UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 2000
[ ] 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 000-26867
INFOWAVE SOFTWARE, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
BRITISH COLUMBIA, CANADA 98 0183915
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(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
Suite 200 - 4664 Lougheed Highway
Burnaby, British Columbia,
Canada V5C 5T5
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(Address of principal executive offices)
Telephone (604) 473-3600
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(Registrant's telephone number, including area code)
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 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 [ ]
COMMON SHARES OUTSTANDING AT SEPTEMBER 30, 2000: 21,076,551
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INFOWAVE SOFTWARE, INC.
INDEX to the FORM 10-Q
For the Nine Months Ended September 30, 2000
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<S> <C> <C>
Part I. Financial Information
Item 1. Financial Statements
a) Consolidated Balance Sheets
September 30, 2000 and December 31, 1999.............................................1
b) Consolidated Statements of Operations and Deficit
For the three-month and nine-month periods ended September 30, 2000 and 1999.........2
c) Condensed Consolidated Statements of Cash Flows
For the nine months ended September 30, 2000 and 1999................................3
d) Notes to Financial Statements........................................................4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................................................9
Item 3. Quantitative and Qualitative Disclosures About Market Risk.............................13
Part II. Other Information
Item 1. Legal Proceedings......................................................................14
Item 2. Changes in Securities and Use of Proceeds..............................................14
Item 3. Defaults upon Senior Securities........................................................14
Item 4. Submission of Matters to a Vote of Security Holders....................................14
Item 5. Other Information......................................................................14
Item 6. Exhibits and Reports on Form 8-K.......................................................14
Part III. Signatures..........................................................................15
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i
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Part I. Financial Information
Item 1. Financial Statements
INFOWAVE SOFTWARE, INC.
Consolidated Balance Sheets
(expressed in U.S. dollars)
<TABLE>
================================================================================================
September 30, December 31,
2000 1999
(Unaudited)
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<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 6,807,786 $4,359,090
Short term investments, at cost which
approximates fair market value 6,696,979 -
Accounts receivable 631,570 1,916,961
Inventory (note 4) - 588,981
Prepaid expenses (note 5) 3,523,352 170,662
------------------------------------------------------------------------------------------------
17,659,687 7,035,694
Capital assets (note 6) 2,258,510 984,698
Deferred charges 10,376 34,100
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$19,928,573 $8,054,492
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Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 787,690 $1,014,673
Deferred revenue 18,668 -
------------------------------------------------------------------------------------------------
806,358 1,014,673
Shareholders' equity (note 7)
Share capital
Authorized: 100,000,000 voting common shares
Issued: 21,076,551 (1999 - 18,297,470) 35,135,324 12,526,949
Deficit (15,889,567) (5,776,773)
Cumulative translation account (123,542) 289,643
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19,122,215 7,039,819
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$19,928,573 $8,054,492
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</TABLE>
1
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INFOWAVE SOFTWARE, INC.
Consolidated Statements of Operations and Deficit
(expressed in U.S. dollars)
<TABLE>
=====================================================================================================================
Three months ended Nine months ended
--------------------------------- -----------------------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
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<S> <C> <C> <C> <C>
Revenue $ 509,849 $ 98,317 $ 745,013 $ 248,855
Cost of goods sold 17,115 - 132,749 21,822
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492,734 98,317 612,264 227,033
Expenses:
Research and development 852,567 240,346 2,315,132 765,365
Sales and marketing 2,288,730 376,561 4,893,313 934,307
General and administrative 825,503 436,638 1,895,602 827,844
Depreciation and amortization 189,666 53,565 446,783 127,016
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4,156,466 1,107,110 9,550,830 2,654,532
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Operating loss from continuing operations 3,663,732 1,008,793 8,938,566 2,427,499
Interest and other income 280,436 44,619 558,723 71,411
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Loss from continuing operations 3,383,296 964,174 8,379,843 2,356,088
Discontinued operations:
Loss (earnings) from operations (note 3) - (362,325) 473,088 (586,744)
Loss (gain) on disposal (note 3) (256,212) - 1,259,863 -
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(256,212) (362,325) 1,732,951 (586,744)
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Net loss for the period 3,127,084 601,849 10,112,794 1,769,344
Deficit, beginning of period 12,762,483 3,656,017 5,776,773 2,488,522
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Deficit, end of period $15,889,567 $4,257,866 $15,889,567 $4,257,866
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Loss (earnings) per share
Continuing operations $ 0.16 $ 0.06 $ 0.43 $ 0.15
Discontinued operations $ (0.01) $ (0.02) $ 0.09 $ (0.04)
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Net loss $ 0.15 $ 0.04 $ 0.51 $ 0.11
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Weighted average number of shares outstanding 20,879,845 15,533,869 19,655,539 15,402,499
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</TABLE>
2
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INFOWAVE SOFTWARE, INC.
Condensed Consolidated Statements of Cash Flows
(expressed in U.S. dollars)
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=================================================================================================
Nine months ended
---------------------------------
September 30, September 30,
2000 1999
(Unaudited) (Unaudited)
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<S> <C> <C>
Net cash provided by (used in) continuing operations ($11,408,843) ($1,368,814)
Net cash provided by (used in) discontinued operations (824,050) 766,729
-------------------------------------------------------------------------------------------------
Total cash flows provided by (used in) operations (12,232,893) (602,085)
Cash flows from investing activities:
Proceeds from sale of imaging division 1,322,774 -
Purchase of short term investments (6,696,979) -
Purchase of capital assets (2,355,845) (382,549)
-------------------------------------------------------------------------------------------------
(7,730,050) (382,549)
Cash flows from financing activities:
Issuance of shares for cash, net of issue costs 3,581,337 324,953
Issuance of warrants for cash, net of issue costs 19,027,038 4,284,797
-------------------------------------------------------------------------------------------------
22,608,375 4,609,750
Foreign exchange gain (loss) on cash and cash
equivalents held in a foreign currency (196,736) 127,089
-------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents 2,448,696 3,752,205
Cash and cash equivalents, beginning of period 4,359,090 1,047,319
-------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $6,807,786 $4,799,524
-------------------------------------------------------------------------------------------------
</TABLE>
3
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INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Dollar amounts expressed in U.S. dollars)
(Unaudited)
1. Basis of presentation
The accompanying unaudited consolidated financial statements do not include
all information and footnote disclosures required under Canadian or United
States generally accepted accounting principles. In the opinion of management,
all adjustments (consisting solely of normal recurring accruals) considered
necessary for a fair presentation of the financial position, results of
operations and cash flows as at September 30, 2000 and for all periods
presented, have been included. Interim results for the three-month and
nine-month periods ended September 30, 2000 are not necessarily indicative of
the results that may be expected for the fiscal year as a whole.
The unaudited consolidated balance sheet, statement of operations and
deficit and condensed statement of cash flows include the accounts of the
Company and its wholly owned subsidiary company, Infowave USA Inc., which was
incorporated on July 1, 2000. These statements have been prepared in accordance
with Canadian generally accepted accounting principles for interim financial
information. Except as disclosed in note 8, these financial statements comply,
in all material respects, with generally accepted accounting principles in the
United States.
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, 1999. In addition to the accounting
policies stated in the annual financial statements of the Company reported on
Form 10-K, the Company's accounting policy for advertising is that advertising
costs are expensed in the period the first associated advertising takes place.
2. Loss per share
Basic loss per share has been calculated using the weighted average number
of common shares outstanding including shares held in escrow. Fully diluted loss
per share amounts have not been presented, as the effect of outstanding options
and warrants is anti-dilutive.
3. Discontinued operations
Effective August 31, 2000 the Company completed the sale of the net assets
and business operations of its Imaging Division for a net sale price of
$1,322,774. One million dollars of the sale price was received on closing and
the balance was received in November 2000. The disposition was recognized as a
discontinued operation at March 31, 2000.
4
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INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Dollar amounts expressed in U.S. dollars)
(Unaudited)
The loss (gain) on disposal of the Imaging Division consists of:
<TABLE>
===================================================================================================
Three months ended Nine months ended
September 30, 2000 September 30, 2000
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<S> <C> <C>
Loss from operations subsequent to March 31, 2000 $367,211 $1,096,120
Employee severance costs - 91,277
Professional fees 44,328 113,958
Gain on sale of net assets (41,492) (41,492)
---------------------------------------------------------------------------------------------------
370,047 1,259,863
Reversal of prior quarter accrual (626,259) -
---------------------------------------------------------------------------------------------------
($256,212) $1,259,863
===================================================================================================
</TABLE>
The net assets of the Imaging Division on August 31, 2000 were comprised of:
=============================================================================
Accounts receivable $392,957
Inventory 448,906
Prepaid expenses 68,777
Capital assets 451,534
Accounts payable and accrued liabilities (80,892)
-----------------------------------------------------------------------------
$1,281,282
=============================================================================
4. Inventory
Inventory consists of:
============================================================================
September 30, December 31,
2000 1999
----------------------------------------------------------------------------
Raw materials - $503,646
Finished goods - 126,907
----------------------------------------------------------------------------
- 630,553
Less allowance for obsolete stock - (41,572)
----------------------------------------------------------------------------
- $588,981
============================================================================
5. Prepaid expenses
Included in prepaid expenses at September 30, 2000 are advertising costs of
$3,385,000 which will be charged to income in the fourth quarter of 2000.
6. Capital assets
<TABLE>
===============================================================================================
Accumulated Net Book
September 30, 2000 Cost Depreciation Value
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computer equipment and software $1,879,127 $552,471 $1,326,656
Leasehold improvements 343,652 18,358 325,294
Office equipment 557,723 43,961 513,762
Software licenses and purchased source code 204,497 111,699 92,798
-----------------------------------------------------------------------------------------------
$2,984,999 $726,489 $2,258,510
===============================================================================================
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5
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INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Dollar amounts expressed in U.S. dollars)
(Unaudited)
<TABLE>
=============================================================================================
Accumulated Net Book
December 31, 2000 Cost Depreciation Value
---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computer equipment and software $1,521,728 $870,877 $650,851
Leasehold improvements 196,522 137,727 58,795
Office equipment 261,794 124,780 137,014
Software licenses and purchased source code 365,069 227,031 138,038
---------------------------------------------------------------------------------------------
$2,345,113 $1,360,415 $984,698
=============================================================================================
</TABLE>
7. Shareholders' equity
On April 13, 2000 the Company issued 924,000 special warrants at a price of
$21.96 (Cdn.$32.50) per special warrant for net cash proceeds of $19,027,038.
Each special warrant is exercisable without payment of additional consideration
for one Common Share of the Company. In addition, the Company issued 46,200
special compensation warrants to the underwriters in connection with this
issuance. Each special compensation warrant is exercisable without additional
consideration into one compensation warrant entitling the holder to acquire one
common share at a price of $21.96 (Cdn.$32.50) per share for a two year period
ending April 13, 2002.
8. United States generally accepted accounting principles
These interim financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") in Canada. Reference should be
made to note 13 of the Company's annual financial statements filed with the
Securities and Exchange Commission under cover of Form 10-K for a description of
material differences between Canadian and United States GAAP. No additional
reconciling items have been identified in the period ended September 30, 2000.
The following are the material measurement differences from GAAP in the United
States as they relate to the Company's September 30, 2000 financial statements:
6
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INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Dollar amounts expressed in U.S. dollars)
(Unaudited)
(a) Net loss and net loss per share:
<TABLE>
==================================================================================================================================
Three months ended Nine months ended
------------------------------- -------------------------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Loss from continuing operations in accordance with
Canadian GAAP $3,383,296 $964,174 $8,379,843 $2,356,088
Adjustment for stock-based compensation relating to
stock options issued to non-employees 1,755 5,446 5,300 16,338
Adjustment for stock-based compensation relating to
escrow shares 3,075 8,819 9,793 28,114
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Loss from continuing operations in accordance with
United States GAAP 3,388,126 978,439 8,394,936 2,400,540
Discontinued operations:
Loss (earnings) from operations - (362,325) 473,088 (586,744)
Loss (gain) on disposal (256,212) - 1,259,863 -
----------------------------------------------------------------------------------------------------------------------------------
(256,212) (362,325) 1,732,951 (586,744)
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Net loss in accordance with United States GAAP $3,131,914 $616,114 $10,127,887 $1,813,796
==================================================================================================================================
Weighted average number of shares outstanding in
accordance with Canadian GAAP 20,879,845 15,533,869 19,655,539 15,402,499
Adjustment for weighted average number of
contingently issued shares pursuant to employee
incentive plan (44,500) (176,000) (73,208) (255,000)
Adjustment for weighted average number of
contingently issued shares pursuant to employment
agreement - (37,778) - (66,111)
----------------------------------------------------------------------------------------------------------------------------------
Weighted average number of shares outstanding in
accordance with United States GAAP 20,835,345 15,320,091 19,582,331 15,081,388
==================================================================================================================================
==================================================================================================================================
Loss (earnings) per share:
Continuing operations $0.16 $0.06 $0.43 $0.16
Discontinued operations ($0.01) ($0.02) $0.09 $(0.04)
----------------------------------------------------------------------------------------------------------------------------------
Net loss $0.15 $0.04 $0.52 $0.12
==================================================================================================================================
==================================================================================================================================
Comprehensive loss:
Net loss in accordance with United
States GAAP $3,131,914 $616,114 $10,127,887 $1,813,796
Other comprehensive loss (income):
Foreign currency translation
adjustment 263,064 (41,920) 413,185 (305,695)
----------------------------------------------------------------------------------------------------------------------------------
$3,394,978 $574,194 $10,541,072 $1,508,101
==================================================================================================================================
</TABLE>
7
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INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Dollar amounts expressed in U.S. dollars)
(Unaudited)
(b) Balance sheet:
<TABLE>
=========================================================================================
September 30, December 31,
2000 1999
-----------------------------------------------------------------------------------------
<S> <C> <C>
Total assets in accordance with Canadian GAAP $19,928,573 $8,054,492
Adjustments to US GAAP (10,376) (34,100)
-----------------------------------------------------------------------------------------
Total assets in accordance with U.S. GAAP $19,918,197 $8,020,392
=========================================================================================
=========================================================================================
September 30, December 31,
2000 1999
-----------------------------------------------------------------------------------------
Shareholders' equity in accordance with Canadian GAAP $19,122,215 $7,039,819
Adjustments to US GAAP (10,376) (34,100)
-----------------------------------------------------------------------------------------
Shareholders' equity in accordance with U.S. GAAP $19,111,839 $7,005,719
=========================================================================================
</TABLE>
8
<PAGE>
Item 2. Management's Discussion And Analysis Of Financial Condition
And Results Of Operations
Investors should read the following in conjunction with the unaudited financial
statements and notes thereto included in Part I - Item 1 of this Quarterly
Report, and the audited financial statements and notes thereto for the year
ended December 31, 1999 included in the Corporation's annual report on Form
10-K.
Forward-Looking Statements
Statements in this filing about future results, levels of activity, performance,
goals or achievements or other future events constitute forward-looking
statements. These statements involve known and unknown risks, uncertainties and
other factors that may cause actual results or events to differ materially from
those anticipated in any forward-looking statements. These factors include,
among others, those described in connection with the forward-looking statements,
and the factors listed in Exhibit 99.1 to this report, which is hereby
incorporated by reference in this report.
In some cases, forward-looking statements can be identified by the use of words
such as "may," "will," "should," "could," "expect," "plan," "intend,"
"anticipate," "believe," "estimate," "predict," "potential" or "continue" or the
negative or other variations of these words, or other comparable words or
phrases.
Although the Corporation believes that the expectations reflected in its
forward-looking statements are reasonable, it cannot guarantee future results,
levels of activity, performance or achievements or other future events.
Moreover, neither the Corporation nor anyone else assumes responsibility for the
accuracy and completeness of forward-looking statements. The Corporation is
under no duty to update any of its forward-looking statements after the date of
this filing. The reader should not place undue reliance on forward-looking
statements.
Corporate Summary
During the third quarter of 2000, Infowave continued to move forward with the
implementation of its wireless business strategy. The Company achieved
significant product, market and business milestones which set the stage for the
future growth of the Company.
The research and development team continued to make tangible progress on
Infowave's product and technology plan. During the quarter, the Company shipped
an upgraded version of the Wireless Business Engine that included new features
for enhanced performance, usability, and enterprise scalability, as well as
support for the CDMA and GSM wireless networks. The Company also completed the
first contract milestone in its development agreement with Intel Corporation,
and management expects to achieve the second milestone prior to the end of the
fourth quarter.
In September 2000, the marketing team launched a major branding initiative and
advertising campaign. This campaign includes advertisements in major magazines,
newspapers, billboards, and online media across the United States commencing in
9
<PAGE>
October 2000. The focus of the campaign is to build awareness of the Infowave
brand with corporate executives and technology managers. As at September 30,
2000, the Corporation had prepaid $3.39 million, or approximately 75%, of the
expenditures associated with this initiative.
During the third quarter, Infowave implemented a new product pricing strategy
that includes revised per-seat pricing for individual Wireless Business Engine
modules, as well as a "suite" offering for the complete Infowave enterprise
solution. Initial market reaction to the revised offering has been positive,
with the Infowave Suite being chosen by 56% of new enterprise customers during
the quarter. The Company also experienced strong initial demand for the Exchange
Connector (Web Phones), a new feature introduced in June 2000 that provides
wireless access to Microsoft Exchange from the new generation of web phones and
Palm devices equipped with a web browser. The Exchange Connector (Web Phones)
was selected by 28% of new enterprise customers in the third quarter of 2000.
The Company continued to acquire and expand relationships with key partners and
resellers in the third quarter. In September, Infowave announced a partnership
agreement with inflightonline who will offer a customized version of Symmetry to
airline passengers to enable them to receive onboard access to Microsoft
Exchange(TM). The marketing team also continued to work with Compaq Corporation
to prepare for the deployment of the Infowave solution to the Compaq worldwide
reseller channel.
Effective August 31, 2000 the Company completed the sale of its Imaging
Division. The total proceeds received on the sale were $1.32 million, which
represented a slight premium over the book value of the Division. The Company
received one million dollars of the proceeds on closing, and the balance was
received on November 2, 2000. Through conscious controlling of the operations of
the Division prior to the completion of the sale, management was able to reduce
the cash used in the operations of the Division to amounts less than previously
estimated, resulting in an accounting gain on disposition of discontinued
operations for the quarter.
Quarter ended September 30, 2000
The Company achieved revenues of $0.51 million for the three months ended
September 30, 2000, representing an increase of 410% over revenues of $0.10
million during the third quarter of 1999. Third quarter revenue in 2000 included
software license and recurring service fees of $0.10 million and technical
service fees of $0.39 million.
Gross margins in the third quarter of 2000 were 97%, compared with 100% in the
comparable 1999 period. Management expects that gross margins will continue to
fluctuate between quarters until the product mix normalizes.
Research and development expenses of $0.85 million were unchanged from the prior
quarter of 2000 and increased 255% compared to $0.24 million in the third
quarter of 1999. Research and development salaries of $0.65 million represented
an increase of 12% over the second quarter of 2000 and an increase of 248% over
the third quarter of 1999. Research and development expenses were unchanged from
the prior quarter due to
10
<PAGE>
the fact that increased salary expense was offset by decreased recruiting fees
and reduced contract labour costs. The increase from the third quarter of 1999
is due to increased employee headcount. Research and development headcount was
58 at September 30, 2000 compared to 53 at June 30, 2000 and 27 at September 30,
1999.
Total sales and marketing expenses for the third quarter of 2000 were $2.29
million, representing an increase of 46% compared to expenses of $1.57 million
in the second quarter of 2000 and an increase of 508% compared to expenses of
$0.38 million in the third quarter of 1999. Sales and marketing employee
headcount increased to 53 at September 30, 2000 compared to 49 at March 31, 2000
and 20 at September 30, 1999. Sales and marketing salaries of $0.90 million
represented an increase of 32% over the second quarter of 2000 and 504% over the
third quarter of 1999. Other increases in sales and marketing expenses were due
to increased travel, communication costs, and trade show attendance, as well as
to fees paid to external agencies for various programs including the redesign of
the Infowave web site, the development of the corporate branding strategy,
market research and public relations.
General and administration costs totaled $0.83 million in the third quarter of
2000 versus $0.65 million in the second quarter of 2000 and $0.44 million in the
third quarter of 1999. The increases over prior periods are largely due to an
increase in employee headcount as well as the fact that the prior periods
included an allocation of some general and administrative costs to the Imaging
Division. General and administrative headcount was 24 at September 30, 2000
compared to 22 at June 30, 2000 and 10 at September 30, 1999. Other increases in
general and administrative costs are attributable to increased legal fees
related to increased business development activity and increased employee
recruiting costs.
Depreciation and amortization costs totaled $0.19 million in the third quarter
of 2000 compared to $0.17 million in the quarter ended June 30, 2000 and $0.05
million in the quarter ended September 30, 1999. These increases are due to
increased expenditures on computer equipment and facilities to support the
increase in employee headcount.
Interest income increased to $0.28 million in the third quarter of 2000 compared
to $0.23 million in the second quarter of 2000 and $0.05 million in the third
quarter of 1999. The increase is due to higher average cash balances held during
the period.
Nine months ended September 30, 2000
The Company earned revenues of $0.75 million for the nine months ended September
30, 2000, representing a 199% increase over revenues of $0.25 million for the
nine months ended September 30, 1999. Revenue for 2000 included software license
and recurring service fees of $0.23 million and technical service fees of $0.41
million. The remaining revenue in 2000 related to hardware sales of $0.11
million.
Gross margins in the nine months ended September 30, 2000 were 82%, compared
with 91% in the prior year. The change in gross margins is due largely to a
one-time sale of redundant hardware inventory in the second quarter of 2000.
11
<PAGE>
Total operating expenses for the nine months ended September 30, 2000 were $9.55
million compared to $2.65 million in the comparable 1999 period. Research and
development expenses of $2.32 million increased 203% compared to $0.77 million
in the comparable 1999 period due to increased employee headcount. Total sales
and marketing expenses for first nine months of 2000 were $4.89 million,
compared to $0.93 million in the first nine months of 1999. This increase is
primarily due to increased employee headcount and marketing initiatives. General
and administration costs totaled $1.90 million in the nine months ended
September 30, 2000 versus $0.83 million in the comparable 1999 period. In
addition to employee headcount, the increase in general and administrative
expenses is due to the fact that a portion of general and administrative costs
had previously been allocated to the Imaging Division. Depreciation and
amortization costs totaled $0.45 million in the first nine months of 2000
compared to $0.13 million in the first nine months of 1999 due to increased
expenditures on computer equipment and facilities to support the increase in
employee headcount.
Interest income increased to $0.56 million in nine months ended September 30,
2000 compared to $0.07 million in comparable 1999 period due to higher average
cash balances held during the period.
Liquidity and Capital Resources
Infowave's cash and short-term investment position was $13.50 million and
working capital was $16.85 million at September 30, 2000, compared to $4.36
million and $6.02 million, respectively, at December 31, 1999. These increases
were the result of $19.0 million raised through the issuance of special warrants
in April as well as from $3.58 million raised through the exercise of previously
issued stock purchase warrants and employee stock options. The Corporation used
$12.23 million in operations during the first nine months of 2000, primarily due
to the loss for the period and the prepayment of $3.39 million of advertising
expenses. The effect of the loss on cash flows was offset partially by a
decrease of $0.85 million in accounts receivable from cash collections from the
Imaging Division prior to the divestiture. The accounts receivable balance at
September 30, 2000 includes trade receivables of $0.18 million, Goods and
Services Tax refunds of $0.08 million and $0.32 million representing the
remaining proceeds due from the sale of the Imaging Division.
Net cash used in investing activities during the nine months ended September 30,
2000 was $7.73 million, which consisted of $6.70 million used in the purchase of
short term investments and $2.36 million of capital acquisitions, offset by
$1.32 million of proceeds from the sale of the Imaging Division. The capital
acquisitions during the period included the purchase of $1.35 million in
computer equipment and $0.52 million in office equipment. The majority of these
capital acquisitions are attributable to staff increases; the relocation of the
Vancouver office to new premises within the existing building; and the move of
the Corporation's Seattle office to a permanent location.
At September 30, 2000 the Corporation's primary sources of liquidity consisted
of cash and short-term investments and an uncommitted line of credit of Cdn$2.0
million, which is secured against the short-term investments. The Corporation
believes that the total amount of cash and short-term investments will be
sufficient to meet its anticipated cash needs for working capital and capital
expenditures through 2001. Thereafter, depending on the development of the
business, the
12
<PAGE>
Corporation may need to raise additional capital for working capital or other
expenses. The Corporation may also encounter opportunities for acquisitions or
other business initiatives that require significant cash commitments, or
unanticipated problems or expenses that could result in a requirement for
additional cash before that time. There can be no assurance that additional
financing will be available on terms favorable to the Corporation or its
shareholders, or on any terms at all. The inability to obtain such financing
would have a material adverse impact on the Corporation's operations. To the
extent that such financing is available, it may result in substantial dilution
to existing shareholders.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Corporation conducts the majority of its transactions in Canadian dollars
and therefore uses the Canadian dollar as its base currency of measurement.
However, most of the Corporation's revenues and some of its expenses are
denominated in United States dollars which results in an exposure to foreign
currency gains and losses on the resulting US dollar denominated cash, accounts
receivable, and accounts payable balances. As of September 30, 2000, the
Corporation has not engaged in any derivative hedging activities on foreign
currency transactions and/or balances. Although foreign currency gains and
losses have not historically been material, fluctuations in exchange rates
between the United States dollar and other foreign currencies and the Canadian
dollar could materially affect the Corporation's results of operations. To the
extent that the Corporation implements hedging activities in the future with
respect to foreign currency exchange transactions, there can be no assurance
that the Corporation will be successful in such hedging activities.
While the Corporation believes that inflation has not had a material adverse
effect on its results of operations, there can be no assurance that inflation
will not have a material adverse effect on the Corporation's results of
operations in the future.
13
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Part II. Other Information
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
------ -----------
27.1 Financial data schedule
99.1 Private Securities Litigation Reform Act of 1995 -
Safe Harbor for Forward-Looking Statements
(b) Reports on Form 8-K
A Form 8-K was filed on September 12, 2000 stating that the
Corporation had completed the sale of its Imaging Division. A second
Form 8-K was filed on September 25, 2000 to include pro forma
financial statements and the final form of the Asset Purchase
Agreement pertaining to the sale of the Division.
14
<PAGE>
Part III. 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 thereunto duly authorized.
Date: November 9, 2000
INFOWAVE SOFTWARE, INC.
/s/ Bijan Sanii
------------------------------------
Bijan Sanii
President and Chief Operating Officer
/s/ Todd Carter
------------------------------------
Todd Carter
Chief Financial Officer
15
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
27.1 Financial data schedule
99.1 Private Securities Litigation Reform Act of 1995 - Safe Harbor
for Forward-Looking Statements
