited)
|
|
Nine
months ended
September
30,
|
|
|
|
2006
|
|
2005
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(33,795
|
)
|
$
|
(11,564
|
)
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
Depreciation
in continuing operations
|
|
|
85
|
|
|
498
|
|
Depreciation
in discontinued operations
|
|
|
108
|
|
|
-
|
|
Non-cash
impairment charges
|
|
|
24,497
|
|
|
-
|
|
Non-cash
restructuring charges
|
|
|
-
|
|
|
5,597
|
|
Gain
on disposal of discontinued operations
|
|
|
(1,657
|
)
|
|
-
|
|
Loss
on conversion of promissory notes
|
|
|
7,643
|
|
|
-
|
|
Derivative
financial instrument income
|
|
|
(4,510
|
)
|
|
-
|
|
Amortization
of discounts on promissory notes
|
|
|
1,011
|
|
|
-
|
|
Amortization
of warrants
|
|
|
-
|
|
|
68
|
|
Securities
issued to consultants
|
|
|
735
|
|
|
-
|
|
(Gain)
loss on debt extinguishments
|
|
|
(26
|
)
|
|
33
|
|
Gain
on disposal of patent
|
|
|
(30
|
)
|
|
(237
|
)
|
Warranty
expense
|
|
|
-
|
|
|
169
|
|
Gain
on vendor settlements
|
|
|
-
|
|
|
(92
|
)
|
Bad
debt expense
|
|
|
307
|
|
|
172
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
973
|
|
|
(445
|
)
|
Inventory
|
|
|
549
|
|
|
(551
|
)
|
Prepaid
expenses and other assets
|
|
|
(248
|
)
|
|
806
|
|
Net
operating assets of discontinued operations
|
|
|
(223
|
)
|
|
-
|
|
Accounts
payable
|
|
|
(834
|
)
|
|
(1,108
|
)
|
Other
liabilities
|
|
|
1,530
|
|
|
1,241
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(3,885
|
)
|
|
(5,413
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Acquisition
of property and equipment
|
|
|
-
|
|
|
(44
|
)
|
Increase
in restricted cash
|
|
|
-
|
|
|
(95
|
)
|
Proceeds
from sale of patents
|
|
|
30
|
|
|
-
|
|
Net
cash received on acquisition of WaveRider
|
|
|
169
|
|
|
-
|
|
Proceeds
from sale of discontinued operations
|
|
|
1,758
|
|
|
-
|
|
Proceeds
from sale of property and equipment
|
|
|
16
|
|
|
502
|
|
|
|
|
|
|
|
|
|
Net
cash provided by investing activities
|
|
|
1,973
|
|
|
363
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Proceeds
from sale of preferred shares (net of cash fees of $281)
|
|
|
2,225
|
|
|
-
|
|
Proceeds
from debt financing (net of cash fees of $101 in 2006)
|
|
|
989
|
|
|
1,500
|
|
Proceeds
(payments) on bank loan
|
|
|
(771
|
)
|
|
1,948
|
|
Proceeds
from convertible note
|
|
|
-
|
|
|
100
|
|
Payments
under note payable obligations
|
|
|
(299
|
)
|
|
(610
|
)
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
2,144
|
|
|
2,938
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
|
-
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
Net change
in cash and cash equivalents
|
|
|
232
|
|
|
(2,114
|
)
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of the period
|
|
|
380
|
|
|
2,280
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of the period
|
|
$
|
612
|
|
$
|
166
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements
WAVE
WIRELESS CORPORATION AND SUBSIDIARIES
Debtor
in Possession
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
(In
thousands, unaudited)
Supplemental
cash flow disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
158
|
|
$
|
141
|
|
|
|
|
|
|
|
|
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
issued in connection with convertible promissory notes
|
|
$
|
261
|
|
$
|
44
|
|
Warrants
issued in connection with promissory notes
|
|
$
|
-
|
|
$
|
32
|
|
Warrants
issued in connection with lease termination
|
|
$
|
-
|
|
$
|
233
|
|
Warrants
issued in connection with officer settlement
|
|
$
|
-
|
|
$
|
93
|
|
Warrants
issued in connection with preferred stock conversion
|
|
$
|
-
|
|
$
|
180
|
|
Issuance
of common stock to settle accounts payable obligation
|
|
$
|
-
|
|
$
|
138
|
|
Conversion
of preferred stock into common stock
|
|
$
|
5
|
|
$
|
5,100
|
|
Conversion
of debt into preferred stock |
|
$
|
10,512
|
|
$
|
-
|
|
See
Footnotes 4 & 6 for conversion of debt and preferred
stock
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Three
and Nine Months Ended September 30, 2006 and 2005
(Unaudited)
1.
|
PROCEEDINGS
UNDER CHAPTER 11 OF THE BANKRUPTCY CODE AND BASIS OF
PRESENTATION
|
Bankruptcy
Proceedings
On
October 31, 2006 (“Petition Date”), Wave Wireless Corporation (the “Company”)
filed a voluntary petition for reorganization under Chapter 11 of the U.S.
Bankruptcy Code (the “Code”) in the United States Bankruptcy Court for the
District of Delaware (“Court”). The Company’s significant operating
losses, working capital deficit, defaults on certain outstanding debentures,
together with the significant cash required to maintain operations, delays
in
commercializing next-generation products, and the loss of a key executive,
precipitated the need to seek protection under Chapter 11 of the
Code.
As
a
Debtor-in-Possession, The Company is authorized to continue to operate as an
ongoing business but may not engage in transactions outside the ordinary course
of business without the approval of the Court, after notice and an opportunity
for a hearing. Under the Code, actions to collect pre-petition
indebtedness, as well as pending litigation, are stayed, and other contractual
obligations against the Company may not be enforced. In addition, under
the Code, the Company may assume or reject executory contracts, including lease
obligations, subject to approval by the Court. Parties affected by these
rejections may file claims with the Court in accordance with the reorganization
process. Absent an order of the Court, substantially all pre-petition
liabilities are subject to treatment under a plan of reorganization to be voted
upon by creditors and holders of the Corporation’s preferred stock, and approved
by the Court. On April 5, 2007, the Company, together with the Official
Committee of Unsecured Creditors, filed a Joint Plan of Reorganization with
the
Court (“Joint Plan”), which Joint Plan was amended and restated and filed with
the Court on May 2, 2007. Under the terms and conditions of the Joint Plan,
holders of the Company’s common stock will receive no distribution, and all
common stock interests will be cancelled. A hearing by the Court to consider
confirmation of the Joint Plan is scheduled for June 14, 2007.
Upon
confirmation of the Joint Plan and emergence from bankruptcy, the amounts
reported in subsequent financial statements will materially change due to the
restructuring of the Company’s assets and liabilities as a result of the Joint
Plan and the application of the provisions of Statement of Position 90-7,
“Financial Reporting by Entities in Reorganization under the Bankruptcy Code,”
(SOP 90-7). Financial statements for periods subsequent to confirmation of
the
Joint Plan and emergence from Chapter 11 will not be comparable with those
of
prior periods.
As
a
result of the filing of the bankruptcy petition, all liabilities reflected
on
the balance sheet are subject to compromise.
Going
Concern
The
accompanying financial statements have been prepared on a going concern basis,
which assumes continuity of operations and realization of assets and
satisfaction of liabilities in the ordinary course of business. The
ability of the Company to continue as a going concern is predicated upon
numerous issues, including confirmation of the Joint Plan by the Court in a
timely manner, and successful implementation of the Joint Plan.
Discontinued
Operations
On
March
28, 2006, the Company merged a wholly owned subsidiary of the Company with
and
into WaveRider Communications Inc. (“WaveRider”) (the “WaveRider Merger”). On
June 30, 2006, the Company sold WaveRider Communications Australia Pty Ltd.
and,
on July 1, 2006, the Company sold all of its interest in WaveRider
Communications (Canada) Inc. and its wholly owned subsidiary, JetStream Internet
Services Inc., WaveRider Communications (USA) Inc. and Avendo Wireless
Corporation. Subsequent to the end of the quarter ended September 30, 2006,
WaveRider sold its 900 MHz business. As a result, WaveRider has no continuing
operations other than winding down its business for the benefit of its
creditors. In addition, subsequent to the quarter ended September 30, 2006,
the
Company disposed of its repair and maintenance business (“RMA Business”). The
operations of these entities and business units have been segregated and shown
as discontinued operations in the condensed consolidated statements of
operations and the assets and liabilities of these entities still existing
at
September 30, 2006 have been shown as assets and liabilities, respectively,
from
discontinued operations in the condensed consolidated balance
sheet.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Three
and Nine Months Ended September 30, 2006 and 2005
(Unaudited)
The
Company continues to operate its SPEEDLAN product line, which is shown as an
ongoing business, while in protection under Chapter 11 of the Code.
Derivative
Liability Accounting
Derivative
instrument accounting arises when certain financial instruments, such as
warrants to acquire common stock, are classified as liabilities due to either
(a) the holder possesses rights to net-cash settlement or (b) physical or net
share settlement is not within the control of the Company. In such instances,
net-cash settlement is assumed for financial accounting and reporting, even
when
the terms of the underlying contracts do not provide for net-cash settlement.
Such derivative financial instruments are initially recorded at fair value
with
subsequent changes in the fair value charged (credited) to operations each
reporting period.
With
the
issuance of the Company’s Series J and Series J-1 Preferred Stock, the Company
determined that the warrants associated therewith should be accounted for as
a
derivative liability. Additionally, during the three months ended June 30,
2006, the Company did not have enough authorized common stock, if all of the
existing preferred shares and other convertible financial instruments were
converted to common shares. As part of the Series J and Series J-1 offering
the
Company committed to seek shareholder approval for changes to its authorized
capital and the holders of these securities agreed to refrain from exercising
their warrants or converting their Series J and Series J-1 Preferred Stock
until
the earlier of shareholder approval or December 31, 2006. This matter has not
been brought before the shareholders for approval.
Fair
value for our financial instruments is determined using the closing price of
our
common stock at the close of each reporting period. Reductions in the remaining
life of unexercised warrants and declines in the price of our common stock
will
reduce the fair value of the preferred stock and warrants resulting in
additional credits to our consolidated statements of operations. Alternatively,
increases in the price of our common stock will increase the fair value of
the
preferred stock and warrants and may result in charges to operations. We will
continue to adjust our derivative financial instruments to fair value throughout
their term, or until we achieve the ability to net-share settle these
instruments, at which time they would be reclassified to equity.
Critical
Accounting Estimates
In
preparing the financial statements in conformity with accounting principles
generally accepted in the United States of America, management makes 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, as well as the reported amounts of revenues and expense during
the
reporting period. Actual results could differ from those estimates.
New
Accounting Pronouncements
Effective
January 1, 2006, the Company adopted Statement of Financial Accounting Standards
No. 123R, “Share-Based Payment,” (“FAS 123R”) using the
modified-prospective-transition method. Under this transition method,
compensation costs subsequent to December 31, 2005 will include, as the options
vest, the fair value of options granted prior to but not vested as of December
31, 2005.
The
adoption of FAS 123R had no material affect on the financial results for the
three and nine months ended September 30, 2006. As of September 30, 2006, there
is no material liability related to unvested share-based compensation awards
granted.
2.
ACQUISITION,
DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE
i) Effective
March 28, 2006, the Company consummated the WaveRider Merger. In connection
with
the WaveRider Merger, the Company issued 48,362,446 shares of common stock,
1,326.446 shares of Series H Preferred Stock, 132.6446 shares of Series I
Preferred Stock and 8,842,089 common stock purchase warrants in exchange for
all
of the issued and outstanding shares of WaveRider, and all outstanding long-term
debt. The warrants are exercisable at $0.20 per share for a five-year period
and
include a net share settlement feature. In addition, the Company issued to
the
employees of WaveRider 2,125,545 employee stock options, with an average
exercise price of $1.02 and to the warrant holders of WaveRider 2,125,613 common
share purchase warrants, with an average exercise price of $1.84.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Three
and Nine Months Ended September 30, 2006 and 2005
(Unaudited)
The
WaveRider Merger was accounted for as a purchase and is summarized as follows
(in thousands $):
Cash
on hand (including cash from loans made by Wave Wireless prior
to
|
|
|
|
|
the
acquisition which were forgiven on acquisition)
|
|
$
|
413
|
|
Other
current assets
|
|
|
2,241
|
|
Fixed
assets
|
|
|
200
|
|
Current
liabilities
|
|
|
(2,787
|
)
|
|
|
|
|
|
Net
assets received
|
|
|
67
|
|
Goodwill
|
|
|
14,745
|
|
|
|
|
|
|
Total
consideration received
|
|
$
|
14,812
|
|
|
|
|
|
|
Common
stock issued on closing
|
|
$
|
6,432
|
|
Preferred
stock issued on closing
|
|
|
4,705
|
|
Warrants
issued on closing at fair value
|
|
|
1,492
|
|
WaveRider
shares forfeited on merger
|
|
|
450
|
|
Employee
stock options issued on closing at fair value
|
|
|
83
|
|
Expenses
incurred on acquisition
|
|
|
1,650
|
|
|
|
|
|
|
Total
consideration given
|
|
$
|
14,812
|
|
|
|
|
|
|
The
cash effect of this transaction is summarized as follows:
|
|
|
|
|
|
|
|
|
|
Cash
acquired on closing
|
|
$
|
413
|
|
ii) The
Company has determined that the goodwill created upon the WaveRider Merger
be
allocated to the individual units acquired as follows (in thousands
$):
WaveRider
Communications Inc.
|
|
$
|
12,679
|
|
WaveRider
Communications (Australia) Pty Ltd.
|
|
|
1,150
|
|
WaveRider
Communications (Canada) Inc.
|
|
|
916
|
|
|
|
|
|
|
|
|
$
|
14,745
|
|
iii) On
June
19, 2006, the Company’s Board of Directors approved the disposal of its interest
in WaveRider Communications (Australia) Pty Ltd. for cash considerations of
$370,000 plus contingent consideration of 15% of the trailing 12 months revenue,
payable quarterly in arrears. The sale was completed on June 30, 2006. In
October, the Company received the first payment of the contingent consideration
in the amount of $143,000.
As
a
result of the sale on June 30, 2006, there were no operations for the three
months ended September 30, 2006. Results for WaveRider Communications
(Australia) for the six months ended June 30, 2006 are as follows (in thousands
$):
Revenue
|
|
$
|
1,243
|
|
Cost
of goods sold
|
|
|
664
|
|
|
|
|
|
|
Gross
profit
|
|
|
579
|
|
|
|
|
|
|
Selling
and marketing expenses
|
|
|
(387
|
) |
|
|
|
|
|
Loss
on disposal of assets
|
|
|
897
|
|
|
|
|
|
|
Other
income
|
|
|
(17
|
)
|
Loss
on discontinued operations
|
|
$
|
688
|
|
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Three
and Nine Months Ended September 30, 2006 and 2005
(Unaudited)
On
July
1, 2006, the Company disposed of its interests in WaveRider Communications
(Canada) Inc. (exclusive
of its 900 MHz business), including its wholly owned subsidiary JetStream
Internet Services Inc. (“JetStream”), WaveRider Communications (USA) Inc. and
Avendo Wireless Inc. for proceeds of $1,773,000, of which $1,388,000 was
received in cash on that date, and a $385,000 hold back which is to be paid,
subject to satisfaction of certain conditions. Subsequent to closing, it was
determined that an adjustment of $61,000 was required in the calculation of
inventory sold in the transaction, reducing the total purchase price and the
hold back by this amount.
The
following represents the results of operations of these disposed operations
and
the 900 MHz business for the nine months ended September 30, 2006 (in thousands
$):
Revenue
|
|
$
|
3,155
|
|
Cost
of goods sold
|
|
|
2,162
|
|
|
|
|
|
|
Gross
profit
|
|
|
993
|
|
|
|
|
|
|
Selling
and marketing expenses
|
|
|
(1,957
|
)
|
Gain
on disposal of assets
|
|
|
963
|
|
|
|
|
|
|
Loss
on discontinued operations
|
|
$
|
(1
|
)
|
Subsequent
to September 30, 2006, the Company sold its 900 MHz business. The
following assets and liabilities of the 900 MHz business, as at September
30,
2006, are included in assets and liabilities from discountinued
operations (in thousands $):
Accounts
receivable
|
|
$
|
795
|
|
Inventory
|
|
|
800
|
|
Property
rights
|
|
|
340
|
|
Fixed
assets
|
|
|
46
|
|
|
|
|
|
|
|
|
$
|
1,981
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
1,705
|
|
On
November 15, 2006, the Company sold its RMA Business. For the nine months
ended September 30, 2006, revenues attributable to the RMA Business were
approximately $2.7 million, and costs were approximately $2.5 million,
contributing approximately $.20 million in gross profit. Other expenses,
assets and liabilities are not directly attributable to the RMA Business,
and
have not been reflected as discontinued operations.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Three
and Nine Months Ended September 30, 2006 and 2005
(Unaudited)
3. NET
LOSS PER SHARE
For
purposes of computing basic and diluted net loss per common share in the three
and nine months ended September 30, 2006, the weighted average common share
equivalents do not include stock options with an exercise price that exceeds
the
average fair market of the Company's common stock for the period because the
effect would be anti-dilutive. Because losses were incurred in the three and
nine months ended September 30, 2006 and 2005, all options, warrants, and
convertible notes are excluded from the computations of diluted net loss per
share because they are anti-dilutive.
4. BORROWING
AND OTHER OBLIGATIONS
At
September 30, 2006, we
were
generally in default on all outstanding debt.
Debt
at September 30, 2006 consists of the following (in thousands $):
Debenture
financing (i)
|
|
$
|
2,602
|
|
Note
payable - Siemens; in default (see Note 9)
|
|
|
350
|
|
Note
payable, former vendor, due in monthly installments of
|
|
|
|
|
$35,000
through June 2006; in default
|
|
|
322
|
|
Other
|
|
|
51
|
|
|
|
|
|
|
|
|
$
|
3,325
|
|
(i)
Debenture Financing. On
November 10, 2005, the Company entered into an agreement with a purchaser of
notes issued under an existing Debenture Agreement which exchanged all issued
and outstanding notes for and in consideration for the issuance to the purchaser
of a new promissory note, in the principal amount of $4,153,649 (the “New
Note”), which amount represented unpaid principal and accrued interest due under
the terms of the old notes as of the date of the New Note, October 1, 2005.
Under the terms of the New Note, interest accrued on such debt at an annual
interest rate of 8%, and this rate increased to 10% on April 1, 2006 through
the
maturity date of the loan, December 31, 2007. Payments of principal and accrued
interest under the New Note are amortized and paid by Wave Wireless over a
period of eight quarters in either cash or shares of Wave Wireless’ common
stock, with the first amortization payment being made on December 31, 2005.
The
Company’s obligations under the Debenture Agreement are covered by a Security
Agreement covering all of the assets of the Company.
On
March
27, 2006, the Company and the purchaser entered into an Exchange Agreement,
pursuant to which the purchaser agreed to convert $1,230,475 of principal and
accrued interest due to purchaser on the date thereof into 260.3183 shares
of
our Series J Convertible Preferred Stock and warrants to purchase 7,809,548
shares of our common stock, at an exercise price of $0.12 per share, (the “Note
Exchange”). Such conversion is in lieu of the quarterly payments due March 31,
2006 and June 30, 2006. The Series J Convertible Preferred Stock is convertible
into 26,031,827 shares of our common stock. The Company recorded a loss on
conversion in the amount of $3.507 million, including finance expense. The
fair
value of the financial instruments issued has been allocated to the Series
J
Convertible Preferred Stock and the warrants, in the amount of $3,644 and
$1,094, respectively.
As
a
result of the Note Exchange, the total amount due purchaser on September 30,
2006 was $2,602,038. At September 30, 2006, the company failed to make the
required quarterly installment and, therefore, is in default of the
loan.
(ii)
Convertible Notes. During
2005, Wave Wireless issued convertible promissory notes to certain purchasers
in
the principal amount of $850,000, payable on or before March 31, 2006 (the
“Convertible Notes”). Interest accrued on the Convertible Notes at an annual
interest rate of 10%. As additional consideration for the loans evidenced by
the
Convertible Notes, the holders were issued warrants for the issuance of
2,125,000 shares of common stock of Wave Wireless, exercisable for 5 years,
at
an exercise price of $0.20 per share. The notes were discounted for the relative
fair value of the warrants issued and the intrinsic value of the beneficial
conversion features associated with the notes.
From
January 1, 2006 through March 31, 2006, Wave Wireless issued additional
Convertible Notes to certain purchasers in the principal amount of $1.09
million. As additional consideration for the loans evidenced by the Convertible
Notes, the holders were issued warrants for the issuance of 2,725,000 shares
of
common stock of Wave Wireless, exercisable for five years, at an exercise price
of $0.20 per share.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Three
and Nine Months Ended September 30, 2006 and 2005
(Unaudited)
Under
the
terms of the Convertible Notes, as amended by the terms of the Amendment to
Promissory Note dated as of March 27, 2006 (the “Amendment Agreement”), the
outstanding principal amounts and all accrued but unpaid interest under the
terms of all issued and outstanding Convertible Notes automatically converted
into shares of Series J Convertible Preferred Stock and warrants to purchase
shares of common stock, at an exercise price of $0.12 per share, on March 31,
2006 (the “Series J Equity Securities”). For purposes of determining the number
of Series J Equity Securities that each holder received upon conversion, the
holders were deemed to have tendered 120% of the outstanding balance of the
Convertible Notes as payment of the purchase price for the Series J Equity
Securities. As consideration for entering into the Amendment Agreement the
Company reduced the exercise price of the Warrants issued in conjunction with
Convertible Notes from $0.20 to $0.12 per share. The Company recorded a loss
on
conversion in the amount of $3.835 million, included in finance
expense.
The
Series J Convertible Preferred Stock and warrants issued in connection with
the
conversion of all outstanding Convertible Notes is convertible or exercisable,
as the case may be, into 31,728,719 and 9,518,616 shares of common stock,
respectively. The fair value of the financial instruments issued has been
allocated to the Series J Convertible Preferred Stock and the warrants, in
the
amount of $4,442 and $1,333, respectively.
Inventory
at September 30, 2006 is comprised of finished goods available for
sale.
Other
accrued liabilities consist of the following (in thousands, unaudited):
Accrued
compensation and employee benefits
|
|
$
|
318
|
|
Accrued
penalty for late filing of registration statement
|
|
|
615
|
|
Accrued
warranty
|
|
|
341
|
|
Accrued
legal and accounting
|
|
|
162
|
|
Value
added and other sales tax payable
|
|
|
321
|
|
Other
|
|
|
966
|
|
|
|
|
|
|
Balance
at September 30, 2006
|
|
$
|
2,723
|
|
6.
STOCKHOLDERS'
EQUITY
Under
the terms and conditions of the Joint Plan, as amended, and filed with the
Court
on May 2, 2007, holders of the Company’s common stock will not receive any
distribution, and all of the rights of the preferred stockholders will be
terminated. Holders of preferred stock will be given an opportunity in the
Joint
Plan to acquire common stock in the Corporation, under the terms of the Joint
Plan.
The
authorized capital stock of Wave Wireless consists of 250 million shares of
common stock, $0.0001 par value, and 2.0 million shares of preferred stock,
$0.0001 par value, including 500,000 shares of which have been designated Series
A Junior Participating Preferred Stock (the "Series A Preferred Stock") pursuant
to the Stockholder Rights Agreement (see discussion below), 2,000 shares of
Series E Preferred Convertible Preferred Stock (the "Series E Preferred Stock"),
250 shares of Series F Convertible Preferred Stock (the "Series F Preferred
Stock"), 10,000 shares of Series G Convertible Preferred Stock (the "Series
G
Preferred Stock"), 2,000 shares of Series H Convertible Preferred Stock (the
“Series H Preferred Stock”), 200 shares of Series I Convertible Preferred Stock
(the “Series I Preferred Stock”), 1,250 shares of Series J Convertible Preferred
Stock (the “Series J Preferred Stock”), and 300 shares of Series J-1 Convertible
Preferred Stock.
PREFERRED
STOCK
The
Board
of Directors is authorized to issue shares of preferred stock in one or more
series and to fix or alter the designations, preferences, rights and any
qualifications, limitations or restrictions of the shares of each series,
including the dividend rights, dividend rates, conversion rights, voting rights,
term of redemption, including sinking fund provisions, redemption price or
prices, liquidation preferences and the number of shares constituting any series
or designations of any series, without further action by the holders of common
stock.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Three
and Nine Months Ended September 30, 2006 and 2005
(Unaudited)
Series
H and I Convertible Preferred Stock
Wave
Wireless has designated 2,000 shares of its preferred stock as Series H
Convertible Preferred Stock (the "Series H Preferred Stock") and 200 shares
of
its preferred stock as Series I Convertible Preferred Stock (the “Series I
Preferred Stock”). In conjunction with the WaveRider Merger, Wave Wireless
issued 1,326.446 shares of Series H Preferred Stock and 132.6446 shares of
Series I Preferred Stock, along with warrants to purchase 8,842,089 shares
of
common stock, at an exercise price of $0.20, to a holder of WaveRider
convertible debentures.
The
Series H Preferred Stock has a liquidation preference amount equal to $1,000
per
share. Each share of Series H Preferred Stock is convertible into a number
of
shares of common stock equal to the liquidation preference amount divided by
the
conversion price of $0.15. The Series I Preferred Stock has a liquidation
preference amount equal to $1,000 per share. Each share of Series I Preferred
Stock is convertible into a number of shares of common stock equal to the
liquidation preference amount divided by the conversion price of
$0.01.
In
connection with the closing of the WaveRider Merger, all of the issued and
outstanding shares of the Series H and I Convertible Preferred Stock and the
related warrants were exchanged for 353.7333 shares of Series J Convertible
Preferred Stock and Series J Warrants to purchase 10,612,000 shares of Common
Stock. The
Company, after consideration of several valuation models, determined the fair
value of the preferred stock as an amount equal to the fair value of the number
of common shares into which the resulting Series J Preferred Stock is
convertible into using the trading market price on the date the WaveRider
Merger.
Series
J Convertible Preferred Stock
Wave
Wireless has designated 1,250 shares of its preferred stock as Series J
Convertible Preferred Stock (the "Series J Preferred Stock"), of which 1,247
shares were issued and outstanding as of September 30, 2006. The Series J
Preferred Stock has a liquidation preference amount equal to $7,500 per share.
Each share of Series J Preferred Stock is convertible into a number of shares
of
common stock equal to the liquidation preference amount divided by the
conversion price of $0.075.
The
Company, after consideration of several valuation models, determined the fair
value of the preferred stock as an amount equal to the fair value of the number
of common shares into which the Series J Preferred Stock is convertible into
using the trading market price on the date the Series J Preferred Stock was
issued.
Series
J-1 Convertible Preferred Stock
Wave
Wireless has designated 300 shares of its preferred stock as Series J-1
Convertible Preferred Stock, of which 121 shares were issued and outstanding
as
of September 30, 2006. The Series J-1 Preferred Stock has a liquidation
preference amount equal to $7,500 per share. Each share of Series J-1 Preferred
Stock is convertible into a number of shares of common stock equal to the
liquidation preference amount divided by the conversion price of
$0.075.
The
Company, after consideration of several valuation models, determined the fair
value of the preferred stock as an amount equal to the fair value of the number
of common shares into which the Series J-1 Preferred Stock is convertible into
using the trading market price on the date the Series J-1 Preferred Stock was
issued.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Three
and Nine Months Ended September 30, 2006 and 2005
(Unaudited)
Issuances
of Series J and J-1 Convertible Preferred Stock (in thousands
$)
In
connection with exchange for Series H and I shares
|
|
$
|
4,705
|
|
In
connection with exchange of Bridge Notes
|
|
|
4,442
|
|
In
connection with debenture exchange
|
|
|
3,644
|
|
Sold
to qualified investors (excluding $1,199 included in derivative
liability
for excess shares)
|
|
|
1,309
|
|
Issued
to consultants in connection with the WaveRider Merger
|
|
|
957
|
|
Issued
to consultants in connection with the sale of a qualified
financing
|
|
|
568
|
|
Accretion
of shares sold to qualified investors to face value
|
|
|
1,199
|
|
|
|
|
|
|
|
|
$
|
16,824
|
|
7.
ASSET
IMPAIRMENT CHARGES
In
light
of the softness in telecommunications equipment markets, disappointing results
in its principal business units, and its current working capital deficit, and
management’s assessment regarding future operating results, at June 30, 2006,
the Company determined that an impairment charge was required on the basis
that
the carrying value of goodwill exceeded its fair value. Goodwill was created
by
the excess of the purchase price over the fair values of net assets acquired
in
connection with the acquisition of substantially all of the operating assets
and
certain liabilities of SPEEDCOM Wireless Corporation (“SPEEDCOM”), on December
10, 2003, and the merger with WaveRider Merger, which was consummated on March
31, 2006.
The
goodwill related to the acquisition of the SPEEDCOM amounted to $11,990,552.
After review of the potential proceeds on the sale of the remaining assets
associated with the SPEEDCOM product line, the Company has determined that
an
impairment charge of $11,740,552 was required on the basis that the carrying
value of goodwill exceeded its fair value.
The
goodwill related to the WaveRider Merger amounted to $14,745,220. Goodwill
amounting to $1,150,000 was sold in connection with the sale of WaveRider
Communications (Australia) Pty Ltd on June 30, 2006 and goodwill amounting
to
$915,878 related to the sale of WaveRider Canada has been charged to impairment
expense. In addition, after review of the potential proceeds on the sale of
the
remaining assets associated with the WaveRider Merger, the Company has
determined that $340,000 of the goodwill should be reclassified as Product
Rights and that an impairment charge of $12,339,342 was required on the basis
that the carrying value of the remaining goodwill exceeded its fair
value.
A
summary
of inventory reserve activities is as follows (in thousands $):
|
|
Inventory
|
|
|
|
Reserve
|
|
|
|
|
|
Balance
at January 1, 2006
|
|
$
|
13,947
|
|
Additions
charged to Statement of Operations
|
|
|
145
|
|
|
|
|
|
|
Balance
at September 30, 2006
|
|
$
|
14,092
|
|
As
a
result of the sale of substantially all of the assets of WaveRider, and the
sale
of the Company’s RMA Business subsequent to the end of the quarter ended
September 30, 2006, future revenue is anticipated to be derived from the sale
of
the Company’s SPEEDLAN product line. SPEEDLAN sales are substantially
concentrated in a few North American based customers.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Three
and Nine Months Ended September 30, 2006 and 2005
(Unaudited)
9.
COMMITMENTS
AND CONTINGENCIES
Contract
Manufacturer
The
Company provides its primary contract manufacturer with ongoing production
forecasts to enable them to forecast and procure required parts. Under the
terms
of the Agreements with the contract manufacturer, 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. On October 17, 2006, the
contract manufacturer acquired the Company’s interest in the products previously
manufactured under contract by the Company.
Default
under Registration Rights Agreement
The
Company is in default under a registration rights agreement that it entered
into
with the owners of the Series J and J-1 preferred shares. Under the agreement
the Company was required to file a registration statement on or before June
2,
2006. Failure to file the registration statement results in a penalty equal
to
2% of the value of the securities for the first 30 days, or part thereof, and
1%
for each subsequent 30 day period until the registration statement is filed.
With the filing of voluntary petition for reorganization under Chapter 11,
on
October 31, 2006, the Company expects any potential penalties to be limited
to
the period up to and including the filing date and has estimated the potential
penalty as $615,000.
Settlement
Agreements
The
Company is currently in default under a Settlement Agreement and Release
(“Settlement Agreement”) it entered into on September 15, 2004 with Siemens
Aktiengesellchaft ("Siemens") with respect to certain claims between Siemens
and
the Company arising under a Joint Development and License Agreement and Original
Equipment Manufacturer Agreement entered into between the parties. Under the
terms of the Settlement Agreement, the Company agreed to pay Siemens $500,000,
of which it paid $100,000 on October 1, 2004. The Company was obligated to
pay
an additional $100,000 upon the earlier of the receipt of financing by the
Company equal to at least $100,000 or December 31, 2004, and $300,000 in twelve
monthly installments of $25,000 per month beginning January 1, 2005. The Company
did not make the December 31, 2004 $100,000 payment but did make the first
two
monthly payments of $25,000 each in January and February 2005. The Company
has
made no other payments to Siemens and, as a result of the default, the remaining
amount of $350,000, plus accrued interest at 7% per annum, is immediately due
and payable.
Contingencies
In
June
2000, two former consultants to P-Com Italia S.p.A. filed a complaint against
P-Com Italia in the Civil Court of Rome, Italy seeking payment of certain
consulting fees allegedly due the consultants totaling approximately $615,000.
The Civil Court of Rome has appointed a technical consultant in order to
determine the merit of certain claims made by the consultants. On April 20,
2005, the Civil Court of Rome issued judgment dismissing the case, and ordered
the consultants to pay P-Com Italia's legal fees. The Civil Court's order has
been appealed by the consultants to the Court of Appeal of Rome.
In
July
2006, a former distributor to the Company filed a complaint against the Company
in the Superior Court of the State of California, Count of Santa Clara, for
breach of contract and fraud. The Complaint seeks damages totaling approximately
$627,000, relating to sales commissions allegedly owed, and for allegedly
defective products. While no assurances can be given, the Company has asserted
counterclaims in excess of $1.0 million, and intends to vigorously defend the
allegations contained in the Complaint. No liability related to this matter
has
been recorded in the financial statements.
10.
SUBSEQUENT
EVENTS
Sale
of Assets: On
October 17, 2006, WaveRider completed the sale of the operating assets related
to its 900 MHz product line. The purchase price for the assets was approximately
$1.25 million, and was determined based on the acquisition of trade accounts
receivable, inventory, capital assets and certain intangibles. The purchase
price was paid and satisfied first in repayment to the buyer of all amounts
owing by Wave Wireless or its affiliates pursuant to a supply agreement between
the buyer and WaveRider, which amount was approximately $1.55 million. As a
result of the sale, WaveRider has discontinued operations and is entering into
agreements with its creditors to settle all remaining liabilities and
obligations of WaveRider. To fund such agreements, WaveRider is using cash
derived from the settlement on January 25, 2007 of amounts due WaveRider in
connection with the sale of WaveRider Communications (Australia) Pty Ltd in
July
2007, or $438,000, and the payment to WaveRider on April 18, 2007 of
approximately $426,000.00 previously held back in connection with the sale,
on
July 1, 2006, of WaveRider Communications (Canada) Inc. and its wholly owned
subsidiary JetStream Internet Services Inc., WaveRider Communications (USA)
Inc.
and Avendo Wireless Corporation.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Three
and Nine Months Ended September 30, 2006 and 2005
(Unaudited)
During
the weeks preceding the Petition Date, the Company sold certain equipment and
related assets, in the approximate amount of $570,876. These assets principally
consisted of equipment used in connection with the Company’s research and
development activities.
Following
the Petition Date, the Company continued the liquidation of certain unprofitable
and other business lines and assets. These sales were conducted pursuant to
orders of the Court authorizing the sale of such assets. The most significant
asset sold following the Petition Date was the Company’s repair and maintenance
business (the “RMA Business”), which was sold on November 15, 2006 following a
Court ordered auction process. The purchase price for the RMA Business was
approximately $406,000, plus the assumption of certain liabilities.
As
a
result of these sales, the Company received approximately $983,000 in cash
subsequent to the end of the quarter ended September 30, 2006. The Company’s
remaining business line now consists of its SPEEDLAN line of wireless MESH
products. The Company has continued to market and sell the SPEEDLAN products
following the Petition Date, and intends to continue these marketing and sales
efforts pending confirmation of the Joint Plan.
Filing
of Joint Plan of Reorganization: On
April 5, 2007, the Company, together with Official Committee of Unsecured
Creditors jointly filed the Joint Plan. An amended Joint Plan was filed with
the
Court on May 2, 2007, and remains subject to approval by the Court. A hearing
by
the Court to confirm the Joint Plan is scheduled for June 14, 2007. As a result
of the filing of the Bankruptcy Petition, all liabilities of the Corporation
remain subject to treatment under the terms of the Joint Plan. The Joint Plan,
which remains subject to Court approval, also includes the following major
provisions:
1. |
The
Company will decrease its authorized capital stock to 250,000 by
filing a
Certificate of Amendment to its Articles of
Incorporation.
|
2. |
The
Company will issue 70,000 new shares of restricted common stock to
its
principal senior secured creditor, SDS Capital Group, LLC (“SDS”). Up to
30,000 shares of restricted common stock will be offered to unsecured
creditors and holders of existing preferred stock for $1.00 per share.
|
3. |
All
current outstanding common and preferred shares, and all outstanding
stock
options and warrants, will be cancelled, without distribution to
the
holders thereof.
|
This
Quarterly Report on Form 10-QSB contains forward-looking statements, which
involve numerous risks and uncertainties. The statements contained in this
Quarterly Report on Form 10-QSB that are not purely historical may be considered
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, and Section 21E of the Securities Exchange Act of 1934, including
without limitation, statements regarding the Company's expectations, beliefs,
intentions or strategies regarding the future. Our actual results may differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under "Certain Factors
Affecting the Company" contained in our Annual Report on Form 10-KSB, and other
documents filed by us with the Securities and Exchange Commission.
Significant
Events
Notice
of Filing of Bankruptcy Petition and Sale of Operating
Assets
On
October 31, 2007, the Company filed a voluntary petition for relief under
Chapter 11 of the United States Bankruptcy Code (“Code”) in the United States
Bankruptcy Court for the District of Delaware (the “Court”) in order to
facilitate the restructuring of the Company’s debt, trade liabilities and other
obligations. The Company is currently operated as a “debtor-in-possession”
under the jurisdiction of the Court and in accordance with the applicable
provisions of the Code, the Federal Rules of Bankruptcy Procedure and applicable
Court orders. In general, as a debtor-in-possession, the Company is
authorized under Chapter 11 to continue to operate as an ongoing business,
but
not to engage in transactions outside the ordinary course of business without
the prior approval of the Court. On December 1, 2006, the United States Trustee
appointed the Committee of Unsecured Creditors (the “Committee”).
On
November 2, 2006, the Court ordered the conduct of an auction to sell the
Company’s RMA Business. As a result of the auction, which was held on November
13, 2006, the Company sold the RMA Business for approximately $406,000 in cash,
plus the assumption of certain liabilities. Also pursuant to a Court order
entered on November 13, 2007, the Company has sold certain de minimus assets
totaling less than $100,000. As a result of these sales, the Company’s
continuing operations consist of the marketing and sale of its SPEEDLAN product
line.
On
April
5, 2007, the Company, together with the Committee, filed a Joint Plan of
Reorganization with the Court (“Joint Plan”), and an amended Joint Plan was
filed with the Court on May 2, 2007. Subject to approval of the Joint Plan
by
the Court, the Company intends to continue to operate market and sell the
SPEEDLAN product line, although no assurances can be given.
GIVEN
THESE UNCERTAINTIES, READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON
FORWARD-LOOKING STATEMENTS. Other than as required by law, we disclaim any
obligation to update information concerning the factors mentioned above or
to
publicly announce the result of any revisions to any of the forward-looking
statements contained herein to reflect future results, events or developments.
Description
of Business
CERTAIN
DISCUSSIONS WHICH FOLLOW REGARDING THE DESCRIPTION OF BUSINESS REFER TO THE
OPERATING BUSINESS PRIOR TO THE FILING OF THE BANKRUPTCY PETITION AND SUBSEQUENT
SALE OF CERTAIN OF THE COMPANY’S OPERATIONAL ASSETS, INCLUDING ITS RMA
BUSINESS.
We
are a
developer of wireless broadband solutions, offering a portfolio of wireless
mesh
routers, and fixed and mobile non-line-of-sight (NLOS) products that can be
deployed in all types of environments. Our products are used for applications
ranging from mission critical public safety communications, video surveillance,
municipal networks, and private enterprise networks to last mile broadband
access. First responders, telecom carriers, municipalities, wireless Internet
service providers, utilities, security companies and the military have deployed
Wave Wireless solutions. We also provide repair, maintenance and other services
to our licensed and other customers worldwide.
Wave
Wireless originally acquired the Wave Wireless networking product line
(“SPEEDLAN”) from SPEEDCOM Wireless Corporation in December 2003 as a means to
complement its legacy business focused on licensed wireless backhaul products,
and to gain entry into the market for enterprise-class license-exempt wireless
solutions.
On
March
28, 2006, a wholly owned subsidiary of the Company was merged with and into
WaveRider Communications Inc. (the “WaveRider Merger”). The WaveRider Merger
brought together complementary business lines, engineering, sales and marketing
compatibilities and technology. The combination of Wave Wireless’ SPEEDLAN
family of mesh networking products and WaveRider’s Last Mile
Solutionâ
non-line-of-sight, fixed and mobile wireless 900 MHz products provided customers
with a wide range of line-of-sight fixed and non-line-of-sight products and
services.
The
product, personnel and other synergies resulting from the WaveRider Merger
were
intended to lower operating and other costs, and increase revenue in each
company’s respective product lines. Following consummation of the WaveRider
Merger, the Company experienced far longer sales cycles for new products than
were expected, certain product availability issues in connection with its 900
MHz non-line-of-sight products, and continuing delays in commercializing new
Mesh products, resulting in substantially lower revenue in each of these product
lines than previously expected. Due to the recognition of lower than anticipated
revenue during the quarter ended September 30, 2006, the Company was required
to
use a significant amount of its cash resources to satisfy certain legacy
obligations, and the costs incurred in connection with consummation of the
WaveRider Merger. As a result of these factors, and the Company’s deteriorating
cash position, management entered into discussions to sell certain non-core
assets in order to satisfy its working capital requirements.
Management
of WaveRider’s Australian subsidiary had approached it on a number of occasions
about the possibility of a management buy-out of WaveRider Australia. On June
19, 2006, the Company’s board of directors met and agreed that, as a non-core
asset, the sale of the Australian subsidiary should be considered and directed
management to enter into formal negotiations. On June 30, 2006, the Company
sold
WaveRider Communications (Australia) Pty Ltd., for cash consideration of
$370,000 plus contingent consideration calculated at 15% of revenue for the
following 12 months, payable quarterly in arrears.
On
June
1, 2006, following informal discussions between the two companies,
representatives of VCom Inc. approached the Company about the possibility of
acquiring the Canadian operations of WaveRider. Upon receipt of a tentative
Letter of Offer, the Company’s Board of Directors, at their June 19 meeting,
directed management to enter into formal negotiations. On July 1, 2006, the
Company sold WaveRider Communications (USA) Inc., Avendo Wireless Corporation
and WaveRider Communications (Canada) Inc., including its wholly owned
subsidiary, JetStream Internet Services Inc. to VCom Inc.
The
sale
of the former WaveRider subsidiaries, while generating much needed short-term
working capital, resulted in the disposition of substantially all of WaveRider’s
international revenue. The Company retained WaveRider’s intellectual property
and its North American operations.
As
a
result, the operations which will not be ongoing for the Company have been
shown
as loss from discontinued operations in the condensed consolidated statements
of
operations.
During
the quarter ended September 30, 2006, Charles Brown, the Company’s President and
Chief Executive Officer, unexpectedly tendered his resignation. Mr. Brown's
resignation materially impacted the Company's ability to continue to address
the
ongoing poor operating results in the Company’s principal business units and the
Company’s continuing deteriorating working capital position. Following Mr.
Brown’s resignation, the Company’s Board of Directors met to consider
alternatives available to the Company in order to continue as a going concern.
In
order
to provide for its immediate working capital needs, and in light of the Board’s
determination that additional equity or debt financing would likely be
unavailable to the Company, the Board of Directors directed management to
explore the sale of certain or all remaining product lines and business units.
These efforts failed to generate sufficient interest to address the Company’s
ongoing working capital needs. As a result, the Board determined to seek
protection from its creditors, and to reorganize under Chapter 11 of the Code.
Critical
Accounting Policies
MANAGEMENT'S
USE OF ESTIMATES AND ASSUMPTIONS. The preparation of financial statements in
accordance with accounting principles generally accepted in the U.S. 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 reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates, and such differences could be material and affect the results of
operations reported in future periods.
REVENUE
RECOGNITION. Revenue from product sales is recognized upon transfer of title
and
risk of loss, which is upon shipment of the product, provided no significant
obligations remain and collection is probable. Provisions for estimated warranty
repairs, returns and other allowances are recorded at the time revenue is
recognized.
ALLOWANCE
FOR DOUBTFUL ACCOUNTS. We maintain an allowance for doubtful accounts for
estimated losses from the inability of our customers to make required payments.
We evaluate our allowance for doubtful accounts based on the aging of our
accounts receivable, the financial condition of our customers and their payment
history, our historical write-off experience and other assumptions. In order
to
limit our credit exposure, we require irrevocable letters of credit and even
prepayment from certain of our customers before commencing production.
INVENTORY.
Inventory is stated at the lower of cost or market, cost being determined on
a
first-in, first-out basis. We assess our inventory carrying value and reduce
it
if necessary, to its net realizable value based on customer orders on hand,
and
internal demand forecasts using management's best estimate given the information
currently available. Our customers' demand is highly unpredictable, and can
fluctuate significantly, caused by factors beyond the control of the Company.
Our inventories include parts and components that are specialized in nature
or
subject to rapid technological obsolescence. We maintain an allowance for
inventories for potentially excess and obsolete inventories and gross inventory
levels that are carried at costs that are higher than their market values.
If we
determine that market conditions are less favorable that those projected by
management, such as an unanticipated decline in demand not meeting our
expectations, additional inventory write-downs may be required.
PROPERTY
AND EQUIPMENT. Property and equipment are stated at cost and include tooling
and
test equipment, computer equipment, furniture, land and buildings, and
construction-in-progress. Depreciation is computed using the straight-line
method based upon the useful lives of the assets ranging from three to seven
years. Leasehold improvements are amortized using the straight-line method
based
upon the shorter of the estimated useful lives or the lease term of the
respective assets.
IMPAIRMENT
OF LONG-LIVED ASSETS. In the event that facts and circumstances indicate that
the long-lived assets may be impaired, an evaluation of recoverability would
be
performed. If an evaluation were required, the estimated future undiscounted
cash flows associated with the asset would be compared to the asset's carrying
amount to determine if a write-down is required.
CONCENTRATION
OF CREDIT RISK. Financial instruments that potentially subject the Company
to
significant concentrations of credit risk consist principally of cash
equivalents and trade accounts receivable. The Company places its cash
equivalents in a variety of financial instruments such as market rate accounts
and U.S. Government agency debt securities. The Company, by policy, limits
the
amount of credit exposure to any one financial institution or commercial issuer.
The
Company performs on-going credit evaluations of its customers' financial
condition to determine the customer's credit worthiness. Sales are then
generally made either on 30 to 60 day payment terms, COD or letters of credit.
The Company extends credit terms to international customers for up to 90 days,
which is consistent with prevailing business practices.
At
September 30, 2006, there was no significant concentration of trade accounts
receivable.
RESULTS
OF OPERATIONS
SALES.
For the three months ended September 30, 2006, sales were approximately $222,000
as compared to $506,000 in the comparable period in the prior year. For the
nine
months ended September 30, 2006, sales were approximately $1.0 million, as
compared to $1.2 million in the comparable period in the prior year. The Company
continues to sell and support its SPEEDLAN product line but has seen continuing
declines in revenue as a result of its financial condition.
GROSS
PROFIT (LOSS). Gross profit for the three months ended September 30, 2006 and
2005, was $133,000 and $251,000, respectively, or 60% and 50% of sales in each
of the respective quarters. Gross profit for the nine months ended September
30,
2006 and 2005 was $540,000 and $589,000, respectively, or 52% and 47% of sales
in each of the respective periods. Gross margins improved due to limited
discounting on the remaining revenue levels.
RESEARCH
AND DEVELOPMENT. For the three and nine months ended September 30, 2006 and
2005, research and development ("R&D") expenses were approximately $295,000
and $1.3 million, and $496,000 and $2.5 million, respectively. The Company
has
significantly reduced its R&D spending due to its deteriorating financial
condition.
SELLING
AND MARKETING. For the three and nine months ended September 30, 2006 and 2005,
sales and marketing expenses were approximately $208,000 and $1.0 million,
and
$564,000 and $2.7 million, respectively. During the third quarter, the Company
cut substantially all selling and marketing expenditures, and plans limited
expenditures until it completes its reorganization.
GENERAL
AND ADMINISTRATIVE. For the three and nine months ended September 30, 2006
and
2005, general and administrative expenses were approximately $575,000 and $1.3
million, and $658,000 and $2.5 million, respectively. The majority of the
general and administrative expenses in the three months ended September 30,
2006
was related to the write down of accounts receivable, in the amount of $307,000.
The Company retains a small staff to provide administrative services, and plans
limited expenditures until it completes its reorganization.
ASSET
IMPAIRMENT AND RESTRUCTURING CHARGES. In the event that certain facts and
circumstances indicate that the long-lived assets may be impaired, an evaluation
of recoverability would be performed. When an evaluation occurs, management
conducts a probability analysis based on the weighted future undiscounted cash
flows associated with the asset. The results are then compared to the asset's
carrying amount to determine if impairment is necessary. The cash flow analysis
for the property and equipment is performed over the shorter of the expected
useful lives of the assets, or the expected life cycles of our product line.
An
impairment charge is recorded if the net cash flows derived from the analysis
are less than the asset's carrying value. We deem that the property and
equipment is fairly stated if the future undiscounted cash flows exceed its
carrying amount.
On
August
3, 2006, Wave Wireless announced that it was reviewing its business operations
with the intent to sell certain product lines and business units, or enter
into
strategic relationships for individual product lines and business units. An
impairment charge and loss on discontinued operation of $24.5 million was taken
as of June 30, 2006, related to the write-down of goodwill and disposal of
other
assets, partially offset by reductions in prior provisions.
In
April
2005, Wave Wireless announced the adoption of a restructuring plan that
significantly curtailed then current spending, and substantially reduced
liabilities and operating and other costs. The restructuring plan included
the
divestiture of certain unprofitable product lines, workforce reductions,
write-down of certain inventory, and a loss associated with the divestiture
of
the Company's research and development operations in Italy.
FINANCING
EXPENSE. For the nine months ended September 30, 2006 financing expense was
$9.5
million. This expense was mainly due to non-cash charges, during the first
quarter of 2006, related to the conversion of promissory notes and debt to
Series J Convertible Preferred Stock, the issue of Series J Stock to consultants
in connection with the Company’s promissory note financing, the accretion to
face value of the promissory notes and amortization of deferred financing
charges. During the second quarter, the Company failed to file a registration
statement related to the sale of the Series J and J-1 preferred shares and
related warrants. As a result, a penalty provision in the registration rights
agreement was triggered and the Company has accrued an anticipated liability
of
$615,000.
DERIVATIVE
INSTRUMENT INCOME (EXPENSE). Derivative
instrument income amounted to $2.06 million and $3.29 for the three and nine
months ended September 30, 2006, respectively. Derivative instrument income
(expense) arises from fair value adjustments for certain financial instruments,
such as convertible preferred stock and warrants to acquire common stock and
are
classified as liabilities when either (a) the holder possesses rights to
net-cash settlement or (b) physical or net share settlement is not within the
control of the Company. In such instances, net-cash settlement is assumed for
financial accounting and reporting, even when the terms of the underlying
contracts do not provide for net-cash settlement. Such derivative financial
instruments are initially recorded at fair value with subsequent changes in
the
fair value charged (credited) to operations each reporting period.
INTEREST
EXPENSE. For the three and nine months ended September 30, 2006 and 2005,
interest expense was $76,000 and $544,000, and $201,000 and $589,000,
respectively.
GAIN
(LOSS) FROM DISCONTINUED OPERATIONS. For the three and nine months ended
September 30, 2006 and 2005, the gain from discontinued operations was $439,000
and ($490,000), and $1.1 million and $2.1 million respectively. The Company
sold
its operating subsidiary in Australia effective June 30, 2006 and the North
American subsidiaries of WaveRider Communications Inc. on July 1, 2006, the
900
MHz operation on October 18, 2006 and the RMA business on November 15, 2006.
LIQUIDITY
AND CAPITAL RESOURCES
CASH
PROVIDED (USED) IN OPERATIONS. During the three month period ended September
30,
2006, the Company used approximately $3.515 million in operating activities,
primarily due to our net loss of $33.8 million, less non-cash items of $33.4
million, offset by decreases in accounts receivable of $973,000, inventory
of
$550,000 and an increase in accrued and other liabilities of $696,000 less
increases in prepaid and other assets of $248,000 and net assets of discontinued
operations of $122.0 million and decreases in accounts payable of $834,000.
CASH
FROM
INVESTING ACTIVITIES. During the nine-month period ended September 30, 2006,
we
generated approximately $1.6 million from investing activities, mainly through
the sale of the WaveRider subsidiaries.
CASH
FROM
FINANCING ACTIVITIES. During the nine month period ended September 30, 2006,
we
received approximately $2.1 million of cash from financing activities, primarily
from $2.2 million from the sale of Series J and J-1 Convertible Preferred Stock
and $989,000 from the sale of promissory notes, offset by $771,000 in repayment
of advances under the Credit Facility and $299,000 under notes
payable.
CURRENT
LIQUIDITY. As of September 30, 2006, our principal sources of liquidity
consisted of approximately $612,000 of cash and cash equivalents, compared
to
approximately $380,000 in cash and cash equivalents at December 31, 2005. In
order to provide for its immediate working capital needs, and in light of the
Board’s determination that additional equity or debt financing would likely be
unavailable to the Company, the Board of Directors directed management to
explore the sale of certain or all remaining product lines and business units.
These efforts failed to generate sufficient interest to address the Company’s
ongoing working capital needs. As a result, the Board determined to seek
protection from its creditors, and to reorganize under Chapter 11 of the Code.
Since filing under Chapter 11 of the Code, the Company’s principal source of
liquidity has been existing cash, cash generated from the sale of assets, and
cash from the sale of its SPEEDLAN product line. As
of May
1, 2007, the Company had approximately $2.0 million in cash and cash
equivalents.
RECENT
ACCOUNTING PRONOUNCEMENTS
The
Financial Accounting Standards Board (“FASB”) has recently announced a new
interpretation, FASB Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes” (FIN 48), which will be effective for fiscal years beginning after
December 15, 2006. FIN 48 clarifies the accounting for uncertainty in income
taxes recognized in an enterprise’s financial statements in accordance with FASB
Statement recognition and measurement of a tax position taken or expected to
be
taken in a tax return. FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure and transition. The Company has determined that the impact of
the adoption of FIN 48 on its consolidated financial statement is
immaterial.
In
September 2006, the FASB issued Statement of Financial Accounting Standards
no.
157, Fair Value Measurements (FAS 157). This Standard defines
fair value, establishes a framework for measuring fair value in generally
accepted accounting principles and expand disclosures about fair value
measurements. FAS 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007 and interim periods within
those
fiscal years. The adoption of FAS 157 is not expected to have a material
impact on the Company’s financial position, results of operations, or cash
flows.
In
September 2006, the SEC staff issued Staff Accounting Bulletin No. 108,
“Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements (“SAB 108”). SAB 108 provides
guidance on the process of quantifying financial statement misstatements,
advising companies to use both a balance sheet (“iron curtain”) and an income
statement (“rollover”) approach when quantifying and evaluating the materiality
of a misstatement. The iron curtain approach quantifies a misstatement based
on
the effects of correcting the misstatement existing in the balance sheet
at the
end of the reporting period. The rollover approach quantifies a misstatement
based on the amount of the error originating in the current period income
statement, including the reversing effect of prior year misstatements. The
use
of this method can lead to the accumulation of misstatements in the balance
sheet. Under the guidance of SAB 108, companies will be required to adjust
their
financial statements if either the iron curtain or rollover approach results
in
the quantification of a material misstatement. Previously filed reports would
not be amended, but would be corrected the next time the company files prior
year financial statements. Companies are allowed to record a one-time cumulative
effect adjustment to correct errors in prior years that previously had been
considered immaterial based on their previous approach. SAB 108 is effective
for
the Company upon issuance of its Fiscal 2007 annual financial statements.
However, early application of SAB 108 is permitted for interim periods prior
to
the issuance of the annual financial statements. The Company does not believe
this standard will have any effect on its financial statements.
In
February 2007, the FASB issued Statement of Financial Accounting Standards
No.
159, The Fair Value Option for Financial Assets and Financial
Liabilities (FAS 159), which includes an amendment to FASB Statement No.
115. The Statement permits entities to choose, at specified election
dates, to measure eligible financial assets and financial liabilities at
fair
value (referred to as the “fair value option”) and report associated unrealized
gains and losses in earnings. Statement 159 is effective for fiscal years
beginning after November 15, 2007. As of December 31, 2006, the Company
has not determined the effect that the fair value option, if elected, will
have
on the consolidated financial position, or results of operations.
ITEM
3. CONTROLS
AND PROCEDURES
Disclosure
controls and procedures are controls and other procedures designed to ensure
that we timely record, process, summarize and report the information that we
are
required to disclose in the reports that we file or submit with the SEC. These
include controls and procedures designed to ensure that such information is
accumulated and communicated to our management, including our Chief
Restructuring Officer, to allow timely decisions regarding required
disclosure.
As
required under the Sarbanes-Oxley Act of 2002, our Chief Restructuring Officer
conducted a review of our disclosure controls and procedures as of the end
of
the period covered by this report. He concluded, as of the evaluation date,
that
our disclosure controls and procedures are effective.
During
the three months ended September 30, 2006, there were no changes in our internal
control over financial reporting that have affected, or are reasonably likely
to
affect, materially our internal control over financial reporting.
PART
II - OTHER INFORMATION
ITEM
1. LEGAL
PROCEEDINGS.
On
October 31, 2007, the Company filed a voluntary petition for relief under
Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy
Court for the District of Delaware (the “Court”) in order to facilitate the
restructuring of the Company’s debt, trade liabilities and other obligations.
The Company is currently operated as a “debtor-in-possession” under the
jurisdiction of the Court and in accordance with the applicable provisions
of
the Bankruptcy Code, the Federal Rules of Bankruptcy Procedure and applicable
Court orders. In general, as a debtor-in-possession, the Company is
authorized under Chapter 11 to continue to operate as an ongoing business,
but
not to engage in transactions outside the ordinary course of business without
the prior approval of the Court. On December 1, 2006, the United States Trustee
appointed the Committee of Unsecured Creditors (the “Committee”).
On
November 2, 2006, the Court ordered the conduct of an auction to sell the
Company’s RMA Business. As a result of the auction, which was held on November
13, 2006, the Company sold the RMA Business for approximately $406,000 in cash,
plus the assumption of certain liabilities. Also pursuant to a Court order
entered on November 13, 2006, the Company has sold certain de minimus assets
totaling less than $100,000. As a result of these sales, the Company’s
continuing operations consist of the marketing and sale of its SPEEDLAN product
line.
On
April
5, 2007, the Company, together with the Committee, filed a Joint Plan of
Reorganization with the Court (“Joint Plan”), and an amended Joint Plan was
filed on May 2, 2007. Subject to approval of the Joint Plan by the Court, the
Company intends to continue to operate market and sell the SPEEDLAN product
line, although no assurances can be given.
ITEM
2. UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None
ITEM
3. DEFAULTS
UPON SENIOR SECURITIES.
On
September 30, 2006, the Company did not make the required installment payment
for its debenture liability and is in default under the terms of the debenture.
As
a result, all amounts due under the terms of the debenture, $2,602,038, became
due and payable at September 30, 2006.
ITEM
4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
None.
(a)
Exhibits
2.1 |
Amended
Joint Chapter 11 Plan of Reorganization Proposed by the Debtor
and the
Official Committee of Unsecured Creditors, as filed with the
United States
Bankruptcy Court for the District of Delaware on May 2,
2007.
|
3.1 |
Certificate
of Incorporation, as amended and restated through August 22, 2005
incorporated by reference to exhibit 4.2 of the Registrant’s report on
Form 8-K filed on August 16, 2005
|
3.2 |
Bylaws,
as amended and restated through December 3, 2003, incorporated by
reference to exhibit 3.2 of the Registrant’s registration statement on
Form S-1 (file number 333-111405) declared effective by the Security
and
Exchange Commission on February 6,
2004.
|
31 |
Certification
of Principal Executive and Financial Officer Pursuant to Exchange
Act Rule
13a-14(a).
|
32
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002.
|
(b)
Reports on Form 8-K
July
7, 2006
|
The
(i) sale of WaveRider Communications (Australia) Pty Ltd., WaveRider
Communications (Canada) Inc. (including its wholly-owned subsidiary,
JetStream Internet Services Inc.), WaveRider Communications (USA)
Inc. and
Avendo Wireless; and; (ii) the resignation of Fred Fromm from the
Company’s Board of Directors.
|
August
3, 2006
|
The
(i) resignation of Charles Brown as the Company’s President, Chief
Executive Officer and a member of the Board of Directors: and; (ii)
the
appointment of James Chinnick as the Company’s President and Acting Chief
Executive Officer.
|
August
11, 2006
|
The
termination of the Loan and Security Agreement between the Company
and the
Silicon Valley Bank, effective August 9,
2006.
|
August
21, 2006
|
The
announcement of delay in filing the Company’s Quarterly Report, on Form
10-QSB, for the quarter ended June 30,
2006.
|
August
24, 2006
|
The
resignation of Michael Chevalier, Michael Milligan and Bruce Sinclair
from
the Company’s Board of Directors.
|
September
29, 2006
|
Notice
of Delisting from the Over the Counter - Bulletin
Board.
|
October
20, 2006
|
The
sale of the Company’s 900 MHz product
line.
|
October
24, 2006
|
The
(i) termination of James Chinnick as the Company’s President and Acting
Chief Executive Officer; and (ii) appointment of Daniel W. Rumsey
as the
Company’s Chief Restructuring
Officer.
|
November
1, 2006
|
The
(i) notice of the Company’s Filing of Chapter 11 Bankruptcy Petition; and
(ii) termination of Scott Worthington as the Company’s Vice President and
Chief Financial Officer.
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
|
|
WAVE
WIRELESS CORPORATION
|
|
|
|
|
Date: May 11, 2007 |
|
|
/s/ Daniel W. Rumsey |
|
|
|
Daniel
W. Rumsey, Chief Restructuring Officer
|
|
|
|
(Principal
Executive Officer, Principal Financial and Accounting
Officer)
|