<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 September 30, 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 86-0491428
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3311 North 44th Street, Phoenix, AZ 85018
(602) 952-5500
(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 1964 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 stock, as of November 5,
1996:
Common Shares, No Par Value: 16,121,643 shares
<PAGE> 2
WAVEPHORE, INC.
INDEX
Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
September 30, 1996 and December 31, 1995.................3
Condensed Consolidated Statements of Operations -
Three and nine months ended September 30, 1996 and 1995..4
Condensed Consolidated Statements of Cash Flows -
Nine months ended September 30, 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 ..................10
SIGNATURES ...............................................................11
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
WavePhore, Inc.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
--------------- --------------
(Unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $14,678,456 $10,945,178
Accounts receivable 3,501,313 3,437,374
Inventories 3,454,096 2,194,673
Other receivables 73,752 159,028
Notes receivable from officers, including interest 602,531 40,757
Prepaid expenses and other 638,577 518,568
----------- -----------
Total Current Assets 22,948,725 17,295,578
Notes and other receivables 233,075 212,138
Property and equipment, net 2,162,797 2,013,655
Intangible assets of businesses acquired, net 17,052,441 18,467,252
Deposits and other assets 500,644 269,530
----------- -----------
$42,897,682 $38,258,153
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 1,835,428 $ 2,119,244
Accrued stock issuance expenses -- 1,977,000
Accrued expenses 600,001 813,285
Bank loans 1,623,072 1,119,447
Current portion of long-term debt 537,684 78,019
Other 95,455 190,000
----------- -----------
Total Current Liabilities 4,691,640 6,296,995
Long-term debt, less current portion 119,865 637,843
Other long-term liabilities 458,857 217,487
Deferred compensation -- 300,000
Stockholders' equity 37,627,320 30,805,828
----------- -----------
$42,897,682 $38,258,153
=========== ===========
</TABLE>
See accompanying notes.
3
<PAGE> 4
WavePhore, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------- --------------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 5,194,068 $ 115,736 $ 13,841,835 $ 637,223
Cost of revenues 3,140,320 155,399 8,441,096 443,940
------------ ------------ ------------ ------------
Gross margin 2,053,748 (39,663) 5,400,739 193,283
Operating expenses:
Product development 989,469 782,187 2,910,844 2,933,603
Sales and marketing 1,384,432 299,610 4,300,805 1,253,738
General and administrative 1,232,454 675,052 4,014,987 1,705,689
Charge for purchased research
and development -- -- -- 473,679
Amortization 481,906 -- 1,449,294 --
------------ ------------ ------------ ------------
4,088,261 1,756,849 12,675,930 6,366,709
------------ ------------ ------------ ------------
Loss from operations (2,034,513) (1,796,512) (7,275,191) (6,173,426)
Other (income) expense:
Interest expense 33,406 2,943 133,097 10,621
Interest income (164,710) (137,917) (535,563) (400,195)
Other (3,576) (6,003) (4,414)
------------ ------------ ------------ ------------
(134,880) (134,974) (408,469) (393,988)
Net loss before preferred stock (1,899,633) (1,661,538) (6,866,722) (5,779,438)
dividends
Less: Preferred stock dividends (345,987) -- (1,398,417) --
------------ ------------ ------------ ------------
Net loss applicable to common $ (2,245,620) $ (1,661,538) $ (8,265,139) $ (5,779,438)
shareholders ============ ============ ============ ============
Net loss per common share before
preferred stock dividends $ (0.13) $ (0.16) $ (0.54) $ (0.57)
============ ============ ============ ============
Net loss per common share $ (0.16) $ (0.16) $ (0.65) $ (0.57)
============ ============ ============ ============
Number of shares used in per share
calculation 14,280,985 10,435,160 12,676,758 10,093,383
============ ============ ============ ============
</TABLE>
See accompanying notes.
4
<PAGE> 5
WavePhore, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
---------------------------------
September 30, September 30,
1996 1995
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (6,866,722) $ (5,779,438)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization 2,212,825 177,453
Charge for purchased research and development -- 473,679
Amortization of unearned compensation -- 224,999
Gain on disposal of assets (78,809) --
Provision for doubtful accounts 63,000 --
Changes in operating assets and liabilities (1,765,043) (304,580)
------------ ------------
Net cash used in operating activities (6,434,749) (5,207,887)
INVESTING ACTIVITIES:
Purchase of property and equipment (935,265) (468,920)
Proceeds from sale of property & equipment 101,401 --
Purchase of treasury stock (2,181,884) (686,539)
Purchase of business, net of cash acquired -- (8,617)
Loans to officers, including interest (561,774) (666,448)
Repayments on loans to officers -- 1,716,533
------------ ------------
Net cash used in investing activities (3,577,522) (113,991)
FINANCING ACTIVITIES:
Issuance of preferred shares, net 9,272,389 --
Payment of preferred stock dividend (552,164) --
Issuance of common stock, net 4,583,696 1,702,799
Issuance of stock purchase warrants -- 100,000
Payments on notes payable (1,532,749) (122,373)
Borrowings under credit line; net 1,978,061 --
Other (3,684) (8,614)
Issuance of loan receivable -- (140,924)
Repayments on loan receivable -- 140,924
------------ ------------
Net cash provided by financing activities 13,745,549 1,671,812
------------ ------------
Net increase (decrease) in cash and cash equivalents 3,733,278 (3,650,066)
Cash and cash equivalents at beginning of period 10,945,178 10,324,921
------------ ------------
Cash and cash equivalents at end of period $ 14,678,456 $ 6,674,855
============ ============
Supplemental cash flow information:
- Issuance of common stock in connection
with purchase of business $ 1,135,065
============
- Issuance of common stock in connection
with dividend payment on preferred stock $ 833,095
============
</TABLE>
See accompanying notes.
5
<PAGE> 6
WavePhore, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 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 10K for
the year ended December 31, 1995. The results of operations for the three and
nine month periods ended September 30, 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 and nine months ended September
30, 1995 have been reclassified to conform to September 30, 1996 presentation.
(4) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
---------- ----------
<S> <C> <C>
Finished goods $ 588,679 $ 588,260
Work-in-process 1,983,405 1,334,567
Raw materials 882,012 271,846
---------- ----------
$3,454,096 $2,194,673
========== ==========
</TABLE>
(5) CAPITAL SHARES
On September 18, 1996, certain of the Company's Series B Convertible
Preferred Warrant Holders exercised 72,005 Warrants, at an aggregate exercise
price of approximately $1.8 million, into 72,005 Series B Preferred Shares which
were immediately converted into 359,784 Common Shares.
In connection with the Stock Purchase Agreement dated as of September
13, 1996, the Company issued 500,000 Common Shares to Intel Corporation for
aggregate consideration of $4,000,000 and cancellation of a Stock Purchase
Warrant dated May 5, 1995.
6
<PAGE> 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
WavePhore, Inc. including its wholly-owned subsidiaries, WavePhore,
Canada, Inc. and WavePhore Networks, Inc., 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.
In connection with the Stock Purchase Agreement dated as of September
13, 1996, the Company issued 500,000 Common Shares to Intel Corporation for
aggregate consideration of $4,000,000 and cancellation of a Stock Purchase
Warrant dated May 5, 1995.
RESULTS OF OPERATION - THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Revenues. Revenues are derived from datacasting services and equipment
sales and Newscast(TM) services. Revenues for the three months and nine months
periods ended September 30, 1996 were $5,194,000 and $13,842,000, respectively
compared to $116,000 and $637,000, respectively for the comparable periods 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 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.
7
<PAGE> 8
Product Development. Product development expenses were $989,000 and
$2,911,000 for the three months and nine months periods ended September 30,
1996, respectively compared to $782,000 and $2,934,000, respectively, for the
comparable periods in the prior year. 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 services to a growing customer base.
Sales and Marketing. Sales and marketing expenses for the three and
nine months periods ended September 30, 1996 were $1,384,000 and $4,301,000,
respectively, compared to $300,000 and $1,254,000, respectively, for the
comparable periods of the prior year. The increase relates primarily to
additional sales personnel, increased travel, and advertising and promotional
costs.
General and administrative. General and administrative expenses for the
three and nine month periods ended September 30, 1996 were $1,232,000 and
$4,015,000, respectively, compared to $675,000 and $1,706,000, respectively, for
the comparable periods 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 during the nine months ended September 30, 1995 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 and nine
months periods ended September 30, 1996, compared to the same period of the
prior year, due to the average debt outstanding during the periods increasing in
1996 compared to 1995.
Interest Income. Interest income increased during the three and nine
months periods ended September 30, 1996, compared to the same periods of the
prior year, due to the increase in cash and cash equivalents resulting from the
cash proceeds from the Company's stock offerings in 1995 and 1996.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months periods ended September 30, 1996 and 1995, the
Company used cash in its operations of $6,435,000 and $5,208,000, 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 $
3,578,000 for the nine months ended September 30, 1996, compared to cash used in
investing activities of $114,000 for the same period in the prior year. The
Company made $2,182,000 and $935,000 of purchases of treasury stock and property
and equipment, respectively, during the first nine months of 1996. For the nine
months ended September 30, 1996, the Company generated cash of $13,746,000 from
financing activities primarily from the issuance of preferred and common stock.
These sources of cash were offset by the payment of a preferred stock dividend
in the amount of $552,000.
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.
Certain of the above statements may constitute forward looking
statements which may involve risks and uncertainties. Actual results could
differ materially from such forward looking statements as a result of a variety
of factors, including, but not limited to, technology changes, competitive
developments and risk factors listed from time to time in the Company's SEC
filings.
8
<PAGE> 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are included herein:
27 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the period.
9
<PAGE> 10
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: November 5, 1996 By /s/ David E. Deeds
---------------- -------------------
David E. Deeds,
President and Chief Executive Officer
(Duly Authorized Officer)
Date: November 5, 1996 By /s/ Kenneth D. Swenson
---------------- ----------------------
Kenneth D. Swenson,
Treasurer and Chief Financial Officer
(Principal Financial and Accounting Officer)
10
<PAGE> 11
EXHIBIT INDEX
Exhibit Exhibit
Number Description
------ -----------
27 Financial Data Schedule
11
<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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 14,678
<SECURITIES> 0
<RECEIVABLES> 4,136
<ALLOWANCES> 635
<INVENTORY> 3,454
<CURRENT-ASSETS> 22,949
<PP&E> 3,226
<DEPRECIATION> 1,063
<TOTAL-ASSETS> 42,898
<CURRENT-LIABILITIES> 4,692
<BONDS> 2,281
16,823
0
<COMMON> 66,256
<OTHER-SE> (45,451)
<TOTAL-LIABILITY-AND-EQUITY> 42,898
<SALES> 13,842
<TOTAL-REVENUES> 13,842
<CGS> 8,441
<TOTAL-COSTS> 8,441
<OTHER-EXPENSES> 12,276
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (408)
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,867)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,867)
<EPS-PRIMARY> (.54)
<EPS-DILUTED> (.54)
</TABLE>
