<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 JUNE 30, 1998.
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 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 stock, as of August 10,
1998:
COMMON SHARES, NO PAR VALUE: 22,309,782 SHARES
<PAGE> 2
WAVEPHORE, INC.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
June 30, 1998 and December 31, 1997 .................................... 3
Condensed Consolidated Statements of Operations -
Three and Six months ended June 30, 1998 and 1997 ...................... 4
Condensed Consolidated Statements of Cash Flows -
Six months ended June 30, 1998 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
Item 3. Quantitative and Qualitative Disclosures
About Market Risk ......................................................11
PART II OTHER INFORMATION
Item 2. Changes in Securities ..................................................12
Item 4. Submission of Matters to a Vote of Security Holders ....................12
Item 6. Exhibits and Reports on Form 8-K .......................................13
SIGNATURES ...................................................................................14
EXHIBIT INDEX ................................................................................15
</TABLE>
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
WavePhore, Inc.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- -----------
(Unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $19,237,076 $11,552,646
Accounts receivable 6,349,696 8,358,769
Inventories 3,718,373 2,906,445
Other receivables 38,816 26,136
Notes receivable from officers, including interest -- 660,899
Prepaid expenses and other 1,681,141 1,466,565
----------- -----------
Total Current Assets 31,025,102 24,971,460
Property and equipment, net 4,482,317 4,507,124
Intangible assets of businesses acquired, net 21,995,326 22,084,017
Deposits and other assets 1,547,463 1,428,501
----------- -----------
$59,050,208 $52,991,102
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 1,537,670 $ 990,926
Accrued expenses 1,857,226 1,805,431
Deferred revenue 1,906,843 1,973,186
Bank loans 1,900,000 1,700,000
Current portion of long-term debt 34,033 531,735
----------- -----------
Total Current Liabilities 7,235,772 7,001,278
Long-term debt, less current portion 3,131 12,493
Other long-term liabilities 499,527 364,906
Stockholders' equity 51,311,778 45,612,425
----------- -----------
$59,050,208 $52,991,102
=========== ===========
</TABLE>
See accompanying notes.
3
<PAGE> 4
WavePhore, Inc.
Condensed Consolidated Statements of Operations
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
1998 1997 1998 1997
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Networks services and equipment $ 5,168,989 $ 4,916,847 $ 9,309,035 $ 8,153,629
Newscast services 1,645,986 607,149 2,920,639 1,055,043
----------- ------------ ------------ ------------
Total Revenues 6,814,975 5,523,996 12,229,674 9,208,672
Cost of revenues 3,350,287 3,150,012 6,336,487 5,137,409
----------- ------------ ------------ ------------
Gross margin 3,464,688 2,373,984 5,893,187 4,071,263
Operating expenses:
Research and development 2,481,993 1,941,811 4,582,696 3,527,813
Sales and marketing 3,802,112 2,509,017 7,008,593 4,639,911
General and administrative 1,610,700 1,220,218 3,099,098 2,315,732
Amortization 633,994 530,225 1,256,878 1,019,345
Charge for purchased research
and development -- 6,000,000 -- 6,000,000
----------- ------------ ------------ ------------
8,528,799 12,201,271 15,947,265 17,502,801
----------- ------------ ------------ ------------
Loss from operations (5,064,111) (9,827,287) (10,054,078) (13,431,538)
Other (income) expense:
Interest expense 58,382 44,428 111,012 92,771
Interest income (230,857) (100,062) (446,197) (263,148)
Other (796) 12,203 (4,546) 12,203
----------- ------------ ------------ ------------
(173,271) (43,431) (339,731) (158,174)
----------- ------------ ------------ ------------
Net loss $(4,890,840) $ (9,783,856) $ (9,714,347) $(13,273,364)
=========== ============ ============ ============
Less: Preferred stock dividends (439,185) (283,491) (1,015,991) (571,225)
----------- ------------ ------------ ------------
Net loss after preferred stock dividends $(5,330,025) $(10,067,347) $(10,730,338) $(13,844,589)
=========== ============ ============ ============
Basic and diluted net loss per common share $ (0.23) $ (0.60) $ (0.50) $ (0.81)
=========== ============ ============ ============
Basic and diluted net loss per common share
after preferred stock dividends $ (0.25) $ (0.62) $ (0.55) $ (0.85)
=========== ============ ============ ============
Number of shares used in per share
calculation 20,904,905 16,345,867 19,603,420 16,303,405
=========== ============ ============ ============
</TABLE>
See accompanying notes.
4
<PAGE> 5
WavePhore, Inc.
Condensed Consolidated Statements of Cash Flows
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
----------------------------
June 30, June 30,
1998 1997
----------- ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(9,714,347) $(13,273,364)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization 2,096,070 1,726,276
(Gain) loss on disposal of assets 827 (57,372)
Provision for doubtful accounts 95,000 27,000
Charge for purchased research and development -- 6,000,000
Changes in operating assets and liabilities 1,963,543 (157,142)
----------- ------------
Net cash used in operating activities (5,558,907) (5,734,602)
INVESTING ACTIVITIES:
Purchase of property and equipment (841,763) (901,919)
Proceeds from sale of property & equipment -- 88,233
Purchase of business, net of cash acquired (117,231) (2,905,634)
Purchase of treasury stock -- (362,954)
Loans to officers, including interest -- (29,992)
----------- ------------
Net cash used in investing activities (958,994) (4,112,266)
FINANCING ACTIVITIES:
Issuance of preferred shares, net 283,500 172,217
Payment of preferred stock dividend (431,443) (276,093)
Issuance of common stock, net 14,677,858 185,629
Payments on notes payable (507,064) (48,316)
Credit line, net 200,000 (120,638)
Other (20,520) 59,439
----------- ------------
Net cash provided by financing activities 14,202,331 (27,762)
----------- ------------
Net increase (decrease) in cash and cash equivalents 7,684,430 (9,874,630)
Cash and cash equivalents at beginning of period 11,552,646 11,793,205
----------- ------------
Cash and cash equivalents at end of period $19,237,076 $ 1,918,575
=========== ============
Supplemental cash flow information
--Payable related to business acquisition $ -- $ 6,000,000
=========== ============
--Issuance of common stock in connection
with the purchase of a business $ 1,000,000 $ --
=========== ============
--Issuance of common stock in connection
with dividend payment on preferred stock $ 518,059 $ 296,066
=========== ============
</TABLE>
See accompanying notes.
5
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WavePhore, Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 1998
(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, 1997. The results of operations for the three and
six month periods ended June 30, 1998 are not necessarily indicative of the
results to be expected for the full year.
(2) NET LOSS PER SHARE
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, Earnings per Share, which was adopted on December 31, 1997. SFAS No.
128 replaced the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Net loss per share amounts for all periods are not
changed from the application of SFAS No. 128 because potential common shares
from stock options, warrants and convertible preferred stock are antidilutive
for all periods presented and, accordingly are excluded from the net loss per
share computations.
(3) RECLASSIFICATIONS
Certain amounts presented for the three and six months ended June 30,
1997 have been reclassified to conform to June 30, 1998 presentation.
(4) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
---------- -----------
<S> <C> <C>
Finished goods.............................. $ 695,222 $ 708,220
Work-in-process............................. 1,691,887 1,334,944
Raw materials............................... 1,331,264 863,281
---------- ----------
$3,718,373 $2,906,445
========== ==========
</TABLE>
(5) RECENTLY ENACTED ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information. The Company is required to adopt the
provisions of SFAS No. 131 in fiscal year 1998. The Company is evaluating
applicability of the provisions of SFAS No. 131.
6
<PAGE> 7
WavePhore, Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 1998
(Unaudited)
(6) ACQUIRED BUSINESS
In May 1997, WavePhore, Inc., an Indiana Corporation (the "Company"),
through its wholly-owned subsidiary, WavePhore Newscast, Inc., a Delaware
Corporation ("WavePhore Newscast"), purchased substantially all of the assets
and assumed certain of the liabilities of Paracel Online Systems, Inc., a
California Corporation ("Paracel Online") of Dallas, Texas, in return for cash
and future consideration based on achieving certain future financial
performance, pursuant to an Agreement for the Purchase and Sale of Assets among
the Company, WavePhore Newscast, Paracel Online and Paracel, Inc., dated May 29,
1997.
The pro-forma unaudited results of operations for the six months ended
June 30, 1997, assuming consummation of the purchase as of January 1, 1997 are
as follows:
<TABLE>
<CAPTION>
1997
------------
<S> <C>
Revenues ....................................... $ 9,776,000
Net loss ....................................... $(14,429,000)
Net loss after preferred stock dividends ....... $(15,000,000)
Basic and dilutive net loss per common share ... $ (0.89)
Basic and dilutive net loss per common
share after preferred stock dividends ........ $ (0.92)
</TABLE>
In May 1998, WavePhore, Inc., purchased all of the outstanding common
stock of GSquared Inc., ("GSquared") from its then shareholders for $1,000,000
in the form of 70,736 shares of the Company's Common Shares and for future
consideration based on achieving certain future financial performance. Like
Newscast, GSquared offers web-based enterprise solutions for news and
information services, but is positioned in the financial institution market. The
results of operations from inception through the date of the acquisition and the
financial position of GSquared are not material to the consolidated financial
statements of the Company. In July 1998, GSquared was renamed WavePhore Labs,
Inc.
(7) EQUITY PROCEEDS
In May 1998, all remaining Warrants to purchase Common Shares of the Company
dated September 10, 1996, were called for redemption by the Company. The
exercise of these outstanding Warrants prior to redemption generated gross
proceeds of approximately $6,000,000 in the second quarter of 1998.
7
<PAGE> 8
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., WavePhore Newscast, Inc., WavePhore Networks, Inc., and WavePhore
WaveTop, Inc. (collectively the "Company"), is a leading developer and provider
of proprietary products and services for low-cost, high-speed, data broadcasting
systems for distributing electronic information via existing worldwide
television, radio, and satellite broadcast infrastructures and the Internet. The
Company currently operates three business units within the data broadcasting
industry: (i) its Networks business unit provides equipment and data
broadcasting services to major information providers to enable them to broadcast
news and other information to their customers; (ii) its Newscast(TM) business
unit provides business customers with customized and aggregated news and
information delivered from information providers and other content sources on a
real-time basis; and (iii) its WaveTop business unit has developed and
introduced a consumer-based entertainment and programming service known as
WaveTop(TM) for delivering multimedia content to broadcast ready home PCs and
TV/PCs via existing television signals. This service, which is free to
consumers, is advertising-supported.
The Company, through its Networks business unit, provides wireless data
broadcasting network services and equipment to providers of financial data,
news, and other information. The Company's broadcast networks utilize
established technologies, such as FM subcarrier and small dish satellite
broadcasting technologies, that are well suited to the economical one-way
transmission of time-sensitive data from one central location to many remote
sites. Those operations are established in 14 major United States markets that,
combined with the Company's small dish satellite coverage, enable the Company to
service the continental U.S. and the major population centers in Canada. In
January 1998, the Networks business unit announced the newest enhancement to its
data broadcasting technology, which utilizes the Internet, to enable virtually
simultaneous real-time delivery of streaming news and other information feeds to
potentially thousands of end users. This new system, named "WINDS" (WavePhore
Internet News Delivery Service) leverages the existing Internet communications
infrastructure to force deliver, or "push", streams of data or files from one
central location to geographically dispersed end users as soon as it is
published by the information provider.
The Company's WavePhore Newscast(TM) Today service allows business
users to create customized information profiles and have news and information
matching those profiles electronically "clipped" from a large variety of
information sources and delivered to the corporate users' PCs. The Newscast
service, which incorporates hardware and software elements, enables end users
to filter real-time news and other data from information providers and allows
integration of this information into an organization's local area network or
e-mail system for delivery to persons who need timely access to such
information. In May 1997, the Company, through its wholly-owned subsidiary,
WavePhore Newscast, Inc., purchased substantially all of the assets and
assumed certain of the liabilities of Paracel Online Systems, Inc., ("Paracel
Online"), a provider of customized and aggregated news and other information
derived from newspapers, newswires, and news magazines to general business
customers worldwide, utilizing proprietary and licensed technology.
In February 1997, the Company announced the creation of WaveTop(TM)
("WaveTop") a wireless consumer broadcast service medium for the home PC user.
The new broadcast service delivers news, sports and entertainment programming,
utilizing the vertical blanking interval ("VBI") of existing analog TV broadcast
signals, to broadcast ready PCs or TV/PCs, without the bandwidth limitations
associated with the Internet. WaveTop leverages its partnership with PBS
National Datacast, Inc., by broadcasting data over the broadcast signals of its
264 member stations. The WaveTop service is free of charge to the consumer. The
Company is seeking to generate revenue from advertisers and content-provider
sponsors for the respective "channels". Through a strategic partnership with
Microsoft, Inc., the WaveTop software is included within the
Windows(R) 98 operating system, which Microsoft released in June, 1998. In
January 1998, WaveTop announced alliances with six leading TV Tuner Board and
two TV/PC
8
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manufacturers for its WaveTop broadcast service. Additionally, in June
1998, the Company announced an agreement to bundle its WaveTop software with all
the retail TV PCI tuner boards of a leading developer of multimedia accelerators
and multimedia subsystem products. The tuner boards are an integral piece of
hardware, allowing the PC to be broadcast ready. The WaveTop service, which went
live April 6, 1998, currently reaches the top 100 markets and is available in
85% of U.S. households. During the third and fourth quarters of 1998, the
Company is sponsoring a multi-million dollar ad campaign aimed at building
consumer awareness and to promote its ability to deliver high-bandwidth
multimedia ads to advertisers. In addition, the Company expects significant
exposure as the WaveTop branding will appear in a separate multi-million dollar
Windows 98 ad campaign launched by Microsoft.
RESULTS OF OPERATIONS - THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
Revenues. Revenues are derived primarily from the following activities:
(i) the Networks business unit generates volume-based fees for its transmission
services and revenues from the sale or rental of transmission equipment; and
(ii) the Newscast business unit obtains annual subscriptions to its Newscast
Today information service and provides related fee-based integration consulting
services. Revenues for the six months ended June 30, 1998 were $12,230,000 and
$9,209,000 for the comparable prior year period. The 33% growth in revenues is
the result of increased subscribers to the Newscast service, increases in data
transmission by network services customers and increased sales of communications
equipment. Revenues for the second quarter of 1998 were up 23% from the same
quarter of 1997. The increases result from the Company's Newscast business unit,
which continues to experience significant growth, with revenue in the second
quarter of 1998 up 171% compared to the second quarter of 1997.
Cost of Revenues. Cost of revenues consists primarily of costs
associated with transmitting Networks services and Newscast customer sites as
well as the cost of the hardware component. The 1998 current quarter and year to
date increases in cost of revenues as compared to the same periods in 1997,
correspond to the increases in revenues. Gross margin percentages are 51% and
43% for the three month periods, and 48% and 44% for the six-month periods ended
June 30, 1998 and 1997, respectively. Increases in gross margin percentages can
be attributed primarily to the Newscast service revenues, which have higher
gross margins, becoming a larger proportion of the total consolidated revenue.
Research and Development. Research and development costs consist
primarily of design, development and testing of the Company's hardware and
software products and services, including payroll, and related costs
attributable to research and development personnel. Research and development
expenses increased 28% to $2,482,000 for the three months ended June 30, 1998
from the comparable prior year period. As a percentage of revenue, these
expenses were 36% in the current quarter versus 35% for the prior year quarter.
For the six-month periods, expenses increased $1,055,000 or 30% in 1998 versus
1997, while as a percentage of revenues they decreased from 38% to 37%. The
increase in expenses is attributable to the commitment to enhance existing
technologies and products, and the continued development of the consumer-based
WaveTop service. The Company anticipates continuing to make significant
expenditures in product development as it develops new and enhanced services for
a growing customer base.
Sales and Marketing. Sales and marketing expenses include payroll,
commissions, travel and other costs attributable to direct sales, marketing and
customer support personnel, as well as ongoing advertising costs. Sales and
marketing expenses for the six months ended June 30, 1998 increased $2,369,000
or 51% from the comparable prior year period. Expenses for the three month
period ending June 30, 1998 were up 52% from the same period ending June 30,
1997. These increases relate primarily to additional compensation, increased
travel, and advertising and promotional costs incurred in connection with the
launch of the WaveTop service, and expansion of the Newscast sales force to
aggressively pursue new markets and to accommodate the growth in that business
unit.
9
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General and Administrative. General and administrative expenses include
accounting, finance, human resources and administrative expenses. General and
administrative expenses for the six months ended June 30, 1998 and 1997 were
$3,099,000 and $2,316,000, respectively, a 34% increase, although, general and
administrative costs as a percentage of total revenues remained at 25% for both
six month periods. Expenses for the quarters ending June 30, 1998 and 1997 were
$1,611,000 and $1,220,000, respectively, representing a 32% increase. These
increases in costs relate primarily to human resources and other administrative
areas in conjunction with the growth of the Company.
Charge for Purchased Research and Development. The 1997 charge for
purchased research and development of $6,000,000 was recorded in connection with
the Paracel Online acquisition. The amount represents research and development
of new products and product upgrades that were in process by Paracel Online at
the acquisition date.
Other (Income) Expense. Interest expense was $111,000 and $93,000 for
the six months ended June 30, 1998 and 1997. The fluctuation corresponds to the
average debt outstanding during the respective periods. Interest income was
$446,000 and $263,000 during the six months ended June 30, 1998 and 1997.
Interest income was $231,000 and $100,000 for the three months ended June 30,
1998 and 1997, a 131% increase. The increases in interest income relate to
increases in cash balances available for investment.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 1998 and 1997, the Company used
cash in its operations of $5,559,000 and $5,735,000, respectively. Cash used in
operations is less than net losses primarily because of non-cash charges of
depreciation and amortization. Cash flows used in investing activities were
$959,000 for the six months ended June 30, 1998, compared to cash used in
investing activities of $4,112,000 for the same period in the prior year. The
Company made purchases of $842,000 in property and equipment during the first
six months of 1998. For the six months ended June 30, 1998, the Company
generated cash from financing activities of $14,202,000, compared to ($28,000)
generated in the first six months of 1997. The generation of cash in 1998 was
primarily from the issuance of common stock in connection with the exercise of
employee stock options and common stock warrants called for redemption in May
1998.
Depending upon the pace of revenue growth during the remainder of 1998
in the Newscast and WaveTop business units, and the level of internal investment
necessary to expand the users of the WaveTop service, it is possible the Company
will need additional equity funding and/or credit facilities to support
operating activities during the early part of 1999. The Company believes that it
will be able to generate additional funding from operations via its accelerated
internal growth plans, and through equity offerings as it has successfully done
in the past. Additionally, the Company currently has credit facilities available
totaling $4,000,000.
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,
and may cause the dilution of existing shareholder interests to the extent they
are funded with equity.
IMPACT OF YEAR 2000
The Company relies on computer hardware, software and related
technology, together with data, in the operation of its business. Such
technology and data are used in creating and delivering the Company's products
and services, as well as the Company's internal operations, such as billing and
accounting. The Company has initiated an enterprise-wide program utilizing a
Year 2000 team, including the executive officers of the Company, to evaluate the
technology and data used in the creation and delivery of its products and
services and in its internal operations, to identify Year 2000 issues related
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<PAGE> 11
thereto and develop and implement a plan to handle them. The Year 2000 team has
compiled a detailed inventory of all hardware and software used in the Company's
day to day operations and has begun testing each component for Year 2000
compliance. The plan also includes resolving any issues that are related to the
Company's customers and suppliers. Accordingly, the Company has sent
correspondence to all of its information providers, vendors and other suppliers
requesting confirmation that they have a Year 2000 compliance program, the date
they expect to be Year 2000 compliant and to warrant their products and services
will function properly with respect to dates after December 31, 1999. In the
event that the Company or its customers, vendors and/or suppliers do not
successfully remediate all Year 2000 Issues, the Company may incur problems in
connection with the operation of its networks and the delivery of information to
its customers. Based upon the initial results of the Company's Year 2000 Program
and the responses to its Year 2000 inquiries sent to information providers,
vendors and other suppliers, the Company currently has not developed a
contingency plan and does not expect that any such potential problems will have
a material effect on the Company's results of operations, liquidity and
financial condition. Accordingly, the Company presently does not expect to incur
any material lost revenue nor incur any material expenditures beyond internal
payroll costs due to Year 2000 issues. However, there can be no assurances that
Year 2000 issues of which the Company is not currently aware or over which it
may not have any control will not have a material adverse effect on the
Company's operations and revenues.
FORWARD-LOOKING STATEMENTS
Certain statements contained in "Management's Discussion and Analysis
of Financial Condition and "Results of Operations" and otherwise in this Report
are forward-looking. These may be identified by the use of forward-looking words
or phrases such as "believe", "expect", "anticipated", "should", "planned",
"estimated" and "potential" among others. These forward-looking statements are
based on the Company's reasonable current expectations. A variety of factors
could cause the Company's actual results and experience to differ materially
from the anticipated results or other expectations expressed in such
forward-looking statements. The risk and uncertainties that may affect the
operations, performance, development and results of the Company include: the
complexity and uncertainty regarding the development and implementation of high
technology products and services; market acceptance of new products and
services; the introduction of competing products or technologies by other
companies; pricing pressures from competitors and/or customers; changes in the
information services and data broadcasting industries and markets; the Company's
ability to protect its proprietary information and technology or to obtain
necessary licenses on commercially reasonable terms; the dependence of the
Company's businesses upon a variety of suppliers and vendors; the ability to
maintain computer and telecommunications systems, essential to its business
operations; the integration and assimilation of acquisitions; the need for
future additional financing; the risks and uncertainties of expansion into
various international markets; the ability to retain key employees; dependence
upon strategic alliances or relationships with other parties; volatility in the
price of the Company's Common Shares; the adoption of new or change in existing
governmental regulations affecting the Company's business; and the Company's
ability to complete the implementation of its Year 2000 plan timely.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable.
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PART II. OTHER INFORMATION
Item 2. Changes in Securities
On April 22, 1998, the Company notified recordholders of certain
Warrants to purchase Common Shares of the Company that such Warrants, dated
September 10, 1996, would be redeemed by the Company on May 8, 1998. The
exercise of these Warrants prior to redemption generated gross proceeds of
approximately $6,000,000 in the second quarter of 1998.
On May 19, 1998 the Company issued 70,736 Common Shares to the then
shareholders of GSquared Inc. as consideration for the Company's purchase of all
the outstanding common stock of GSquared, Inc. The Company's common shares
issued in the transaction were valued at $1,000,000. The Common Shares were
issued pursuant to the non-public offering exemption from registration in
Section 4(2) of the Securities Act of 1933, as amended.
Item 4. Submission of Matters to a Vote of Security Holders
(a) On May 13, 1998, the Company held its reconvened Annual Meeting of
Shareholders at which the following matters were voted upon:
(i) Election of Directors.
All six management nominees for election as directors were unopposed
and elected by the following votes:
<TABLE>
<CAPTION>
Director Shares for Shares Withheld
<S> <C> <C>
David Deeds 17,005,704 340,710
R. Glenn Williamson 16,995,504 350,910
Kenneth D. Swenson 17,005,454 340,960
C. Roland Haden 17,005,454 340,960
Glenn Scolnick 17,005,554 340,860
J. Robert Collins 17,005,454 340,960
</TABLE>
(ii) Proposal to approve the issuance and sale of Series C Convertible
Preferred Shares and the reservation for issuance and the issuance of
Common Shares upon conversion of the Series C Convertible Preferred
Shares.
The proposal was approved as follows:
<TABLE>
<S> <C>
For: 9,074,777 shares
Against: 1,331,903 shares
Abstain: 166,245 shares
Not Voted: 6,773,489 shares
</TABLE>
12
<PAGE> 13
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.
13
<PAGE> 14
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: August 13, 1998 By /s/ David E. Deeds
-------------------
David E. Deeds,
President and Chief Executive Officer
(Duly Authorized Officer)
Date: August 13, 1998 By /s/ Kenneth D. Swenson
----------------------
Kenneth D. Swenson,
Executive Vice President, Chief Financial
Officer and Treasurer
(Principal Financial and Accounting Officer)
14
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Exhibit
Number Description
<S> <C>
27 Financial Data Schedule
</TABLE>
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 19,237
<SECURITIES> 0
<RECEIVABLES> 6,763
<ALLOWANCES> 413
<INVENTORY> 3,718
<CURRENT-ASSETS> 31,025
<PP&E> 7,571
<DEPRECIATION> 3,089
<TOTAL-ASSETS> 59,050
<CURRENT-LIABILITIES> 7,236
<BONDS> 1,937
23,217
0
<COMMON> 108,355
<OTHER-SE> (80,259)
<TOTAL-LIABILITY-AND-EQUITY> 59,050
<SALES> 12,230
<TOTAL-REVENUES> 12,230
<CGS> 6,336
<TOTAL-COSTS> 6,336
<OTHER-EXPENSES> 15,947
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (340)
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,714)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,714)
<EPS-PRIMARY> (.50)
<EPS-DILUTED> (.50)
</TABLE>
