<PAGE>
FORM 10 - Q
SECURITIES AND EXCHANGE COMMISSION
Washington D.C 20549
X Quarterly report pursuant to Section 13 or 15(d)
--- of the Securities Exchange Act of 1934 for the
quarterly period ended June 30, 1997 or
___ Transition report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 for the
transition period from ______________ to ______________.
Commission File Number: 0-20789
OneWave, Inc.
-------------
(Exact name of registrant as specified in its charter)
Delaware 04-3249618
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Arsenal Marketplace, Second Floor, Watertown, Massachusetts 02172
---------------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (617) 923-6500
--------------
----------------------------------------
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 X NO
------ -----
As of July 31,1997 there were 14,115,834 shares of Common Stock outstanding.
<PAGE>
OneWave, Inc.
Table of Contents
PART I - FINANCIAL INFORMATION Page
----
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at December 31, 1996
and June 30,1997. 3
Condensed Consolidated Statements of Operations for the
three months ended June 30, 1996 and 1997 and the six months
ended June 30, 1996 and 1997. 4
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 1996 and 1997. 5
Notes to Condensed Consolidated Financial Statements. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Default Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
2
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OneWave, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
Part I. Financial Information
- ------------------------------
Item 1. Condensed Consolidated Financial Statements.
<TABLE>
<CAPTION>
Unaudited
December 31, June 30,
1996 1997
------------ ----------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 12,868 $ 16,867
Marketable securities 27,181 17,241
Accounts receivable, net 1,784 344
Inventories 304 -
Prepaid expenses and other current assets 747 546
-------- --------
Total current assets 42,884 34,998
Property and Equipment, net 3,009 1,929
Other Assets 257 -
-------- --------
Total assets $ 46,150 $ 36,927
======== ========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 1,454 $ 831
Other current liabilities 4,411 1,896
Deferred revenue 548 492
-------- --------
Total current liabilities 6,413 3,219
Stockholders' Equity:
Common stock 15 15
Additional paid-in capital 58,505 58,891
Treasury stock, at cost - (2,280)
Note receivable from executive officer (2,560) -
Accumulated deficit (16,223) (22,918)
-------- --------
Total stockholders' equity 39,737 33,708
Total liabilities and stockholders' equity $ 46,150 $ 36,927
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
OneWave, Inc.
Condensed Consolidated Statements of Operations
(In thousands except per share data)
<TABLE>
<CAPTION>
Unaudited Unaudited
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- -------------------
1996 1997 1996 1997
-------------------- -------------------
<S> <C> <C> <C> <C>
Revenues
Software license and maintenance $ 2,217 $ 248 $ 2,927 $ 548
Consulting and education services 935 669 2,606 1,881
------- ------- ------- -------
Total revenues 3,152 917 5,533 2,429
Cost of Revenues:
Software license and maintenance 321 239 610 518
Consulting and education services 844 950 1,818 2,172
------- ------- ------- -------
Total cost of revenues 1,165 1,189 2,428 2,690
------- ------- ------- -------
Gross profit 1,987 (272) 3,105 (261)
Operating Expenses:
Selling, general and administrative 2,421 1,757 4,122 3,909
Research and development 953 728 1,352 1,487
Restructuring charge - 1,782 - 1,782
Compensation to executive officer (612) 227 6,903 227
------- ------- ------- -------
Total operating expenses 2,762 4,494 12,377 7,405
------- ------- ------- -------
Operating loss (775) (4,766) (9,272) (7,666)
Interest Income (Expense), net (18) 472 (36) 986
------- ------- ------- -------
Net loss before taxes (793) (4,294) (9,308) (6,680)
Income Tax Expense - - - 15
------- ------- ------- -------
Net loss $ (793) $(4,294) $(9,308) $(6,695)
------- ------- ------- -------
Net Loss per Common and Common
Equivalent Share $ (0.06) $ (0.29) $ (0.71) $ (0.45)
======= ======= ======= =======
Weighted Average Number of Common
and Common Equivalent Shares
Outstanding 13,141 14,734 13,141 14,856
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
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OneWave, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Unaudited
Six Months Ended
June 30,
---------------------
1996 1997
----------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $(9,308) $(6,695)
Adjustments to reconcile net loss to net cash used in
operating activities:
Compensation expense to executive officer 6,903 227
Loss on restructuring items - 1,539
Deferred compensation expense 31 -
Depreciation and amortization 217 691
Change in operating assets and liabilities:
Accounts receivable (898) 1,439
Inventories (103) -
Prepaid expenses and other current assets (728) 179
Due from affiliates - 55
Accounts payable 1,710 (623)
Other current liabilities (2,554) (377)
Deferred revenue 108 (56)
------- -------
Net cash used in operating activities (4,622) (3,621)
Cash Flows from Investing Activities:
Sales of marketable securities, net - 9,940
Loan to executive officer - (2,507)
Purchases of property and equipment (2,478) (200)
------- -------
Net cash (used in) provided by investing activities (2,478) 7,233
Cash Flows from Financing Activities:
Payments on notes payable to stockholders (1,000) -
Proceeds from issuance of redeemable convertible preferred stock 6,780 -
Proceeds from common stock issuance for employee stock purchase plan - 93
Proceeds from secured note payable to a bank 2,000 -
Net proceeds from issuance of convertible preferred stock 5,970 -
Retirement of Common Stock (6,000) -
Proceeds from exercise of stock options 100 294
------- -------
Net cash provided by financing activities 7,850 387
Net Increase in Cash and Cash Equivalents 750 3,999
Cash and Cash Equivalents, beginning of period 105 12,868
------- -------
Cash and Cash Equivalents, end of period $ 855 $16,867
======= =======
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 84 $ 6
======= =======
Cash paid for income taxes $ - $ 15
======== =======
Supplemental Disclosure of Noncash Financing Activities:
Issuance of note receivable from executive officer $ 2,560 $ (53)
======= =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
OneWave, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation:
The condensed consolidated financial statements included herein are unaudited
and reflect all adjustments, consisting of normal recurring adjustments, which
are, in the opinion of management, necessary for a fair presentation of the
results for the interim periods. These financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996
as filed with the Securities and Exchange Commission.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates and would impact
future results of operations and cash flows.
The results of operations for the reported 1997 periods are not necessarily
indicative of the results to be achieved for the entire year ending December 31,
1997.
2. Computation of Net Loss Per Common and Common Equivalent Share
For the three month and six month periods ended June 30, 1996 and 1997 net loss
per common share was computed based upon the weighted average number of common
shares and common equivalent shares outstanding. In accordance with the
Securities and Exchange Commission Staff Accounting Bulletin No. 83 ( " SAB No.
83" ), all common and common equivalent shares and other potentially dilutive
instruments (including stock options, redeemable convertible preferred stock and
convertible preferred stock ) issued during the twelve month period prior to the
date of the Company's initial public offering ("IPO") have been included in the
calculation of weighted average common and common equivalent shares outstanding
for the three month and six month periods ended June 30, 1996.
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards 128, Earnings Per Share. This pronouncement is
effective for fiscal years ending after December 15, 1997. The more significant
changes are the replacement of primary earnings per share with "basic" earnings
per share. Basic earnings per share is computed by dividing reported earnings
available to common stockholders by weighted average shares outstanding, with no
consideration given for any potentially dilutive securities. Fully diluted
earnings per share, now called "diluted" earnings per share, is still required.
As net losses were presented for the 1997 periods in the accompanying
consolidated financial statements, the pro forma loss per share, computed under
the new statement, is the same as the loss per share presented. The
computational differences in fully diluted earnings per share under the new
pronouncement would have no impact on loss per share as presented for 1996.
3. Marketable Securities
Marketable securities primarily consist of government bonds and commercial paper
with original maturities at date of purchase beyond three months and less than
twelve months. In accordance with Statement of Financial Accounting Standards
No. 115, the Company classifies its marketable securities as "held-to-maturity"
and therefore reports such assets at amortized cost, which approximates market.
6
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4. Treasury Stock
In April 1997, the Company funded $2,507,000 under a loan agreement with its
then Chief Executive Officer. The loan was secured by a first priority pledge
of 960,000 shares of the Company's common stock. In June 1997, the Chief
Executive Officer resigned from the Company and surrendered these shares in
satisfaction of the loan agreement. The market price of $2.375 on the date the
shares were surrendered was used to determine the cost of the treasury stock.
The 960,000 shares have been classified as treasury stock with a total cost of
$2,280,000. The $277,000 difference between the amount of the loan and the cost
of the treasury stock was recorded as a charge to operations and is classified
as compensation to executive officer.
5. Restructuring Charge
On June 9, 1997, the Company announced that it had implemented a plan (the
"Plan") to restructure the Company's operations. The Plan included write-offs
and writedowns of certain assets and included accruing the costs related to a
significant reduction in the Company's work force. The implementation of the
Plan resulted in a one time charge of $1,782,000. Included in other current
liabilities at June 30, 1997 is $421,000 relating to the restructuring charge.
The following are the significant components of the charge for restructuring:
Write-off and writedown of assets to net realizable value $1,117
Employee severance, benefits and related costs 650
Other 15
------
$1,782
------
7
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following information should be read in conjunction with the Company's
financial statements and notes thereto, and the risk factors contained in the
section entitled "Certain Factors That May Affect Future Results" below and on
page 16 of the Company's Annual Report on Form 10-K dated March 28, 1997.
This Form 10-Q contains 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. The Company's actual results could differ materially from those set
forth in the forward-looking statements. Factors that might cause such a
difference are discussed in the section entitled "Certain Factors That May
Affect Future Results" below.
OVERVIEW:
OneWave is an Internet software and services company dedicated to unifying
disparate information systems and building integrated business solutions
utilizing Internet technologies. During the first quarter of 1997, the Company
had adopted a "services-led" approach to software sales. During the second
quarter of 1997, there was a change in control of the Company, two senior
executives departed and a new Chairman (Lennart Mengwall) and acting President
and CEO (Kevin Azzouz) were appointed. New management began the process of
comprehensively reviewing the Company's strategy and operations. As a result,
there was a reduction in force of approximately 30% of the workforce.
Management re-organized the Company into two distinct business groups - software
products and consulting services. This represents a departure from the
services-led sales initiative for software products, as the two business groups
are to be managed independently from one another. The Company has also hired a
new Senior Vice President for the software products group. Additional changes
are expected as the Company continues to re-assess its position. While the
Company believes that in the long term these changes will improve Company
performance, in the short term revenues will be uncertain while the Company
continues through a transition period. It is premature for the Company to
determine whether its new strategy and approach to sales will be successful, and
the Company's plans and strategies are likely to continue to evolve. Further,
there can be no assurances that the Company will be able to obtain, maintain and
retain the resources, employees, executives and assets necessary for the Company
to effectively pursue its strategy. The competition and market for the
Company's services and technology are quickly changing, and may develop in ways
not anticipated by the Company.
RESULTS OF OPERATIONS:
Revenues:
- ---------
Total revenues decreased $2,235,000 to $917,000 for the three months ended June
30, 1997 from $3,152,000 for the comparable quarter in 1996. The decrease was
due primarily to reductions in the volume of software sales and consulting
services. Additionally, OneWave software and maintenance revenue decreased by
$1,946,000 to $209,000 for the three months ended June 30, 1997 from $2,155,000
for the comparable quarter in 1996. For the three months ended June 30, 1997,
software license and maintenance revenues represented 27% of total revenues with
the remaining 73% from consulting and education services, compared with 70% and
30%, respectively for the comparable prior year period.
Total revenues decreased $3,104,000 to $2,429,000 for the six months ended June
30, 1997 from $5,533,000 for the comparable period in 1996. The decrease was
due primarily to the Company's efforts to implement a "services-led" model for
its software products, and to the reorganization described in "Overview".
Software and maintenance decreased by $2,379,000 to $548,000 for the six months
ended June 30, 1997 from $2,927,000 for the comparable quarter in 1996. For the
six months ended June 30, 1997, software license and maintenance revenues
represented 23% of total revenues with the remaining 77% from consulting and
education services compared with 53% and 47%, respectively, for the comparable
prior year period.
8
<PAGE>
Gross profit:
- -------------
Cost of software license and maintenance revenues consists of the cost of
software and maintenance purchased for resale from a former related party,
distribution costs and product support costs. The cost of consulting and
education services consists primarily of consulting and education personnel
salaries, related costs and fees to third-party service providers. For the three
months ended June 30, 1997, the gross margin for license and maintenance
revenues was 4% and consulting and education services generated a gross loss
percentage of 42% of revenues. For the comparable prior year quarter, the gross
margin for license and maintenance revenues was 86% and the gross margin for
consulting and education services was 10%. The decrease in gross margin for
license and maintenance revenues compared to prior year is primarily
attributable to reduced sales volume and additional costs associated with
capitalized software amortization. The decrease in gross margin for consulting
and education services from the comparable prior year quarter is primarily
attributable to the reduction in consulting and educational services provided
during the period.
For the six months ended June 30, 1997, the gross margin for license and
maintenance revenues and consulting and education services was a profit of 5%
and a loss of 15% respectively. For the comparable prior year six month period,
the gross margin for license and maintenance revenues and consulting and
education services was 79% and 30% respectively. The decrease in gross margin
for license and maintenance revenues compared to prior year is directly
attributable to the lower volume of license and maintenance revenues compared to
prior year period. The decrease in gross margin for consulting and education
services from the comparable prior year six month period is attributable to a
decrease in consulting and education services revenue and an increase in average
headcount and related costs.
Selling, General and Administrative Expenses:
- ---------------------------------------------
Selling, general and administrative expenses consist primarily of payroll costs
related to executive management, finance, administration, sales and marketing
personnel, and costs for advertising, marketing and related administrative
support. Selling, general and administrative expenses decreased to $1,757,000
for the three months ended June 30, 1997 from $2,421,000 for the comparable
prior year period, representing 192% and 77% of total revenues, respectively.
Selling, general and administrative expenses decreased to $3,909,000 for the six
months ended June 30, 1997 from $4,122,000 for the comparable prior year period,
representing 161% and 74% of total revenues, respectively. The total dollar
decrease for the three and six month periods reflects the Company's effort to
bring operating costs in line with the current business needs. Particularly,
there have been decreases in headcount as well as a decrease in the Company's
expenditure related to marketing and advertising programs.
Research and Development Expenses:
- ----------------------------------
Research and development expenses primarily consist of payroll-related costs,
fees to independent contractors and purchases of technology. Research and
development expenses decreased to $728,000 for the three months ended June 30,
1997 from $953,000 for the comparable prior year period, representing 79% and
30% of total revenues, respectively. The total dollar decrease for the three
month period is directly attributable to a purchase of technology during the
quarter ended June 30, 1996. The total dollar decrease relates to a decrease in
the expenses related to purchases of technology. Research and development
expenses increased to $1,487,000 for the six months ended June 30, 1997 from
$1,352,000 for the comparable prior year period, representing 61% and 24% of
total revenues, respectively. The total dollar increase for the six month
period is attributable to increase in average headcount and related costs.
Restructuring Charge:
- ---------------------
On June 9, 1997, the Company announced that it had implemented a plan (the
"Plan") to restructure the Company's operations. The Plan included write-offs
and writedowns of certain assets and included accruing the costs related to a
significant reduction in the Company's work force. The implementation of the
Plan resulted in a one time charge of $1,782,000. See "Overview" above and
note 5 of the Company's Notes to Condensed Consolidated Financial Statements for
additional discussion.
Compensation to Executive Officer:
- ----------------------------------
During the three months ended March 31, 1996, certain of the Company's
controlling stockholders sold 960,000 shares of common stock to the Chief
Executive Officer (CEO) for an aggregate purchase price of $1,440,000, and
agreed to make certain payments to the CEO to secure his services as the
Company's CEO. In accordance with generally accepted
9
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accounting principles, the Company recorded a non-cash expense of $7,515,000
related to these transactions. This non-cash expense consists of: (i)
$5,760,000, which represents the difference between the purchase price paid by
the CEO for the shares of common stock that he purchased and the fair market
value of those shares at that time; (ii) $1,000,000, relating to a payment
received by the CEO from one of the Company's controlling stockholders; and
(iii) $755,000, representing the then current value of a payment guaranty that
such stockholder agreed to make to the CEO in the event of a decline in the
value of certain stock appreciation rights held by the CEO on capital stock of
his former employer. During the three months ended June 30, 1996, the value of
the guaranty declined due to an increase in the value of the stock appreciation
rights. As a result, the Company recorded a favorable credit of $612,000 for the
quarter. In September 1996, the CEO exercised the stock appreciation rights.
Accordingly, the financial results for the three and six months ended June 30,
1997 were not affected by the guaranty.
In connection with the shares purchased by the CEO, the Company agreed to loan
the CEO up to $2,560,000 for payment of his anticipated income tax liability
resulting from his purchase. The Company funded $2,507,000 under the loan
agreement in April 1997. The loan was secured by a first priority pledge of the
purchased shares. In June 1997, the CEO surrendered the purchased shares in
satisfaction of the loan. For the three months ended June 30, 1997, the Company
has recorded an expense of $227,000 to reflect the difference between the amount
of the loan and the market value of the shares surrendered to the Company. The
Company has classified the shares acquired as treasury stock and is carrying the
stock at a cost of $2,280,000.
Interest Income (Expense), Net:
- -------------------------------
For the three and six months ended June 30, 1997 the Company recorded net
interest income of $472,000 and $986,000, respectively. The interest income is
a result of interest earned on the net proceeds received by the Company from its
initial public offering in July 1996. For the comparable prior year periods,
the Company recorded net interest expense of $18,000 and $36,000, respectively.
The expense was related to interest on notes payable to stockholders which has
been repaid in full by the Company.
Liquidity and Capital Resources:
- --------------------------------
The Company's operating activities utilized cash and cash equivalents of
approximately $3,621,000 for the six month period ended June 30, 1997, resulting
primarily from the net loss for the quarter.
The Company's investing activities, which primarily consisted of the maturity of
certain of the Company's short-term marketable securities, provided cash and
cash equivalents of approximately $7,234,000 for the six month period ended June
30, 1997. In April 1997, the Company funded $2,507,000 under its loan agreement
with the CEO.
The Company's financing activities, which consisted of the sale of stock
pursuant to the exercise of employee stock options and the issuance of common
stock for the employee stock purchase plan, provided cash and cash equivalents
of approximately $387,000 for the six month period ended June 30, 1997.
The Tax Reform Act of 1986 contains provisions that limit the amount of net
operating loss carryforwards that a company may utilize in any one year in the
event of certain cumulative changes in ownership over a three year period in
excess of 50%, as defined. As a result of the change in the Company's ownership
disclosed in the Current Report on Form 8-K as filed with the Securities and
Exchange Commission on May 6, 1997 as described, the Company believes that its
annual net operating loss deduction will be limited in accordance with the
provisions defined under the Tax Reform Act of 1986. The extent of the annual
limitation has not yet been determined, although management believes it will
significantly impair any such benefit.
The Company currently anticipates that at its current rate of expenditures
existing cash balances will be sufficient to meet its anticipated working
capital and capital expenditure requirements for the next twelve months.
Thereafter, the Company may need to raise additional funds. The Company may in
the future seek to expand its business through possible acquisitions. The
Company, however, has no commitments or agreements with respect to any future
acquisition and no assurances can be given with respect to the likelihood or
financial or business effect, of any future acquisition. Future acquisitions
could be financed by internally generated funds, bank borrowings, public
offerings or private placements of equity or debt securities, or a combination
of the foregoing. There can be no assurance that additional financing will be
available when needed on terms favorable to the Company or at all.
10
<PAGE>
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
This Form 10-Q contains 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. The Company's actual results could differ materially from those set
forth in the forward-looking statements and may fluctuate between operating
periods. Certain factors that might cause such differences and fluctuations
include the following: ability to implement and achieve market acceptance of the
Company's evolving strategy and approach to sales, changes in the Company's
strategy, the Company's ability to attract, train and retain qualified
personnel, changes in technology and industry standards, potential fluctuations
in quarterly results, recent introduction of OneWave/TM/ products, delays in
development or product releases, changes in the market for the Company's
products and services, slowdown in the rate of acceptance of the Company's
products, dependence of the Company's business on the Internet, increased
competition, development of competing products and services, risk of software
defects, reliance on certain strategic relationships, difficulties in management
of growth and in the management of two distinct business groups within a single
organization, dependence on key personnel, evolving distribution strategy,
proprietary technology and the inherent difficulties in protecting intellectual
property, dependence on third-party technology, exposure for product and
services liability, and those factors which are discussed in the section
entitled "Certain Factors That May Affect Future Results" on page 16 of the
Company's Annual Report on Form 10-K dated March 28, 1997. Upon request, the
Company will provide a copy of the Annual Report without charge.
11
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In the normal course of operations, the Company is subject to
performance under contracts and has certain legal actions and
contingencies pending. However, in Management's opinion, any such
outstanding matters would not have a material, adverse effect on the
Company's financial position, results of operations or cash flows.
Item 2. Changes in Securities
None
Item 3. Default Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
(a) The annual meeting of shareholders was held on May 7, 1997.
(b) The following Director was elected at the meeting: Ofer
Nemirovsky. The following are the Directors whose terms of office as
Directors continued after the meeting: Kevin Azzouz, Klaus P. Besier,
Albert Carnesale, Manuel Diaz, Stephen R. Levy and Lennart Mengwall.
(c) The following matters were submitted to a vote:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
VOTES IN VOTES VOTES VOTES BROKER
MATTER SUBMITTED TO VOTE FAVOR AGAINST ABSTAINED WITHHELD NON-VOTES
1. The election of Mr. Ofer Nemirovsky as a
Class I Director, to serve until the year
2000 annual meeting of shareholders and
until his successor is duly elected and
qualified. 12,908,626 0 0 256,032 0
2. The ratification of Arthur Andersen &
Co. LLP as the Company's independent
accountants for the current fiscal year. 13,150,742 8,951 4,965 0 0
</TABLE>
(d) None.
Item 5. Other Information
None
12
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10 Shareholder Agreement between the Company and Avix
Ventures, L.P. ("Avix") dated May 7, 1997.
11 Statement regarding computation of earnings per share
27 Financial Data Schedule
(a) Reports on Form 8-K
On May 5, 1997, the Company filed a Current Report on Form 8-K
concerning the execution of an agreement under which Avix
agreed to purchase a majority of the Company's outstanding
common stock, and under which the selling shareholders agreed
to vote their share in favor of the nomination and election of
the principals of Avix as Directors of the Company.
On June 20, 1997, the Company filed a Current Report on Form
8-K concerning (i) the consummation of the change in control
transactions contemplated by the agreement disclosed in the
Current Report on Form 8-K filed by the Company on May 5,
1997, (ii) the resignations of Messrs. Besier and Gallagher
from the Company, and the election of a new Chairman and
acting CEO, President and Treasurer, (iii) the surrender by
Mr. Besier of 960,000 shares of common stock which had been
pledged as security for a loan made to Mr. Besier by the
Company, and (iv) a reduction in the Company's workforce.
13
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SIGNATURES
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, thereto duly authorized.
Dated: August 11, 1997
OneWave, Inc.
(Registrant)
___________________________________________
David W. Chapman, duly authorized officer and
Principal Financial Officer
14
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ONEWAVE CONFIDENTIAL
SHAREHOLDER AGREEMENT
--------------------
This Shareholder Agreement (this "Agreement") is made as of May 7, 1997 by and
between OneWave, Inc. (the "Company") and Avix Ventures, L.P. ("Avix").
WHEREAS, pursuant to a Stock Purchase Agreement among Avix and Appleby Trust,
J&S Limited Partnership, Legacy Investment Partnership and Sundar Subramaniam
(the "Sellers") dated as of April 22, 1997 (the "Agreement"), Avix has agreed to
purchase from the Sellers 7,748,871 shares (the "Shares") of Common Stock, $
.001 par value per share ("Stock"), of the Company.
WHEREAS, payment for the Shares is to be made, in part, via certain Promissory
Notes (the "Notes"), and 4,843,044 shares of Stock are to be pledged in favor of
the Sellers as security for payment of the Notes, pursuant to a certain Stock
Pledge Agreement to be made between Avix and the Sellers (the "Pledge
Agreement").
NOW, THEREFORE, in consideration of the premises and the mutual covenants and
agreements contained herein, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
1. Right of First Offer.
--------------------
a) If Avix voluntarily or pursuant to a default under the Note(s) expects to
relinquish, assign or otherwise transfer the Shares or any portion thereof
to the Sellers or to any affiliate of the Sellers in full or partial
satisfaction of Avix's obligations under either or both of the Note(s),
pursuant to the Pledge Agreement or otherwise, then the Company shall have
the right, but not the obligation, to purchase all or any portion of such
Shares from Avix for $1.03 per share.
b) Avix shall notify the Company in writing if Avix expects or intends to
transfer any Shares to the Sellers or any affiliate of the Sellers as
provided under (P)1(a) above, at least thirty (30) days prior to the date
on which such transfer is to occur. Such notice shall state the number of
Shares to be transferred, and the proposed date of transfer. The Company
shall have thirty (30) days from its receipt of such notice within which
to exercise its right under (P)1(a) above. Upon payment of the price
specified, such Shares as the Company has elected to purchase shall
immediately be owned by and vested in the Company or its designee(s).
c) The Company's rights under this Section 1 shall apply only if the Shares
are valued at $1.03 or less on the date that the transfer of Shares is to
occur according to the notice given by Avix under (P)1(b) above, defined
as the average of the closing prices as reported by Nasdaq for the ten
trading days prior to the date of such transaction.
2. Agreements.
----------
a) Avix hereby covenants and agrees that, for a period of three (3) years
from the date of the Agreement, it will not, directly or indirectly, cause
or seek to cause any proposal to be made to shareholders of the Company
calling for a waiver of any of the provisions of the Delaware business
combination statute (Section 203 of Delaware General Corporation Law),
either by causing such a proposal to be made to the Company's Board of
Directors, or by causing such a proposal to be made directly to the
Company's shareholders.
b) Avix hereby agrees to obtain from the Sellers a proxy to vote the Shares,
and to attend the Company's annual meeting of shareholders to be held on
May 7, 1997 for purposes of determining the presence of a quorum thereat,
to vote the Shares in favor of the election of Mr. Ofer Nemirovsky as a
Class I Director at such annual meeting of shareholders, and any
postponement or adjournment thereof, and to not raise any other matters
for consideration at such meeting.
<PAGE>
3. Cooperation and Enforcement.
---------------------------
a) Avix agrees to provide the Company true and complete copies of the Notes
and the Pledge Agreement promptly upon full execution thereof. Avix
further agrees to promptly provide the Company with true and complete
copies of any amendments, replacement or additions thereto, and to inform
the Company immediately in writing upon the alteration of any payment
amount or due date under either Note.
b) Avix agrees to execute such documents, give such notice(s) and to take
such other actions, as the Company may reasonably request in order to
enable the Company to realize the full benefits and rights granted to the
Company hereunder.
c) In giving notice, making payment or taking any other action hereunder, the
Company may act directly on its own behalf or in its own name, or through
a designee (or designees) chosen in the Company's sole discretion. Without
limiting the foregoing, Avix agrees to cause any Shares which may be
acquired by the Company to be transferred to such designee(s) as the
Company may instruct.
d) In the event that the Company exercises any of its rights hereunder and
wishes to become the holder of any of the Shares, Avix shall obtain the
release of such Shares, and deliver such Shares to the Company or its
designee(s). Subject to (e) below, Avix shall use its best efforts to
obtain full and prompt performance of the Sellers under the Pledge
Agreement, and otherwise to obtain the cooperation of the Sellers with the
transactions contemplated herein.
e) Each party agrees that the existence and terms of this Agreement are to be
kept confidential, and are not to be disclosed to any party for any reason
without the other party's written consent, except as necessary in order to
comply with accounting, legal and disclosure requirements under applicable
securities laws.
f) All notices to be given under this Agreement shall be in writing and shall
be transmitted via facsimile, receipted overnight delivery or U.S. Mail
(certified, return receipt requested), and shall be deemed to have been
given the next business day following transmission via facsimile with
tangible confirmation of transmission, on the second business day
following dispatch via overnight delivery, or on the fifth business day
following the date postmarked if sent via U.S. Mail. Notice shall be given
as follows:
IF TO THE COMPANY: IF TO AVIX:
OneWave, Inc. Avix Ventures, L.P.
One Arsenal Marketplace 160 West 66th Street, Suite 47D
Watertown, MA 02172 New York, NY 10023
Att: General Counsel Att: President
Fax: (617) 923-6735 Fax: (212) 873-9058
IN WITNESS WHEREOF, the undersigned have each caused this Shareholder
Agreement to be executed as a document under seal as by its duly authorized
representative of the date first indicated above.
ONEWAVE, INC. AVIX VENTURES, L.P.
By: AVIX ASSOCIATES, L.P.,
By: General Partner
-------------------------------
Klaus P. Besier, Chairman & CEO
Date: By:
----------------------------- ----------------------------
Name:
---------------------------
Title:
----------------------------
Date:
----------------------------
2
<PAGE>
ONEWAVE, INC.
STATEMENT REGARDING COMPUTATION OF NET LOSS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
EXHIBIT 11
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------- ------------------------------
JUNE 30, 1996 JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1997
--------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C>
Net loss $ 793 $ 4,294 $ 9,308 $ 6,695
Weighted average shares outstanding
during the period (1) 10,737 14,734 10,737 14,856
Common stock equivalent shares (1) 2,404 - 2,404 -
------- ------- ------- -------
Weighted average number of common and
common stock equivalents 13,141 14,734 13,141 14,856
Net loss per common and common
equivalent share $ (0.06) $ (0.29) $ (0.71) $ (0.45)
======= ======= ======= =======
</TABLE>
(1) In accordance with the Securities and Exchange Commission Staff Accounting
Bulletin No.83 ("SAB 83") all common and common equivalent shares and other
potentially dilutive instruments (including stock options, redeemable
convertible preferred stock and convertible preferred stock) issued during
the last twelve month period prior to the date of the IPO have been
included in the calculation as if they were outstanding for the periods
ended June 30, 1996.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIALS IN THE COMPANY'S 6/30/97 10-Q AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> APR-01-1997 JAN-01-1997
<PERIOD-END> JUN-30-1997 JUN-30-1997
<CASH> 16,867 16,867
<SECURITIES> 17,241 17,241
<RECEIVABLES> 440 440
<ALLOWANCES> 96 96
<INVENTORY> 0 0
<CURRENT-ASSETS> 34,998 34,998
<PP&E> 2,798 2,798
<DEPRECIATION> 869 869
<TOTAL-ASSETS> 36,927 36,927
<CURRENT-LIABILITIES> 3,219 3,219
<BONDS> 0 0
0 0
0 0
<COMMON> 15 15
<OTHER-SE> 33,693 33,693
<TOTAL-LIABILITY-AND-EQUITY> 36,927 36,927
<SALES> 917 2,429
<TOTAL-REVENUES> 917 2,429
<CGS> 1,189 2,690
<TOTAL-COSTS> 1,189 2,690
<OTHER-EXPENSES> 4,494 7,405
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 472 986
<INCOME-PRETAX> (4,294) (6,680)
<INCOME-TAX> 0 15
<INCOME-CONTINUING> (4,294) (6,695)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (4,294) (6,695)
<EPS-PRIMARY> (0.29) (0.45)
<EPS-DILUTED> (0.29) (0.45)
</TABLE>
