<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
Commission File Number: 0-24858
--------
WAVEPHORE, INC.
(Exact name of registrant as specified in its charter)
INDIANA 86-9491428
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2601 WEST BROADWAY ROAD, TEMPE, AZ 85282
(602) 438-8700
(Address, including zip code, and telephone number,
including area code, of registrant's
principal executive offices)
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 the filing
requirements for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of the issuer's common shares,
as of May 10, 1996:
COMMON SHARES, NO PAR VALUE: 12,000,071 SHARES
<PAGE> 2
WAVEPHORE, INC.
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 1996 and December 31, 1995 ................... 3
Condensed Consolidated Statements of Operations -
Three months ended March 31, 1996 and 1995 ............. 4
Condensed Consolidated Statements of Cash Flows -
Three months ended March 31, 1996 and 1995 ............. 5
Notes to Condensed Consolidated Financial Statements ..... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ............ 7
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ................... 8
SIGNATURES .......................................................... 9
EXHIBITS
Exhibit Index .............................................. 10
(27) Financial Data Schedule
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
WavePhore, Inc.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $16,988,351 $10,945,178
Accounts receivable 2,798,293 3,437,374
Inventories 2,711,098 2,194,673
Other Receivables 160,101 159,028
Notes receivable from officers, including interest 41,692 40,757
Prepaid expenses and other 532,228 518,568
----------- -----------
Total current assets 23,231,763 17,295,578
Notes and other receivables 165,274 212,138
Property and equipment, net 2,021,405 2,013,655
Intangibles assets of businesses acquired, net 17,983,558 18,467,252
Deposits and other assets 353,602 269,530
----------- -----------
$43,755,602 $38,258,153
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,589,755 $ 2,119,244
Accrued stock issuance expenses - 1,977,000
Accrued expenses 421,732 813,285
Current portion of long-term debt 1,968,678 1,197,466
Other 150,000 190,000
----------- -----------
Total current liabilities 4,130,165 6,296,995
Long-term debt, less current portion 636,233 637,843
Other long-term liabilities 227,994 217,487
Deferred Compensation - 300,000
Stockholders' equity 38,761,210 30,805,828
----------- -----------
$43,755,602 $38,258,153
=========== ===========
</TABLE>
See accompanying notes.
3
<PAGE> 4
WavePhore, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
-----------------------------
1996 1995
----------- -----------
<S> <C> <C>
Revenues $ 4,043,436 $ 185,949
Cost of revenues 2,491,406 174,878
----------- -----------
Gross margin 1,552,030 11,071
Operating expenses:
Product development 937,326 1,000,630
Sales and marketing 1,274,256 388,705
General and administrative 1,343,415 532,796
Charge for purchased research and
development - 473,679
Amortization 483,694 -
----------- -----------
4,038,691 2,395,810
----------- -----------
Loss from operations (2,486,661) (2,384,739)
Other (income) expense:
Interest expense 47,986 3,594
Interest income (189,898) (121,016)
Other (973) (4,339)
----------- -----------
(142,885) (121,761)
----------- -----------
Net loss $(2,343,776) $(2,262,978)
=========== ===========
Net loss per share $ (.20) $ (.23)
=========== ===========
Number of shares used in per share
calculation 11,648,169 9,732,133
=========== ===========
</TABLE>
See accompanying notes.
4
<PAGE> 5
WavePhore, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
-----------------------------
March 31, March 31,
1996 1995
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(2,343,776) $(2,262,978)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 726,352 58,415
Charge for purchased research and development - 473,679
Provision for doubtful accounts 21,000 -
Changes in operating assets and liabilities (624,741) (329,192)
----------- -----------
Net cash used in operating activities (2,221,165) (2,060,076)
INVESTING ACTIVITIES:
Purchase of property and equipment (250,408) (272,638)
Purchase of business, net of cash acquired - (17,671)
Loans to officers, including interest (935) (630,854)
Repayments on loans to officers - 29,002
----------- -----------
Net cash used in investing activities (251,343) (892,161)
FINANCING ACTIVITIES:
Issuance of preferred shares, net 5,574,220 -
Payment of preferred stock dividend (276,080) -
Issuance of common stock, net 2,444,400 61,499
Payments on notes payable and to bank (19,550) (108,144)
Borrowings under credit line, net 789,152 -
Purchase of treasury stock - (569,364)
Other 3,539 (13,927)
Issuance of loan receivable - (140,924)
Repayments on loan receivable - 140,924
----------- -----------
Net cash provided by (used in) financing activities 8,515,681 (629,936)
----------- -----------
Net increase (decrease) in cash and cash equivalents 6,043,173 (3,582,173)
Cash and cash equivalents at beginning of period 10,945,178 10,324,921
----------- -----------
Cash and cash equivalents at end of period $16,988,351 $ 6,742,748
=========== ===========
Supplemental cash flow information:
- Issuance of common stock in connection
with purchase of business $ 1,135,065
===========
</TABLE>
See accompanying notes.
5
<PAGE> 6
WAVEPHORE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles, pursuant
to the rules and regulations of the Securities and Exchange Commission. In the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Certain
information and footnote disclosures normally included in financial statements
have been condensed or omitted pursuant to such rules and regulations. These
financial statements should be read in conjunction with the financial statements
and the notes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1995. The results of operations for the three month
period ended March 31, 1996 are not necessarily indicative of the results to be
expected for the full year. Effective January 1, 1996, the Company discontinued
the development stage.
(2) LOSS PER SHARE
Loss per share is based on the weighted average number of common shares
outstanding during each period. Common stock equivalents, which were
anti-dilutive, were not included in the computation of net loss per share.
(3) RECLASSIFICATIONS
Certain amounts presented for the three months ended March 31, 1995
have been reclassified to conform to March 31, 1996 presentation.
(4) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------------------------
<S> <C> <C>
Finished goods $ 771,490 $ 588,260
Work-in-process 1,479,398 1,334,567
Raw materials 460,210 271,846
-------------------------
$2,711,098 $2,194,673
=========================
</TABLE>
6
<PAGE> 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
WavePhore, Inc. including its newly acquired, wholly-owned
subsidiaries, WavePhore Canada, Inc. and WavePhore Networks, Inc.. (formerly
Mainstream Data, Inc.) collectively (the "Company"), is a developer and provider
of proprietary products and services for the low-cost, high speed distribution
of digital data via the existing worldwide television, radio and satellite
broadcast infrastructures. The year of 1995 marked a major transition in the
Company's evolution from a technology organization, principally a hardware and
network systems developer, to a fully integrated information solutions provider.
The company had been in the development stage until the end of 1995. Effective
January 1, 1996, the Company discontinued the development stage.
On January 25, 1995, the Company purchased all of the outstanding
common stock of BleuMont Telecom Inc. of Montreal, Canada. Subsequent to the
acquisition, BleuMont Telecom Inc. was renamed WavePhore Canada, Inc.
("WavePhore Canada"). WavePhore Canada is involved in the research, development
and marketing of products and services for the transmission of data by
television signal. The acquisition was accounted for as a purchase and,
accordingly, the operating results of WavePhore Canada have been included in the
consolidated financial statements from the date of acquisition. The aggregate
purchase price of WavePhore Canada common stock was approximately $1.3 million,
consisting of $284,831 in cash (includes direct cost of acquisition) and the
issuance of 244,626 shares of the Company's common stock.
During the second quarter of 1995, the Company entered into an
agreement with Intel Corporation ("Intel") whereby it agreed to develop data
broadcasting technology for Intel. The agreement provides, among other things,
for the Company to license to Intel certain of the Company's proprietary
technologies and Intel granting the Company certain rights with respect to the
sale and distribution of products incorporating such technologies. In addition,
under a separate agreement, Intel acquired the right to purchase up to 250,000
common shares of the Company by May of 1997. In connection with the agreements,
Intel made payments to the Company aggregating $500,000 in cash, and agreed to
pay other license fees and royalties to the Company.
On December 29, 1995, the Company purchased all of the outstanding
common stock of WavePhore Networks, Inc. (formerly Mainstream Data, Inc.),
hereafter referred to as "WavePhore Networks". WavePhore Networks is a provider
of proprietary products and services for the distribution of digital data via
direct satellite links and local FM broadcast frequencies. In addition,
WavePhore Networks markets an information product known as Newscast. The
acquisition was accounted for as a purchase and, accordingly, the operating
results of WavePhore Networks have been included in the consolidated financial
statements from the date of acquisition. The aggregate purchase price was
approximately $29.4 million, consisting of $20.1 million in cash and the
issuance of 747,029 shares of the Company's common stock.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1996 AND 1995
Revenues. Revenues are derived from Datacasting Services and equipment
sales and Newscast(TM) services. Revenues for the three months ended March 31,
1996 were $4,043,000 compared to $186,000 for the comparable period in the prior
year. The increase in revenues is the result of the increase in volume in the
Datacasting Services and Newscast businesses.
Cost of Revenues. Cost of revenues consists primarily of royalties paid
to third party information providers for the cost of news services sold to
customers, costs associated with transmitting news services to customer sites
and cost of computer hardware and software sold to customers. The increase in
cost of revenues is due to the increased business volume.
Product Development. Product development expenses were $937,000 and
$1,001,000 for the three month period ended March 31, 1996 and 1995,
respectively. The product development expenses consists primarily of design,
testing and support of the Company's existing and developing hardware, software
and services. The Company anticipates continuing to make significant
expenditures in product development as it develops new and enhanced services and
provides service to a growing customer base.
Sales and Marketing. Sales and marketing expenses for the three months
ended March 31, 1996 increased approximately $854,000 over the comparable period
of the prior year. The increase relates primarily to additional sales personnel,
increased travel and advertising and promotional costs.
7
<PAGE> 8
General and Administrative. General and administrative expenses for the
three months ended March 31, 1996 increased approximately $811,000, over the
comparable period of the prior year. The increase relates primarily to the
acquisition of WavePhore Canada in January 1995 and WavePhore Networks in
December 1995.
Charge for purchased research and development. The charge for purchased
research and development relates to the portion of the total cost to purchase
WavePhore Canada common stock which was allocated to research and development
that was being conducted by WavePhore Canada at the time of the purchase.
Interest Expense. Interest expense increased during the three months
ended March 31, 1996, compared to the same period of the prior year, due to the
average debt outstanding during the period increasing in 1996 compared to 1995.
Interest Income. Interest income increased during the three months
ended March 31, 1996, compared to the same period of the prior year, due to the
increase in cash and cash equivalents resulting from the cash proceeds from the
private offering of the Company's preferred stock in December 1995 and January
1996.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 1996 and 1995, the Company used
cash in its operations of $2,221,165 and $2,060,076, respectively. Cash used in
operations is less than the net losses primarily because of non cash charges of
depreciation and amortization and the charge for purchased research and
development. Cash flows used in investing activities was $251,343 for the three
months ended March 31, 1996, compared to cash used in investing activities of
$892,161 for the same period in the prior year. The Company made $250,408 of
purchases of property and equipment. For the three months ended March 31, 1996,
the Company generated cash of $8,515,681 from financing activities primarily
from the issuance of preferred and common stock and bank borrowings of $789,000.
These sources of cash were offset by the payment of a preferred stock dividend
in the amount of $276,000.
The Company estimates that its present financial resources will be
sufficient to fund operating activities including the company's accelerated
internal growth beyond 1996. The Company will continue to evaluate business
acquisitions and the development of strategic partnerships to help accelerate
its growth. The pace at which these acquisitions and strategic partnerships
occur will have an impact on the capital resources of the Company to the extent
they are funded with cash, or upon the dilution of existing shareholder
interests to the extent they are entered into for equity.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibit is included herein:
(27) Financial Data Schedule
(b) Reports on Form 8-K
On January 10, 1996, the Company filed a report on Form 8-K, reporting
in Item 2 the acquisition of all the outstanding common stock of WavePhore
Networks, Inc. (formerly Mainstream Data, Inc.) on December 29, 1995 and in Item
5, the private placement to certain accredited investors of convertible
preferred shares and warrants to purchase such shares. On March 8, 1996, the
Company filed an amendment to such report, which included audited financial
statements of Mainstream Data, Inc. for the years ended December 31, 1995 and
1994, and pro forma unaudited consolidated statement of operations for the year
ended December 31, 1995 which gave effect to such acquisition as of the date and
for the period indicated therein.
8
<PAGE> 9
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.
WavePhore, Inc.
Date: May 13, 1996 By /s/ David E. Deeds
---------------- -------------------
David E. Deeds,
President and Chief Executive Officer
(Duly Authorized Officer)
Date: May 13, 1996 By /s/ Kenneth D. Swenson
---------------- -----------------------
Kenneth D. Swenson,
Treasurer and Chief Financial Officer
(Principal Financial and Accounting Officer)
9
<PAGE> 10
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Exhibit
Number Description
------ -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 16,988
<SECURITIES> 0
<RECEIVABLES> 3,465
<ALLOWANCES> 667
<INVENTORY> 2,711
<CURRENT-ASSETS> 23,232
<PP&E> 5,659
<DEPRECIATION> 3,638
<TOTAL-ASSETS> 43,756
<CURRENT-LIABILITIES> 4,130
<BONDS> 2,605
36,456
0
<COMMON> 39,936
<OTHER-SE> 37,631
<TOTAL-LIABILITY-AND-EQUITY> 43,756
<SALES> 4,043
<TOTAL-REVENUES> 4,043
<CGS> 2,491
<TOTAL-COSTS> 2,491
<OTHER-EXPENSES> 4,038
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 48
<INCOME-PRETAX> (2,344)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,344)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,344)
<EPS-PRIMARY> (.20)
<EPS-DILUTED> (.20)
</TABLE>
