<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, 2000.
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)
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 Registrant's common stock, as of August
2, 2000:
COMMON SHARES, NO PAR VALUE: 44,299,706 SHARES
<PAGE> 2
WAVO CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
June 30, 2000 and December 31, 1999 3
Condensed Consolidated Statements of Operations -
Three and six months ended June 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows -
Six months ended June 30, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 14
PART II OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
EXHIBIT INDEX 16
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WAVO Corporation
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 4,772,725 $ 11,496,888
Accounts receivable 2,443,037 4,256,546
Inventories 1,789,854 1,783,742
Prepaid expenses and other 1,441,269 1,215,580
------------ ------------
Total current assets 10,446,885 18,752,756
Property and equipment, net 6,204,236 5,671,675
Goodwill, net 2,438,771 4,325,714
Intangibles, net 10,646,621 13,096,816
Deposits and other assets 565,957 577,837
------------ ------------
Total assets $ 30,302,470 $ 42,424,798
============ ============
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 2,180,277 $ 899,099
Deferred revenue 1,667,672 2,217,020
Accrued expenses 3,093,856 2,502,379
Bank credit lines 1,660,238 1,713,451
Current portion of long-term debt 1,008,663 1,117,160
------------ ------------
Total current liabilities 9,610,706 8,449,109
------------ ------------
Long-term debt, less current portion 699,821 1,055,793
Other non-current liabilities 1,024,262 1,338,141
Minority interest (563,078) (411,675)
Series D preferred shares 6,311,062 12,120,305
Shareholders' equity 13,219,697 19,873,125
------------ ------------
Total liabilities and shareholders' equity $ 30,302,470 $ 42,424,798
============ ============
</TABLE>
See accompanying notes.
3
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WAVO Corporation
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ ------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Media delivery and syndication $ 3,836,155 $ 3,886,252 $ 7,363,392 $ 7,611,328
Other 674,748 2,154,309 1,561,900 $ 4,108,102
------------ ------------ ------------ ------------
Total revenues 4,510,903 6,040,561 8,925,292 11,719,430
Cost of revenues 2,263,999 3,144,307 4,522,687 6,111,005
------------ ------------ ------------ ------------
Gross margin 2,246,904 2,896,254 4,402,605 5,608,425
Operating expenses:
Research and development 2,980,105 3,004,207 6,040,386 6,109,844
Sales and marketing 4,233,208 3,691,345 7,044,267 6,945,899
General and administrative 1,622,931 1,423,651 3,122,030 2,949,451
Amortization 377,136 412,825 762,661 812,019
Special charge 1,972,909 -- 1,972,909 --
------------ ------------ ------------ ------------
11,186,289 8,532,028 18,942,253 16,817,213
------------ ------------ ------------ ------------
Loss from operations (8,939,385) (5,635,774) (14,539,648) (11,208,788)
Other (income) expense:
Interest expense 123,327 42,819 227,536 99,803
Interest income (143,782) (126,088) (323,304) (339,182)
Gain on sale of business -- -- (1,544,924) --
Other (10,728) 492 (31,541) 12,160
Minority interest -- -- (451,403) --
------------ ------------ ------------ ------------
(31,183) (82,777) (2,123,636) (227,219)
------------ ------------ ------------ ------------
Net loss $ (8,908,202) $ (5,552,997) $(12,416,012) $(10,981,569)
============ ============ ============ ============
Less: Preferred stock dividends 1,139,916 138,039 2,333,689 276,078
------------ ------------ ------------ ------------
Net loss after preferred stock dividends $(10,048,118) $ (5,691,036) $(14,749,701) $(11,257,647)
============ ============ ============ ============
Basic and dilutive net loss per common share
after preferred stock dividends $ (0.32) $ (0.20) $ (0.49) $ (0.39)
============ ============ ============ ============
Number of shares used in per share
calculations 31,005,425 28,729,618 30,116,515 28,651,510
============ ============ ============ ============
</TABLE>
See accompanying notes.
4
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WAVO Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
---------------------------------
June 30, June 30,
2000 1999
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(12,416,012) $(10,981,569)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization 2,433,428 2,056,206
Loss on disposal of assets 5,319 --
Gain on sale of a business (1,544,924) --
Provision for doubtful accounts 30,000 65,000
Special charge 1,972,909 --
Minority interest (151,403) --
Changes in operating assets and liabilities 2,558,660 631,499
------------ ------------
Net cash used in operating activities (7,112,023) (8,228,864)
INVESTING ACTIVITIES:
Purchase of property and equipment (2,003,267) (2,363,276)
Proceeds from sale of a business 3,250,000 --
Purchase of business, net of cash acquired -- (1,483,054)
Other (15,000) (15,000)
------------ ------------
Net cash provided by (used in) investing activities 1,231,733 (3,861,330)
FINANCING ACTIVITIES:
Issuance of common stock, net 574,894 722,548
Borrowings from bank and other -- 240,000
Payments on debt and capital lease obligations (476,417) (315,739)
Payment of preferred stock dividends (641,833) (276,080)
Purchase of treasury shares (232,881) (522,878)
Loss on foreign currency translation (3,438) (16,625)
Other (64,198) (79,948)
------------ ------------
Net cash used in financing activities (843,873) (248,722)
------------ ------------
Net decrease in cash and cash equivalents (6,724,163) (12,338,916)
Cash and cash equivalents at beginning of period 11,496,888 17,719,042
------------ ------------
Cash and cash equivalents at end of period $ 4,772,725 $ 5,380,126
============ ============
Issuance of common stock in connection with
dividend payments on Series D preferred shares $ 651,222 $ 2,150,000
Accretion of dividends on Series D preferred shares $ 1,406,387 $ --
</TABLE>
See accompanying notes.
5
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WAVO Corporation
Notes to Condensed Consolidated Financial Statements
June 30, 2000
(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, 1999. The results of operations for the period ended
June 30, 2000 are not necessarily indicative of the results to be expected for
the entire year.
(2) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
06/30/00 12/31/99
---------- ----------
<S> <C> <C>
Finished Goods $ 207,800 $ 281,922
Work-in-process 601,502 908,089
Raw materials 980,552 593,731
---------- ----------
$1,789,854 $1,783,742
========== ==========
</TABLE>
(3) LINE OF CREDIT AND LONG-TERM DEBT
The Company is currently in default of certain financial
covenants required under its bank credit facilities. The Company has
received a forbearance from the bank related to the existing covenants
through August 31, 2000, at which time revised financial covenants will
go into effect. The Company and the Bank have agreed to revise the
terms of its credit facility provided the Company has completed a
capital transaction of at least $12,000,000 by September 15, 2000. The
Company believes it will be able to complete such a transaction within
the required timeframe. The revisions provide a total credit facility
of approximately $7,000,000 and adjust the payment terms of the
existing $1,667,000 term loan resulting in a payoff over the next
eleven months. See Management's Discussion and Analysis of Financial
Condition and Results of Operations for additional information.
(4) SPECIAL CHARGE
In the second quarter of 2000, the Company recorded a non-cash
special charge of $1,973,000, consisting of intangible costs relating
to the Company's final determination on how it will conclude one of its
non-core product lines. See Management's Discussion and Analysis of
Financial Condition and Results of Operations for additional
information.
(5) CONTRACT LIABILITY
The Company has an agreement with National Datacast, Inc.
("NDI") whereby NDI provides nationwide data broadcast coverage. The
Company originally used this broadcast technology with its WaveTop
service. The Company determined this service was not part of its future
strategic focus and WaveTop was discontinued in late 1999. Since that
time, the Company has been in discussions with several other parties
that have expressed interest in using this unique broadcast technology
and related network service. In the event the Company chooses not to
utilize this broadcast technology and related national network service
in the future or does not agree to allow a third-party to utilize such
technology and related service,
6
<PAGE> 7
the Company may record a one-time charge. See Management's
Discussion and Analysis of Financial Condition and Results of
Operations for additional information.
(6) SEGMENT INFORMATION
WAVO Corporation has two reportable segments: Business Products and
Services that are focused on the business marketplace; and Consumer Products,
which are focused on the consumer market. Revenues for Business Products and
Services are derived from media delivery and syndication services, that generate
volume-based fees, content subscription and delivery fees and revenues from the
sale or rental of communication systems. Media delivery and syndication services
generate revenues primarily through the Company's MediaXpress product and
wireless transmission services. The consumer product revenues will be generated
primarily from e-commerce and advertising associated with the Virgin JamCast
service.
The Company evaluates performance and allocates resources based on
profit or loss from operations before income taxes. The accounting policies of
the reportable segments are the same as those described in the summary of
significant accounting policies. The Company's reportable segments are business
units that offer different products and have no intersegment sales or transfers.
7
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<CAPTION>
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Three Months Ended June 30, 2000 Consumer Business Products Other Total
Products and Services
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues from external customers $ -- $ 4,510,903 $ -- $ 4,510,903
Interest revenue -- -- 143,782 143,782
Interest and other expense -- (105) 112,704 112,599
Depreciation and amortization expense 162,833 580,638 633,968 1,377,439
Segment profit (loss) (2,408,159) (6,132,443) (367,600) (8,908,202)
Segment assets 2,652,112 20,361,160 7,289,198 30,302,470
Expenditures for long-lived assets 64,151 1,031,963 111,000 1,207,114
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
Three Months Ended June 30, 1999 Consumer Business Products Other Total
Products and Services
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues from external customers $ -- $ 6,040,561 $ -- $ 6,040,561
Interest revenue -- 8,137 117,951 126,088
Interest and other expense 374 3,527 39,410 43,311
Depreciation and amortization expense 110,287 934,585 31,054 1,075,926
Segment profit (loss) (1,726,794) (2,189,418) (1,636,785) (5,552,997)
Segment assets 1,252,102 33,910,076 7,905,032 43,067,210
Expenditures for long-lived assets 20,464 597,380 177,790 795,634
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
Six Months Ended June 30, 2000 Consumer Business Products Other Total
Products and Services
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues from external customers $ -- $ 8,925,292 $ -- $ 8,925,292
Interest revenue -- 323,304 -- 323,304
Interest and other expense -- (21,750) 217,745 195,995
Gain on sale of business -- 1,544,924 -- 1,544,924
Depreciation and amortization expense 323,088 1,179,961 930,379 2,433,428
Segment profit (loss) (4,213,772) (5,019,396) (3,182,844) (12,416,012)
Segment assets 2,652,112 20,361,160 7,289,198 30,302,470
Expenditures for long-lived assets 106,478 1,535,483 361,306 2,003,267
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
Six Months Ended June 30, 1999 Consumer Business Products Other Total
Products and Services
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues from external customers $ -- $ 11,719,430 $ -- $ 11,719,430
Interest revenue -- 8,137 331,045 339,182
Interest and other expense 374 18,335 93,254 111,963
Depreciation and amortization expense 218,437 1,777,209 60,560 2,056,206
Segment profit (loss) (3,616,074) (4,248,623) (3,116,872) (10,981,569)
Segment assets 1,252,102 33,910,076 7,905,032 43,067,210
Expenditures for long-lived assets 40,868 2,071,084 251,324 2,363,276
</TABLE>
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
WAVO Corporation (the "Company") is in the business of moving media. As
an industry leading media delivery and syndication company, WAVO partners with
the foremost providers of news, business data, content and multimedia
programming. Adding value for media providers over the Company's Internet-based
and wireless delivery systems, including content management and electronic
commerce services, the Company delivers quality content to an information-
dependent society. The Company enables people and enterprises to more
efficiently receive, manage and productively use all types of time sensitive,
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 delivery systems. It
has technology sourcing and strategic alliances with Microsoft, Virgin
Entertainment Group, Liquid Audio, Ask Jeeves, Inc. and Real Networks, Inc.
The Company's 75% owned subsidiary, JamCast.com, Inc., was created in
conjunction with the Company's agreement with Virgin Entertainment Group
("Virgin Entertainment"), to form Virgin JamCast. Virgin JamCast is an Internet
broadcasting service that provides music and computer game fans with the most
direct way to enjoy their favorite artists or games without the long wait
typically associated with such downloads. In return for providing $15,000,000 of
in-store promotion and other consideration, Virgin Entertainment has a 25%
equity stake in JamCast.com, Inc. Additionally, Virgin Entertainment was issued
warrants to purchase WAVO Common Shares. JamCast.com operates as an independent
entity, with the Company providing developmental, technical, financial and
operational support. The Company launched the Virgin JamCast service in March
2000.
The Company provides wireless media delivery 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. The wireless media delivery network enables the Company to
service the continental U.S. and the major population centers in Canada.
The Company's MediaXpress service, an Internet-driven broadcasting
solution, delivers various media from 34 top sources, generating more than 2,000
stories a day. It allows Web site operators and developers to put pre-licensed,
real-time news and other entertainment media from top-name content sources on
their sites quickly and with minimum effort. Pre-packaged news feeds are
delivered over the Internet in a standardized format. A MediaXpress developer's
kit provides easy integration into an enterprise's Web site or Intranet. The
service uses XML delivery format, based on open standards to allow more complex
data processing and analysis, perform more precise searches, share data
efficiently and navigate data more easily than HTML formats.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 2000 AND 1999
Revenues
Business Products and Services revenues are derived primarily from the
following activities: media delivery and syndication services which generate
volume-based fees, content subscription and delivery fees and revenues from the
sale or rental of communication systems. Revenues for the three months ended
June 30, 2000 and 1999 were $4,511,000 and $6,041,000, respectively. Revenues
for the first two quarters of 2000 were $8,925,000 as compared to $11,719,000 in
the first six months of 1999. The decline in revenue is attributed primarily to
decreases associated with product lines that are no longer part of the strategic
direction of the Company as well as the sale of the Company's internet
monitoring service, eWatch, Inc. ("eWatch") in January 2000. There were no
significant revenues or cost of revenues relating to the Company's Consumer
Product that was launched in March 2000.
9
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Cost of Revenues
Business Products and Services cost of revenues consists primarily of
costs associated with delivering media services to customer sites, royalties to
information content providers and costs of computer hardware and software sold
to customers. Cost of revenues for the six months ended June 30, 2000 and 1999
were $2,264,000 and $3,144,000, respectively. The decrease in costs for the
comparable three months, corresponds to the decrease in revenues for the same
period. Gross margin percentages were 50% for the second quarter of 2000 and 48%
in the second quarter of 1999. Margins for the June 30 year to date periods were
49% in 2000 and 48% in 1999. The improved margins for both the quarter and year
to date periods is primarily attributable to growth of the Company's higher
margin MediaXpress revenues.
Research and Development
Research and development expenses for the second quarters of 2000 and
1999 were comparable at $2,980,000, and $3,004,000, respectively. Expenses for
the six months ended June 30, were also comparable at $6,040,000 and $6,110,000
for 2000 and 1999, respectively. Product development expenses consist primarily
of design, testing and support of the Company's existing and developing
hardware, software and services.
Sales and Marketing
Sales and marketing expenses increased $542,000 or 15% for the three
month period ended June 30, 2000 as compared to the same period in 1999.
Expenses were $4,233,000 and $3,691,000, for the respective periods. Increases
in expenses correspond with the Virgin JamCast and MediaXpress advertising
campaigns. Expenses for the six months ended June 30 were comparable from 2000
to 1999.
General and Administrative
General and administrative expenses increased $199,000 for the three
months ended June 30, 2000 from the second quarter of 1999, while expenses for
the six-month year to date periods increased $173,000. The increases are
attributed to increased consulting costs.
Amortization
Amortization expense was $763,000 and $812,000 in the first two
quarters of 2000 and 1999, respectively. A decrease in amortization expense
which resulted from the reduction of intangible assets included in the Company's
Business Products and Services segment, was offset by increased Consumer Product
amortization relating to the formation of the JamCast.com, Inc. subsidiary in
the fourth quarter of 1999.
Special Charge
The Company has made the decision to focus on two core products,
MediaXpress and Virgin JamCast. As a result of this narrowed focus, in the
second quarter of 2000, the Company recorded a non-cash special charge of
$1,973,000 related to its final determination on how it will conclude one of its
non-core products. This special charge represents the remaining net book value
of all intangibles (primarily developed technology, license agreements and
assembled workforce) related to this non-core product, except for $415,000. The
limited value of intangible assets not charged off is based on the remaining
fair value, determined based on an analysis of the technology that will continue
to be utilized, and employees that continue to work for the Company and the
undiscounted cash flows related thereto.
10
<PAGE> 11
Interest Expense and Interest Income
Interest income for the first two quarters of 2000 was comparable to
the same periods in 1999, while interest expense increased $127,000 or 127%. The
increase in interest expense reflects increases in bank borrowings throughout
the comparable quarters.
Gain on Sale of Business
In January 2000, the Company sold its Internet monitoring service,
eWatch, to a company that had been WAVO's primary partner in the development and
marketing of eWatch to users worldwide. The Company received cash proceeds in
excess of $3,000,000 and recorded a $1,545,000 gain with respect to the sale.
Minority Interest
Minority interest in 2000 represents the 25% interest in JamCast.com,
Inc., held by Virgin Entertainment Group ("Virgin"). The Company sold this
interest to Virgin in September 1999, in exchange for certain promotional
commitments.
Contract Liability
The Company has an agreement with National Datacast, Inc. ("NDI")
whereby NDI provides nationwide data broadcast coverage. The Company has
developed technology that inserts data in the vertical blanking interval of the
NDI television broadcast signal thereby providing the Company the ability to
economically transmit data on a nationwide basis. The Company originally used
this broadcast technology with its WaveTop service. The Company determined the
WaveTop service was not part of its future strategic focus and WaveTop was
discontinued in late 1999. Since that time, the Company has been in discussions
with several other parties that have expressed interest in using this unique
broadcast technology and related network service. In the event the Company
chooses not to utilize this broadcast technology and related national network
service in the future or does not agree to allow a third-party to utilize such
technology and related network, the Company may record a one-time charge equal
to the total of the unrecognized commitment under the current NDI agreement and
the carrying value of certain recently acquired equipment related to this
technology. As of June 30, 2000, the total of the unrecognized commitment under
the NDI agreement and the equipment carrying value was $3,455,000.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 2000 and 1999, the Company used
cash in its operations of $7,112,000 and $8,229,000, respectively.
Cash flow provided by investing activities was $1,232,000 in the first
six months of 2000 while cash used in investing activities was $3,861,000 in the
first half of 1999. In January 2000, the Company received cash proceeds of
$3,250,000 from the sale its eWatch business. Purchases of property and
equipment totaled $2,003,000 and $2,363,000 in 2000 and 1999, respectively.
Additionally in 1999, the Company purchased a business for $1,483,000, net of
cash acquired.
Cash used in financing activities was $844,000 in the first six months
of 2000 and $249,000 in 1999. In the first half of 2000 and 1999, the Company
recorded proceeds of $575,000 and $723,000, respectively, from the issuance of
common shares in connection with the exercise of employee stock options.
Proceeds in 2000 were offset by the payment of dividends on Series D Preferred
Shares ("Series D Shares") and repayment of debt. Monthly principal payments on
an Equipment term loan commenced in March 2000. Additional proceeds in 1999
included $240,000 borrowed against the Company's credit facility. Proceeds in
1999 were partially offset by repayments of debt of $316,000, treasury share
purchases of $523,000 for 50,000 shares of the Company's Common Shares and
dividend payments on the Company's preferred shares.
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<PAGE> 12
In the first six months of 2000, 579 of the Company's 1,500 outstanding
Series D Shares, each with a stated value of $10,000, were converted into
6,012,337 Common Shares. Dividends on Series D Shares, due during the first six
months of 2000 were paid in the form of 384,983 Common Shares. Additionally,
107,748 Common Shares were issued in conjunction with the exercise of employee
stock options.
The Company will need to raise additional cash to support operating
activities in the second half of 2000 and to continue to fund the growth of its
business into 2001 and beyond. The Company believes that it will be able to
generate additional funding for operations and its internal growth plans through
equity or debt offerings similar to those it has completed in the past. In
addition, the Company is exploring the sale or another form of strategic
partnership related to its non-core assets which could generate cash to be used
for operations.
The Company is currently in default of certain financial covenants
required under its bank credit facilities. The Company has received a
forbearance from the bank related to the existing covenants through August 31,
2000, at which time revised financial covenants will go into effect. The Company
and the Bank have agreed to revise the terms of its credit facility provided the
Company has completed a capital transaction of at least $12,000,000 by September
15, 2000. The Company believes it will be able to complete such a transaction
within the required timeframe. The revisions provide a total credit facility of
approximately $7,000,000 and adjust the payment terms of the existing $1,667,000
term loan resulting in a payoff over the next eleven months.
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; rapid 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 Company's
history of losses; 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; and the adoption
of new or change in existing governmental regulations affecting the Company's
business.
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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
ITEMS 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(c) On May 24, 2000, the Company issued to affiliates of Stonegate
Securities, Inc., warrants to purchase a total of 200,000 shares of common stock
at an exercise price of $2.06 per share in consideration for consulting services
rendered to the Company by Stonegate. The warrants expire on May 24, 2003. The
exercise price and number of shares purchasable upon exercise of the warrants
are subject to adjustment upon the occurrence of certain dilution events. The
warrants 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 15, 2000, the Company held its 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 E. Deeds 25,082,600 555,298
Peter M. White 25,083,910 553,988
Kenneth D. Swenson 25,083,910 553,988
Glenn Scolnik 25,071,480 566,418
J. Robert Collins 25,083,910 553,988
</TABLE>
(ii) Approval of the Issuance and Sale of Series D Convertible Preferred
Shares and Related Warrants and underlying Common Shares.
<TABLE>
<S> <C>
Shares For 8,391,316
Shares Against 1,077,809
Shares Abstained 225,675
Shares Not Voted 15,943,098
----------
Total 25,637,898
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are included herein:
27 Financial Data Schedule.
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 14, 2000 By /s/ David E. Deeds
------------------------------------------
David E. Deeds,
Chief Executive Officer
(Duly Authorized Officer)
Date: August 14, 2000 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
