<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, 1999.
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
Commission File Number: 0-24858
WAVO CORPORATION
(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.)
3131 E. CAMELBACK ROAD, SUITE 320, PHOENIX, AZ 85016
(602) 952-5500
(Address, including zip code, and telephone number,
including area code, of registrant's
principal executive offices)
WavePhore, Inc.
(Former name, former address and former fiscal year, if changed since
last report)
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 9,
1999:
COMMON SHARES, NO PAR VALUE: 28,924,230 SHARES
<PAGE> 2
WAVO CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
June 30, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Operations -
Three and six months ended June 30, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows -
Six months ended June 30, 1999 and 1998 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 13
PART II OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
EXHIBIT INDEX 16
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
WAVO Corporation
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- ------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 5,380,126 $ 17,719,042
Accounts receivable 4,094,292 3,999,076
Inventories 2,275,936 3,313,490
Other receivables - 29,308
Prepaid expenses and other 1,731,955 976,933
------------ ------------
Total current assets 13,482,309 26,037,849
Property and equipment, net 5,901,820 4,761,827
Intangible assets of businesses acquired, net 22,053,146 20,616,693
Deposits and other assets 1,629,935 1,570,362
------------ ------------
Total assets $ 43,067,210 $ 52,986,731
============ ============
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 1,608,467 $ 1,073,214
Accrued expenses 1,509,285 2,938,371
Deferred revenue 2,025,990 1,873,618
Bank loans 1,784,509 2,000,000
Current portion of long-term debt 200,804 52,165
------------ ------------
Total current liabilities 7,129,055 7,937,368
Long-term debt, less current portion 30,676 39,563
Other long-term liabilities 276,375 379,342
Shareholders' equity 35,631,104 44,630,458
------------ ------------
Total liabilities and shareholders' equity $ 43,067,210 $ 52,986,731
============ ============
</TABLE>
See accompanying notes.
3
<PAGE> 4
WAVO Corporation
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------- --------------------------------
1999 1998 1999 1998
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Information delivery and
communication systems $ 4,497,911 $ 5,168,989 $ 8,459,007 $ 9,309,035
Subscription and fee services 1,542,650 1,645,986 3,260,423 2,920,639
------------ ------------ ------------- -------------
Total revenues 6,040,561 6,814,975 11,719,430 12,229,674
Cost of revenues 3,144,307 3,350,287 6,111,005 6,336,487
------------ ------------ ------------- -------------
Gross margin 2,896,254 3,464,688 5,608,425 5,893,187
Operating expenses:
Research and development 3,004,207 2,631,993 6,109,844 4,882,696
Sales and marketing 3,691,345 3,652,112 6,945,899 6,708,593
General and administrative 1,423,651 1,610,700 2,949,451 3,099,098
Amortization 412,825 633,994 812,019 1,256,878
------------ ------------ ------------- -------------
8,532,028 8,528,799 16,817,213 15,947,265
------------ ------------ ------------- -------------
Loss from operations (5,635,774) (5,064,111) (11,208,788) (10,054,078)
Other (income) expense:
Interest expense 42,819 58,382 99,803 111,012
Interest income (126,088) (230,857) (339,182) (446,197)
Other 492 (796) 12,160 (4,546)
------------ ------------ ------------- -------------
(82,777) (173,271) (227,219) (339,731)
------------ ------------ ------------- -------------
Net loss $ (5,552,997) $ (4,890,840) $ (10,981,569) $ (9,714,347)
============ ============ ============= =============
Less: Preferred stock dividends 138,039 439,185 276,078 1,015,991
------------ ------------ ------------- -------------
Net loss after preferred stock dividends $ (5,691,036) $ (5,330,025) $ (11,257,647) $ (10,730,338)
============ ============ ============= =============
Basic and dilutive net loss per common share $ (0.19) $ (0.23) $ (0.38) $ (0.50)
============ ============ ============= =============
Basic and dilutive net loss per common share
after preferred stock dividends $ (0.20) $ (0.25) $ (0.39) $ (0.55)
============ ============ ============= =============
Number of shares used in per share
calculation 28,729,618 20,904,905 28,651,510 19,603,420
============ ============ ============= =============
</TABLE>
See accompanying notes.
4
<PAGE> 5
WAVO Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
-------------------------------
June 30, June 30,
1999 1998
------------ ------------
<S> <C> <C>
Operating activities:
Net loss $(10,981,569) $ (9,714,347)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization 2,056,206 2,096,070
Loss on disposal of assets -- 827
Provision for doubtful accounts 65,000 95,000
Changes in operating assets and liabilities 631,499 1,963,543
------------ ------------
Net cash used in operating activities (8,228,864) (5,558,907)
Investing activities:
Purchase of property and equipment (2,363,276) (841,763)
Purchase of business, net of cash acquired (1,483,054) (117,231)
Other (15,000) --
------------ ------------
Net cash used in investing activities (3,861,330) (958,994)
Financing activities:
Issuance of preferred shares, net -- 283,500
Payment of preferred stock dividend (276,080) (431,443)
Issuance of common stock, net 722,548 14,677,858
Borrowings from bank and other 240,000 200,000
Payments on debt and capital lease obligations (315,739) (507,064)
Purchase of treasury shares (522,878) --
Other (96,573) (20,520)
------------ ------------
Net cash provided by (used in) financing activities (248,722) 14,202,331
------------ ------------
Net increase (decrease) in cash and cash equivalents (12,338,916) 7,684,430
Cash and cash equivalents at beginning of period 17,719,042 11,552,646
------------ ------------
Cash and cash equivalents at end of period $ 5,380,126 $ 19,237,076
============ ============
</TABLE>
See accompanying notes.
5
<PAGE> 6
WAVO Corporation
Notes to Condensed Consolidated Financial Statements
June 30, 1999
(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, 1998. The results of operations for the period ended
June 30, 1999 are not necessarily indicative of the results to be expected for
the entire year.
(2) RECLASSIFICATIONS
Certain amounts presented for the three and six months ended June 30,
1998 have been reclassified to conform to June 30, 1999 presentation.
(3) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- -----------
<S> <C> <C>
Finished goods $ 384,567 $ 555,321
Work-in-process 1,048,459 1,016,123
Raw materials 842,910 1,742,046
----------- -----------
$ 2,275,936 $ 3,313,490
=========== ===========
</TABLE>
6
<PAGE> 7
WAVO Corporation
Notes to Condensed Consolidated Financial Statements
June 30, 1999
(Unaudited)
(4) SEGMENT INFORMATION
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Business
Products and
Three Months Ended June 30, 1999 WaveTop Services Other Total
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues from external customers $ -- $ 6,040,000 $ -- $ 6,040,000
Interest revenue -- -- 126,000 126,000
Interest expense -- 2,000 41,000 43,000
Depreciation and amortization expense 110,000 935,000 31,000 1,076,000
Segment profit (loss) (1,727,000) (2,189,000) (1,637,000) (5,553,000)
Segment assets 1,252,000 33,910,000 7,905,000 43,067,000
Expenditures for long-lived assets 21,000 597,000 177,000 795,000
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Business
Products and
Three Months Ended June 30, 1998 WaveTop Services Other Total
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues from external customers $ -- $ 6,815,000 $ -- $ 6,815,000
Interest revenue -- -- 231,000 231,000
Interest expense -- 58,000 -- 58,000
Depreciation and amortization expense 78,000 962,000 23,000 1,063,000
Segment profit (loss) (1,968,000) (1,670,000) (1,253,000) (4,891,000)
Segment assets 1,757,000 35,919,000 21,374,000 59,050,000
Expenditures for long-lived assets 164,000 256,000 20,000 440,000
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Business
Products and
Six Months Ended June 30, 1999 WaveTop Services Other Total
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues from external customers $ -- $ 11,719,000 $ -- $ 11,719,000
Interest revenue -- 9,000 330,000 339,000
Interest expense -- 18,000 94,000 112,000
Depreciation and amortization expense 218,000 1,777,000 61,000 2,056,000
Segment profit (loss) (3,616,000) (4,249,000) (3,117,000) (10,982,000)
Segment assets 1,252,000 33,910,000 7,905,000 43,067,000
Expenditures for long-lived assets 41,000 2,071,000 251,000 2,363,000
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Business
Products and
Six Months Ended June 30, 1998 WaveTop Services Other Total
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues from external customers $ -- $ 12,230,000 $ -- $ 12,230,000
Interest revenue -- -- 446,000 446,000
Interest expense -- 104,000 2,000 106,000
Depreciation and amortization expense 156,000 1,896,000 44,000 2,096,000
Segment profit (loss) (3,500,000) (3,687,000) (2,527,000) (9,714,000)
Segment assets 1,757,000 35,919,000 21,374,000 59,050,000
Expenditures for long-lived assets 267,000 542,000 33,000 842,000
</TABLE>
The Company evaluates performance and allocates resources based on profit or
loss from operations before income taxes. There are no intersegment sales or
transfers.
7
<PAGE> 8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
WAVO Corporation (the "Company") partners with providers of news,
business data, Internet-based content and multimedia programming in order to
deliver customized information and quality content to an information - dependent
society. The Company enables people and enterprises to more efficiently receive,
manage and productively use all types of urgent, insightful, and relevant
information. The Company's technologies and services aggregate, filter,
customize and distribute digital content (text, graphics, music and video) using
a wide range of reliable, low-cost broadcast, satellite and Internet-based
delivery systems. It has technology sourcing and strategic alliances with
Microsoft, Intel, and PBS National Datacast, among others, in addition to
information service agreements with approximately two hundred Fortune 1000
companies worldwide.
The Company provides wireless data broadcasting transmission 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 13
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.
The Company's 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 April,
1999, the Company announced the availability of the beta release of WAVO
NewsPak. NewsPak provides a packaged news solution to companies who want to
incorporate real-time news from the world's leading sources into their intranets
or their Internet web sites.
The Company's WaveTop(TM) ("WaveTop") service is a wireless consumer
broadcast service medium for delivering entertainment, news and other
information to the home PC user. The WaveTop 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 264 PBS 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. WaveTop software is bundled with TV
tuner boards of most of the manufacturers of such products, as well as with
several PC Original Equipment Manufacturers ("OEMs"). The tuner boards are an
integral piece of hardware, allowing the PC to be broadcast ready. The WaveTop
service, currently reaches the top 100 markets and is available in 99% of U.S.
households. In April, 1999, the Company introduced a new suite of applications,
the "WAVO Digital Broadcast Suite", which will give broadcasters a
cost-effective end-to-end solution for sending Internet data over analog and
digital broadcast systems. The Company also announced an agreement with General
Instrument ("GI") which provides for the bundling of the WAVO Digital Broadcast
Suite with GI's encoding equipment, and presents it to broadcasters and cable
systems in the U.S., as they make their transition to digital television.
Additionally the Company is developing a television-oriented version of the
WaveTop service for integration with digital television set-top boxes. In the
second half of 1999, the Company will launch a new entertainment-focused
offering called JamCast. The product provides users with rich media
entertainment files for music and games that are broadcast to their PC 24 hours
a day over the PBS television signal. The product is built upon the technology
used in the WaveTop service.
In connection with the Company's continued integration of its
operations, the Company's Senior Management proposed a simplification of the
Company name to WAVO Corporation and also adopted a new corporate tagline to
summarize the Company's function: "Moving Media".
8
<PAGE> 9
RESULTS OF OPERATIONS - THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
Revenues
Revenues are currently derived primarily from the following activities:
(i) information delivery services generate volume-based fees and revenues, and
from the sale or rental of communication systems; and (ii) subscriptions to
information services and related fee-based integration consulting services.
Revenues for the six months ended June 30, 1999 and 1998 were $11,719,000 and
$12,230,000, respectively. Revenues for the second quarter were down $774,000
from the same prior year quarter, the result of a decline in Communication
Systems shipped overseas. Equipment sales decreased $689,000 in the second
quarter of 1999 as compared to the second quarter of 1998 although the downward
trend is reversing as equipment sales have grown the past three quarters.
Cost of Revenues
Cost of revenues consists primarily of costs associated with
transmitting news services to customer sites, royalties to information content
providers and costs of computer hardware and software sold to customers. Cost of
revenues for the quarters ended June 30, 1999 and 1998 were $3,144,000 and
$3,350,000, respectively, while the costs for the six month periods ending June
30 were $6,111,000 in 1999 and $6,336,000 in 1998. The decrease in costs
corresponds to the decrease in Communication System sales as discussed above.
Year to date gross margins were 48% in both 1999 and 1998.
Research and Development
Product development expenses consist primarily of design, testing and
support of the Company's existing and developing hardware, software and
services. Research and development expenses for the quarter ended June 30, 1999
increased 14% to $3,004,000 from the second quarter of 1998. Year to date
expenses increased 25% to $6,110,000 over the prior year period. The increases
can be attributed primarily to the acquisition of WavePhore Labs, Inc. in May,
1998 and eWatch, Inc. in November, 1998. The Company is integrating products and
services acquired, and is adding product offerings to its online news delivery
service in the business-to-business market. Additionally, the Company continues
to invest in its NewsPak and Jamcast services.
Sales and Marketing
Sales and marketing expenses for the first six months of 1999
increased $237,000, or 3.5% from the first six months of 1998. Increased costs
can be attributed to increased compensation and related employee costs, as well
as additional advertising and promotional costs. Expenses for the three month
periods were comparable from year to year.
General and Administrative
General and administrative expenses for the second quarter ended June
30, 1999 and 1998 decreased $187,000 or 12%. Year to date expenses at June 30,
1999 decreased $150,000 or 5% from the comparable period in 1998. The reduction
is primarily attributable to reduced professional fees being incurred in 1999.
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<PAGE> 10
Amortization
Amortization expense was $812,000 and $1,257,000 for the six months
ending June 30, 1999 and 1998, respectively. During the fourth quarter of 1998,
the Company evaluated several aspects of its business and made strategic
decisions that affected portions of the Company's businesses. The Company moved
to consolidate separate and autonomous business units and related functional
areas into one centralized WAVO operating company. The move has and will
continue to allow the Company to create and integrate new products and services
for the business marketplace, leverage key portions of various existing WAVO
technologies, and emphasize a more narrow focus on key equipment customers and
equipment products. As a result, an evaluation and analysis of the Company's
intangible assets was conducted. Based on the projected earnings and
undiscounted cash flow analysis of the affected business activities, the Company
determined the fair value of certain intangibles should be adjusted.
Accordingly, intangibles were revalued, and $4,000,000 was recorded as a
nonrecurring, non-cash charge at that time. The nonrecurring charge in 1998
resulted in reduced amortization expense in the first six months and second
quarter of 1999 compared to the same periods of the prior year.
Interest Expense and Interest Income
Interest expense for the first six months of 1999 and 1998 was
comparable. Interest income declined in the first six months of 1999 as compared
to 1998 due to a reduction in cash available for investment.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 1999 and 1998, the Company used
cash in its operations of $8,229,000 and $5,559,000, respectively. The increase
in cash used in operations is tied primarily to the increase in net loss from
1998 to 1999 and a reduction in accounts receivable from December 1997 to June
1998. Cash used in operations for the first six months of 1998 was reduced by
the collection of approximately $2,000,000 of accounts receivable related to
significant shipments of Communication Systems Equipment that occurred in late
1997.
Cash used in operations amounts are reduced by non-cash charges of
depreciation and amortization. Cash flows used in investing activities were
$3,861,000 in 1999 and $959,000 in 1998. The increase is partially due to the
Company's capital expenditures which totaled $2,363,000 in 1999 and $842,000 in
1998. The Company also made a $1,400,000 incentive payment in connection with a
previous purchase of a business.
The Company received cash from financing activities of $(249,000) in
1999 and $14,202,000 in 1998. The generation of cash in 1999 and 1998 was
primarily from the issuance of common shares in connection with the exercise of
employee stock options and additionally in 1998, from the exercise of warrants
to purchase common stock. Proceeds in 1999 were offset by treasury stock
purchases, payment of preferred share dividends and repayments of debt. The
Company purchased 60,000 treasury shares totaling $523,000 in the first six
months of 1999.
The Company is evaluating various financing alternatives to support
continued growth. The Company believes that it will be able to generate
additional funding for operations and its accelerated internal growth plans,
through equity offerings similar to those it has completed in the past.
Additionally, the Company currently has credit facilities available totaling
$7,000,000.
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 dilution of existing stockholder interests to the extent they are
funded through equity financings.
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IMPACT OF YEAR 2000
The Year 2000 presents potential concerns for business computing due to
calculation problems from the general use of the two digit year format as the
year changes from 1999 to 2000. This problem may affect certain computer
software, hardware, and other systems containing processors and embedded chips.
Consequently, information technology ("IT") systems and Non-IT systems
(collectively, "Business Systems") may not be able to accurately process certain
transactions or information before, during or after January 1, 2000. As a
result, users of IT systems and Business Systems are at risk for potential
disruption to their business from malfunctions or failures of such systems. This
is commonly referred to as the Year 2000 Issue.
The Company could be impacted by any failure of its own IT and Business
Systems, as well as that of its suppliers, customers and business partners. 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
implemented an enterprise-wide Year 2000 compliance program utilizing a Year
2000 team, including the executive officers of the Company, to identify and
evaluate its IT and Business Systems, to identify and assess Year 2000 issues
related thereto, and to develop and implement a testing, remediation, and
contingency plan. The Year 2000 program has compiled a detailed inventory of the
hardware and software used in the Company's IT and Business Systems operations
and has substantially completed testing the components for Year 2000 compliance.
The Company is using the results of such procedures to determine which systems
are compliant, and which will be replaced or remediated. The Company believes
that replacement or remediation of its critical IT and Business Systems will be
substantially completed by September 30, 1999.
The Year 2000 plan also includes resolving any Year 2000 issues that
are related to the Company's customers, suppliers and business partners.
Accordingly, the Company has sent correspondence to 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. Because of the vast number of Business Systems used by
such third parties and their varying levels of Year 2000 readiness, it is
difficult to access the likelihood and impact of a malfunction due to third
party Year 2000 issues. The Company is not currently aware of any business
relationships with key third parties which it believes will be likely to result
in a significant disruption of its business. However, such a Year 2000 failure
could occur and have a material adverse affect on the Company. The Company
currently believes that its greatest Year 2000 risk is with its utility
suppliers, information providers, financial institutions, and suppliers of
telecommunications services, in the United States and various other locations
throughout the world in which the Company operates. Potential consequences of
the failure of the Company or key third parties to have Year 2000 compliant
systems include the failure to operate due to an interuption of utility and
property services, disruption, delays or errors in information collection,
management and distribution, network operation failures, the inability to
deliver products and services to or for customers, and delays in receiving
inventory and supplies. If any of such events were to occur, the results could
have a material adverse impact on the Company and its operations.
Concurrent with the remediation and evaluation of the IP Systems and
Business Systems of the Company, and the Business Systems of key third parties,
the Company is developing contingency plans to mitigate the risks that could
occur in the event of a Year 2000 business disruption. These contingency plans
may include securing alternate sources of critical services and supplies, and
such other actions as the Company may deem prudent. The Company currently is
unable to estimate the costs associated with developing and implementing these
contingencies.
The Company estimates that the total cost of the Year 2000 Program will
be approximately $100,000, which is being funded by available cash. To date, the
Company has incurred approximately $60,000 ($20,000 expensed and $40,000
capitalized for new systems and equipment) related to all phases of the Year
2000 Program. The Company believes that approximately 50% of its remaining
estimated Year 2000 Program costs relate to remediation and will be expensed as
incurred.
The Company believes it has an effective Year 2000 Program in place to
resolve Year 2000 issues in a timely manner. However, as noted above, the
Company has not yet completed all necessary phases of
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<PAGE> 12
the Year 2000 Program. The scheduled completion dates and costs associated with
the various components of the Company's Year 2000 program are estimates and are
subject to change. The failure of the Company to complete any additional phases
could have a material adverse impact on the Company and its operations. In
addition, disruptions in the economy generally resulting from Year 2000 issues
could also materially adversely affect the Company.
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 of the
Company's Common Share price; 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.
12
<PAGE> 13
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
The Company's exposure to market risk relates primarily to fluctuations
in short-term interest rates. The Company has performed a sensitivity analysis
and determined that based on current economic conditions, changes in short-term
interest rates would not have a material affect on its operating results or
financial condition.
13
<PAGE> 14
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.
On May 20, 1999, the Company issued a total of 294,772 Common Shares to
the former shareholders of GSquared, Inc. ("GSquared") as additional
consideration, based on achieving certain financial performance, pursuant to a
Stock Purchase Agreement dated May 1, 1998. The Common Shares issued to the
shareholders were valued at $1,612,500. 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
On June 4, 1999, the Company filed a Current Report on Form 8-K,
reporting in Item 5 the proposals voted upon at its Annual Meeting of
Shareholders on May 25, 1999, including the election of directors, the votes
for, against or withheld, and the number of abstentions and broker non-votes as
to each such matter, which Report is incorporated herein by reference.
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.
On June 4, 1999, the Company filed a Current Report on Form 8-K, reporting
in Item 5 the proposals voted upon at its Annual Meeting of Shareholders on May
25, 1999.
14
<PAGE> 15
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.
WAVO Corporation
Date: August 13, 1999 By /s/ David E. Deeds
---------------------------------------
David E. Deeds,
President and Chief Executive Officer
(Duly Authorized Officer)
Date: August 13, 1999 By /s/ Kenneth D. Swenson
---------------------------------------
Kenneth D. Swenson,
Executive Vice President, Chief Financial
Officer and Treasurer
(Principal Financial and Accounting Officer)
15
<PAGE> 16
EXHIBIT INDEX
Exhibit Exhibit
Number Description
27 Financial Data Schedule
16
<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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 5,380
<SECURITIES> 0
<RECEIVABLES> 4,523
<ALLOWANCES> 429
<INVENTORY> 2,276
<CURRENT-ASSETS> 13,482
<PP&E> 11,403
<DEPRECIATION> 5,501
<TOTAL-ASSETS> 43,067
<CURRENT-LIABILITIES> 7,129
<BONDS> 2,016
5,521
0
<COMMON> 142,209
<OTHER-SE> (112,099)
<TOTAL-LIABILITY-AND-EQUITY> 43,067
<SALES> 11,719
<TOTAL-REVENUES> 11,719
<CGS> 6,111
<TOTAL-COSTS> 6,111
<OTHER-EXPENSES> 16,817
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (227)
<INCOME-PRETAX> (10,982)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,982)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,982)
<EPS-BASIC> (.38)
<EPS-DILUTED> (.38)
</TABLE>
