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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________to_________.
Commission File Number: 0-21202
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FIRSTWAVE(R) TECHNOLOGIES, INC.
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(Exact name of registrant as specified in its charter)
GEORGIA 58-1588291
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2859 PACES FERRY ROAD, SUITE 1000, ATLANTA GEORGIA 30339
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 431-1200
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Securities registered pursuant to Section 12(b) of the Act:
NONE
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Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
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(Title of Class)
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 such filing
requirements for the past 90 days
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 23, 1999: approximately $10,305,176.
Number of shares of Common Stock outstanding as of March 23, 1999: 5,152,588.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's definitive Proxy Statement for its Annual Meeting of
Shareholders to be held on May 6, 1999 are incorporated by reference into Part
III of this Report. Other than those portions specifically incorporated by
reference herein, the 1998 Annual Report to Shareholders and the Proxy Statement
for the Annual Meeting of Shareholders to be held on May 6, 1999 are not deemed
to be filed as part of this Report.
PART I
ITEM 1. BUSINESS.
This section and other parts of this Form 10-K contain forward-looking
statements that involve uncertainties and risk. Firstwave(R) Technologies,
Inc.'s results may differ from the results discussed in the forward-looking
statements. Factors that might cause such differences include, but are not
limited to, those items discussed below and the details in "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
GENERAL
Effective March 1, 1998, the Company changed its name from Brock(TM)
International, Inc. to Firstwave Technologies, Inc. The name change results from
the acquisition of Netgain(TM) Corporation and expansion strategies including
the launch of a new product suite, Netgain Enterprise. Firstwave embraces the
entrepreneurial spirit and advanced technology of the energetic Netgain team,
while leveraging Brock's strengths as an established international company.
Firstwave Technologies, Inc. provides innovative customer relationship
management (CRM) solutions to enterprises located throughout the world. The
company markets and supports three product lines: Netgain Enterprise,
Takecontrol(R) and Firstwave for Unix. Netgain Enterprise is an Internet-based
CRM system designed to enable companies to leverage the World Wide Web and its
capabilities to create and maintain profitable, mutually beneficial
relationships. Netgain Enterprise will encompass activities and processes with
prospects and customers throughout their entire relationship lifecycle from
pre-sales marketing to post-sales service. The first component of the Netgain
Enterprise suite, Netgain Sales, was released in September 1998. Takecontrol is
a Microsoft(R) Windows-based, integrated client/server CRM solution that meets
the need to automate marketing, sales and customer service operations for
companies in multiple industries. Firstwave for Unix product line is a
traditional UNIX, character-based CRM solution. All product lines assist
companies in maximizing their customers' satisfaction and thereby maximizing
lifetime customer value. Firstwave's software products operate on personal
computers and a wide range of server platforms.
COMPANY STRATEGY
Firstwave's long term vision is to create a next-generation CRM platform that
leverages Internet technologies to bring value to users in the form of longer,
more profitable relationships with its customers. Firstwave's CRM solutions are
designed to bridge communication gaps between a company's internal departments
such as marketing, sales and technical support and its outside constituents such
as customers, vendors and business partners. Conventional CRM applications are
often found by users to be complex, expensive to maintain and difficult to use.
As a result, the incidence of incomplete implementations and failure to meet
established expectations is quite high. Furthermore, due to the limitations of
client/server technologies, these systems have not extended critical information
to customers, indirect channels, partners or other interested parties (the
"extended enterprise") who exist outside the boundaries of the corporation.
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The evolution and maturation of several technologies, in combination with the
emergence of the Internet as a factor in commercial activities, has created an
environment of new possibilities for CRM solutions. The Company believes that
the future environment will be one in which customers will demand:
- - Relationships be based in knowledge
- Companies must have knowledge of customer's needs and wants
- Companies must provide full, easy access to information about
its goods and services
- - Anyone representing an enterprise must be equally informed and prepared
to serve the customers' needs
- - Customers will determine the most appropriate means of interaction with
the companies that they do business with
- - Speed of interaction will be the key to successful relationships
- Identify needs
- Determine solution
- Deliver solution
Netgain Enterprise was created to address this environment and was designed to
enable companies to pursue a new standard of excellence in their interactions
with their customers. It leverages its architecture, e-Framework(TM) which
deploys state-of-the-art Internet technologies and integration standards, to
gather, store and share customer-related information among the entire extended
enterprise, including the customers themselves.
Netgain Enterprise enables all users to have a single view of the customer by
integrating information from multiple sources throughout the enterprise, and
from external on-line sources of data. Because the Internet is the
communications platform for Netgain, the information can be easily distributed
to any users that interact with customers including marketers, direct sales
reps, customer service reps, channel reps and others, regardless of their
physical location. As such, Netgain Enterprise facilitates the collaborative
efforts of the entire company and its agents (the "extended enterprise") in
generating a focused and unified CRM effort.
Netgain Enterprise's automation capabilities will enable users to analyze
customer requirements and interact with them appropriately - with the
appropriate information, at the appropriate time, using the appropriate medium.
Over time, the Company will release components of Netgain Enterprise to address
all phases of a customer relationship - pre-sales, sales and post-sales
activities.
The revenues and relationships of the Company's mature existing businesses
provide a sound platform for launching new products and services. The Company
remains dedicated to the thousands of people who are currently using Firstwave
products in over 20 countries. The Company is committed to continued support and
development of its products and is developing a more modern version of
Takecontrol using the Microsoft Visual Basic environment. The Company will
continue to maintain its Unix products, provide award-winning Takecontrol
client/server applications, support Year 2000 requirements, remain compatible
with the most popular database managers and operating systems, and provide
personal service whenever customers need it.
PROVIDING VALUE-ADDED SERVICES AND ENHANCEMENTS TO EXISTING CUSTOMERS
Firstwave focuses on providing value to its existing customers by offering an
array of post-sales consulting, training, and support services. Because the
Company's customers use Firstwave products to support strategic and
mission-critical aspects of their businesses, a high level of customer service
is critical to
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customer satisfaction in the Company's market. Management believes that the
Company's commitment to service and support has been and will continue to be a
significant element of its business strategy. Firstwave's professional services
organization provides consulting and technical assistance to the Company's
customers through fee-based consulting, system installation and configuration,
training and system support services. The Company seeks to differentiate itself
from its competitors by offering superior customer service.
LEVERAGE STRATEGIC ALLIANCES
The sales performance solutions the Company delivers to customers are a
combination of Firstwave's efforts and those of various strategic alliance
partners. The Company seeks to select strategic partners who are best in-class
providers of hardware, software, telephony and consulting. Alliance partners
provide value-added offerings to supplement functionality, joint marketing and
lead generation opportunities or system integration expertise. The Company has
also developed interfaces with many complementary software offerings like
Microsoft Outlook, Microsoft Word, Microsoft Access, Synchrologic's(TM) database
synchronization products, marketing encyclopedia and product configuration from
Calico Technologies(TM), Seagate's Crystal Reports(TM), Internet-based
information from Harris InfoSource(TM) and Internet-based travel services from
Worldspan(R). The Company will respond to market needs for complete solutions
beyond just software. For instance, in December 1998, Firstwave announced a
partnership with MultiSoft(TM) Corporation to offer 24X7 end user support as
well as remote Netgain Enterprise application hosting. Firstwave expects to
continue to integrate with other complementary offerings.
EXPANDING INTERNATIONAL OPERATIONS
On April 30, 1998, Firstwave Technologies, Inc. acquired Co-cam UK, its largest
Takecontrol distributor. This acquisition brought additional revenues to
Firstwave and strengthened our European presence. Firstwave Technologies UK,
Ltd. now has responsibility for development of our overall business in Europe.
During their first eight months of ownership Firstwave UK contributed $2.3
million of incremental revenue.
Management believes that Firstwave is positioned to take advantage of the
enterprise Internet market opportunity over the next several years. e-Framework,
the architecture upon which Netgain Enterprise is built, will facilitate easy
translation of the system's applications, menus, screens and reports into many
foreign languages without the need for source code alterations.
The Company's strategy for expanding its international operations outside of the
UK involves maintaining a core group of trained distributors, primarily with
non-exclusive territorial rights, who demonstrate commitment to customer service
and support. The Company has established a network of international distributors
serving customers in 20 different countries and it continues to seek qualified
international distributors. Prior to being authorized to market Firstwave
products, potential international distributors are required to participate in
Company-sponsored certification sessions.
SOFTWARE PRODUCTS
Firstwave's systems consist of three main families of software applications: the
Takecontrol series, the Firstwave for Unix series and Netgain Enterprise. The
Takecontrol and Unix series feature integrated modules that address the complete
sales cycle: lead generation, lead qualification, account management (both
in-house sales and field sales), and post-sale customer support. Takecontrol is
an integrated client/server sales, marketing and customer service solution.
Firstwave for Unix is a character-based Unix system. The systems' open
architecture, modular design and use of relational databases provide an
integrated approach to enterprise-wide information management, yet allows
customers to automate a single departmental function first and then expand
incrementally to company-wide applications by adding modules and users.
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Netgain Enterprise deploys state-of-the-art Internet technologies and
integration standards, to gather, store and share customer-related information
among the entire extended enterprise, including the customers themselves. The
resulting benefit is longer, more satisfying and more profitable relationships
between users and customers.
The first component of the Netgain Enterprise is Netgain Sales. Netgain Sales is
one of the first completely Web-based sales information systems. It tracks and
maintains all current and historical information surrounding sales
opportunities, accounts, contacts and activities. It leverages the Internet to
extend a sales team to include inside users, mobile users, remote users and
indirect channel partners. Easy, anytime, anywhere, secure access to data such
as customer profiles, sales activities and competitive data are valuable
attributes of this application.
Netgain Sales solves the issues that have limited the success of similar
applications of the past. The application is presented within a browser and is
operated like other Web-based applications so it is easy to use. Through its
Netgain Internet Business Center, Netgain Sales is able to automatically query
Internet sources for information about customers and prospects currently being
worked on. This provides value to sales reps unavailable in other applications.
Netgain Enterprise's object-oriented, open architecture, eFramework, has a
significant impact on usability and deployment of Netgain Sales. Issues such as
slow connection speeds and shared processors to accommodate Internet users are
solved without sacrificing functionality or user interface. Meta-data technology
is used to configure the application and to capture customizations. This means
that Netgain Enterprise is able to support users' business processes without
changing underlying source code.
TAKECONTROL SOFTWARE ARCHITECTURE
The Takecontrol product series was developed specifically for the client/server
model of computing with support for the occasionally connected environment. The
product takes advantage of many technologies including the Company's application
development environment, ToolShop(R), standard Microsoft Windows Graphical User
Interface, Internet protocols, and a variety of relational databases, including
Microsoft SQL Server and Access, Oracle, Sybase and Informix.
Firstwave customers' system administrators can readily modify applications,
menus, screens and database access methods from within the product. ToolShop is
provided with each license and includes tools for building unique
customizations, add-on enhancements and integrated applications to legacy
systems.
The modules of the Takecontrol series are described below.
Marketing. This tailored solution allows users to generate, track, manage and
report on leads as they develop through each stage of the sales cycle using
sophisticated database marketing tools. In-house sales, telesales and field
sales professionals can use the Marketing module to organize and coordinate the
effective use of imported lists and/or internal data through campaign and
project management. Shared and/or dedicated telemarketing call queues and
targeted direct mailing lists allow representatives to maintain account
information and comprehensive account histories in addition to generating new
leads. The module contains extensive reporting features to allow managers to
effectively monitor marketing and telemarketing efforts. The Takecontrol Web
module captures leads directly from the Internet and a flexible but powerful
filter application pre-qualifies the incoming leads prior to inclusion in the
customer's database.
Sales. This solution provides the mobile or inside sales professional with a
sophisticated sales and marketing system on a laptop or desktop computer. It
gives the remote sales professional a complete set of sales performance tools
for opportunity management, account management and sales planning and
forecasting. The module features a centralized relational database with integral
functions to manage lead qualification, opportunity management, strategic
selling, activity scheduling, reporting, forecasting and sales analysis, and
integrates with corporate information systems facilitating the flow of
information across the sales, marketing and customer service departments. Sales
reps have access to a sales reference library
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and can access information on objection handling, pricing, competitors and
prospect histories. Takecontrol also incorporates a Web-based, marketing
encyclopedia add-on module called NewsSt@nd(TM). This intelligent-agent
technology monitors and gathers customer, partner and competitive information
and delivers it to the end user automatically. NewsSt@nd provides the right
information at the right time, giving the sales representatives an edge over the
competition. The Sales module provides a sophisticated data synchronization
facility that permits the sales professional to easily make updates to the
corporate database and his or her local database to ensure data integrity and
consistency.
Customer Service. Companies can focus on and improve customer satisfaction by
reliably capturing and tracking incoming customer calls, prioritizing customers'
problems and assigning problems to the correct customer service representative
for an appropriate and timely response. Cases are tracked and monitored based on
severity and can be automatically escalated based on customer specific criteria.
The module's problem-tracking database, an on-line information source containing
all known support problems with their proven solutions, provides information to
customer service representatives for solving technical, training and
documentation-related problems. The Customer Support/Help Desk module also
includes extensive reporting capabilities so managers can monitor the volume of
call activity, response time and customer service representative productivity.
The Web Support module allows customers to access and add to their case
information via the Internet, thereby reducing telephone call overhead.
SERVICES
Management believes that the need for expertise in installing, customizing and
using sales, marketing and customer service systems will grow as the
sophistication of software solutions increases due to product evolution and as
software is increasingly employed as a strategic sales tool. The Company seeks
to differentiate itself from other providers of sales, marketing and customer
service software by offering an array of specialized professional services on a
fee basis. Firstwave's services consist of (i) education and training services,
(ii) implementation and customizations, and (iii) customer support services.
EDUCATION AND TRAINING
Firstwave's comprehensive customer training program is designed to accommodate
the diverse needs of its customers. Courses are held on a regularly scheduled
basis at the Company's Atlanta headquarters and at customer sites upon request.
Firstwave charges its customers for education and training services on a
per-attendee basis with a minimum daily charge. For classes conducted at
customer sites, the Company charges a per-day rate for a set number of
attendees.
The current curriculum for Netgain Enterprise consists of Netgain Sales and
Netgain System Administrator. The classes may be conducted at Firstwave, the
customer site or via the Web. Netgain Sales is intended for individuals who will
use the application to create and maintain customer relationships through all
phases of the sales cycle. Netgain System Administrator is for individuals who
will setup, maintain and administer the Netgain Sales application.
The current curriculum for Takecontrol consists of Application classes for each
module, ToolShop Design Environment I & II, and Data Synchronization
Configuration. These courses provide information on system and database
administration and the use of Firstwave application and development tools,
including the ToolShop, to tailor the standard modules. Classes are also offered
for End-User Training.
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IMPLEMENTATION AND CUSTOMIZATIONS
Firstwave's professional services organization is chartered to facilitate the
customers' successful implementation and utilization of Firstwave products and
to accelerate the implementation process. Firstwave uses its professional
services organization as a logical extension of its sales force and believes
that its professional services organization differentiates the Company from most
of its competitors. Typical services provided include systems analysis and
design, installation planning and coordination, database configuration, screen
and report tailoring, application development, data conversion, systems
interconnectivity, project management and other special processing requirements
related to the implementation of Netgain Enterprise, Takecontrol and Firstwave
for Unix. Professional services are charged on a time and expenses basis.
CUSTOMER SUPPORT
Firstwave's customer support group uses the Takecontrol Customer Support module
to track individualized service. It provides Firstwave representatives with
access to a problem-tracking database that includes an on-line problem-solving
library for quick resolution of inquiries and technical problems and maintains a
library of product enhancement requests from customers and Firstwave employees.
Each customer support representative has immediate access to the customer's
account history while engaged in resolving technical issues. In addition to
hotline telephone services, customer support also includes the provision of
updates and enhancements of Firstwave products and related documentation.
The Company routinely monitors the effectiveness of its customer support group.
Firstwave has implemented a system in which the customer assigns a priority to
each call placed to the support team. The Company also provides surveys each
month to randomly selected customers to evaluate the quality and responsiveness
of its support efforts.
Management believes that the emphasis the Company places on the customer support
function further differentiates it from most other sales and marketing software
providers. Customer support is offered as part of an annual maintenance fee and,
therefore, generally is not charged separately on an hourly or other basis.
SOURCES OF REVENUE, PRICING AND MATERIAL TERMS OF LICENSING AGREEMENTS
Software revenues consist of license fees for Netgain Enterprise, Takecontrol
and Firstwave for Unix. The Company also receives revenues from third-party
software. Customers pay a license fee for the software based upon the number of
licensed users.
Netgain Enterprise offers customers several pricing alternatives that reflect
how it may be deployed across the Internet to users throughout the extended
enterprise. Perpetual licenses are available on a concurrent or per user model.
Concurrent user licensing allows Netgain Enterprise to be cost-effectively
deployed to a high number of occasional users.
Subscription pricing provides organizations the opportunity to deploy the
application without the need for a high capital outlay.
Remote hosting services allow organizations to deploy the applications without
the need for internal hardware infrastructure or system administrative
capabilities.
For Takecontrol and Firstwave for Unix, the Company grants non-exclusive,
non-transferable, perpetual licenses that are site- and computer-specific. The
license agreement specifies that the Company will provide its software in object
code format and that the Company will retain the source code.
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The second component of the Company's revenues is services, consisting of
professional consulting and training services. Consulting services are charged
on an hourly basis and billed weekly pursuant to customer work orders. Training
services are charged on a per-attendee basis with a minimum daily charge. For
classes conducted at customer sites, the Company charges a per-day rate for a
set number of attendees.
The Company's maintenance revenues are derived from the provision of: (i)
customer support in the form of "hotline" telephone services and (ii) updates
and enhancements of products and related documentation. Customers are provided
maintenance and support services for an annual fee. This fee is billed monthly,
quarterly, or annually and is subject to changes in pricing upon 90 days notice
to the customer.
CUSTOMERS
The Company markets its products as a cross-industry solution for sales,
marketing, and service management. This wide range of companies demonstrates the
broad applicability of the Company's product lines. The Company currently has
systems installed in many industries, including manufacturing, financial
services, communications, computers and software, travel, hospitality and
retail. The Company's customer base includes medium-sized independent companies
as well as divisions of Fortune 1000 companies. The Company has licensed its
products for thousands of users located in 20 countries. More than 200 customers
currently subscribe to maintenance services.
SALES AND MARKETING
The Company markets and sells its products and services to the North American
marketplace through direct channels. Internationally the products and services
are marketed and sold directly through Firstwave UK and through indirect
channels via Firstwave distributors. The US and UK direct channel is supported
by 24 sales and marketing professionals as of December 31, 1998.
The Sales department is organized into Business Development Representatives
("BDR") and Account Executives. BDR's initiate contact with leads and qualify
them using the telephone and the Internet as primary tools. Account Executives
are responsible for on-site visits and contract negotiations. The sales cycle
for new customers averages 3-4 months after initial contact and typically
includes requirements gathering, Web-based product demonstrations, technical
discovery, customization, demonstration and pilot.
The Company's Marketing department is responsible for generating leads through a
variety of activities including Internet-based marketing, public relations,
trade shows, Web seminars, strategic partnerships and direct mail. The Marketing
department is an end-user of Netgain Enterprise for database marketing, lead
tracking and analysis. Leads that are not initially qualified for a direct sales
effort are maintained in the database and contacted periodically to identify
changes in circumstances that might result in a sales opportunity.
In addition, the Marketing department is responsible for product positioning and
strategy, product management, market research and competitive analysis, and
provides competitive, customer and prospect input into the Company's product
development efforts.
PRODUCT INNOVATION AND DEVELOPMENT
The Company plans to propel the growth of Netgain Enterprise by using it as a
basis for rich, market-driven CRM solutions for companies wanting to incorporate
the Internet into their business processes. Netgain's architecture, eFramework,
with its object orientation, adherence to Microsoft standards and incorporation
of emerging Web technologies facilitates this approach. The Internet not only
serves as a communications medium within the company and between customer and
company, but it provides an
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abundant source of information which can assist all personnel in forming
mutually beneficial relationships with prospects and customers. Netgain
Enterprise has unique capabilities to leverage these attributes.
In January 1999, the Company announced the Netgain Internet Business Center
(TM)(NIBC). NIBC facilitates the creation of intelligent, context-sensitive
Internet queries and enables automatic downloading of selected information from
Internet sources directly into a user's Netgain database. NIBC will be available
in Version 3.0 of Netgain Sales which is scheduled for release in the second
quarter of 1999 and is an example of innovations to come.
In addition, the Company is developing a new client/server product based upon
the Microsoft Visual Basic environment. This new product, Takecontrol Today,
will be tightly integrated with Microsoft Outlook 98 for contact and activity
management, allowing sales professionals to perform daily tasks in a familiar
environment. It is being developed in a phased approach using converted portions
of the current Takecontrol product and employing business components based upon
Microsoft's Component Object Model (COM). It will primarily be sold to existing
customers who are looking for more modern user interface features based upon an
open programming environment.
ONGOING SYSTEM ENHANCEMENTS
Firstwave was the first enterprise class CRM provider to integrate Microsoft
Outlook 97 with a sales and marketing automation solution. This year, Firstwave
released Takecontrol'99, which includes integration into the popular Microsoft
Office 97 application suite, industry-standard Seagate Crystal Reports and
Oracle(R) 8.
This release added several innovative capabilities to the full function
Takecontrol suite. A graphical script builder makes building telemarketing and
telesales scripts easier than ever using simple drag-drop operations to connect
prompts and define call paths. A new Open Object Interface allows better
programmatic integration to other desktop and mainframe applications. This
version remains year 2000 compliant (as was Takecontrol'98), following industry
guidelines supplied by industry analysts. It enables customers to properly
handle date information and ensures all existing data is processed properly for
the new millennium.
In addition to the initial release of Netgain Sales, Version 2.0 was released
during 1998. This release added the ability to utilize the application and
access needed customer and opportunity data while disconnected from the
Internet. Deploying Synchrologic's database synchronization technology, Version
2.0 allows Netgain Sales to conform to the working environments of direct sales
personnel - in an automobile, in an airplane, in a hotel room or at a client
site.
COMPETITION
The Company faces competition from a variety of software vendors, including
sales automation and customer support software vendors and software tools
vendors.
In the sales automation software market, the Company faces competition from
dozens of companies including SalesLogix(TM), Pivotal Software(TM) and
Upshot(TM). In this market, primary competitive factors include breadth and
completeness of the customer interaction solution, Internet capabilities,
technological architecture, customization capabilities, and ability to offer a
tailored, comprehensive solution.
In the integrated, multi-national CRM market in which the Company competes,
there are an increasing number of vendors vying for market share. In addition,
the sophistication of such solutions can require a professional services staff
for the product to be effectively implemented, customized and supported if the
customer does not have such qualified staff in-house or available for the
project.
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The Company's products compete on the basis of product flexibility,
customization capability, application features, platform configurations, value,
and customer service. Management believes the Company's products compete
favorably with respect to these factors. Certain of the Company's competitors
also provide cross-industry solutions, while others focus on specific markets
such as the pharmaceutical industry. There can be no assurance that the Company
will be able to achieve the innovative product development necessary to maintain
competitive advantage.
PROPRIETARY RIGHTS AND LICENSES
Firstwave employs an on-line code management system, which requires successful
accessing of a series of permission levels prior to modifying the source code,
to protect the proprietary nature of its intellectual property. The Company also
depends upon a combination of trade secret, copyright and trademark laws,
license agreements, non-disclosure and other contractual provisions with
customers and employees to protect its proprietary rights in its products. The
Company also maintains confidentiality agreements with its employees. Because
the Company's product allows customers to customize their applications without
altering the source code, the source code for the Company's products is neither
licensed nor provided to customers, although the Company has contractually
agreed in certain instances to have its source code held in escrow by a third
party. Notwithstanding these precautions, it may be possible for unauthorized
persons to copy aspects of the Company's products or to obtain information that
the Company regards as proprietary. There can be no assurance that these
protections will be adequate or that the Company's competitors will not
independently develop technologies that are substantially equivalent or superior
to the Company's technology.
EMPLOYEES
As of December 31, 1998, the Company employed 108 persons, including 24 sales
and marketing professionals, 39 service and support representatives, 19
administrative personnel and 26 persons involved in product innovation and
development. Management believes that the Company's future growth and success
will depend on its ability to retain and to continue to attract highly skilled
and motivated personnel in all areas of its operations.
ITEM 2. PROPERTIES.
As of December 31, 1998 the Company's headquarters and principal operations were
located in approximately 30,000 square feet of leased office space. The office
building is located in metropolitan Atlanta, Georgia. The Company also has
operations located outside London, England in approximately 7,000 square feet of
leased office space.
ITEM 3. LEGAL PROCEEDINGS.
From time to time, the Company may be involved in litigation relating to claims
arising out of its operations in the normal course of business. As of the date
of this Report, the Company was not engaged in any legal proceedings that are
expected, individually or in the aggregate, to have a material adverse effect on
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock trades on the NASDAQ Stock Market, Inc.
The following table shows the price range of the Company's Common Stock (high
and low close information) for the indicated fiscal quarters. The prices
represent quotations between dates and do not necessarily represent actual
transactions and do not include retail mark-ups, mark-downs or commissions.
<TABLE>
<CAPTION>
1998 First Second Third Fourth 1997 First Second Third Fourth
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High $ 5.63 $ 5.13 $ 5.13 $ 3.88 High $ 4.50 $ 6.50 $ 5.75 $ 5.25
Low $ 4.31 $ 4.25 $ 2.50 $ 1.63 Low $ 3.00 $ 2.19 $ 4.50 $ 3.44
- ------------------------------------------------------- ------------------------------------------------------
</TABLE>
As of December 31, 1998 there were approximately 85 shareholders of record and
approximately 1,725 persons or entities that hold common stock in nominee name.
There were no dividends declared during 1998 or 1997.
On December 31, 1997, the Company issued 67,989 shares of Common Stock to Carpe
Fund, LP in connection with the acquisition of Netgain Corporation. The Company
issued such shares to Carpe Fund in full payment and satisfaction of two
promissory notes in principal amounts totaling $300,000 issued by Netgain to
Carpe Fund. Pursuant to an agreement between the Company and Carpe Fund, the
value of these shares was determined by the average of the per share closing
prices of the Common Stock for each of the ten days preceding the closing date
of the Netgain acquisition. These shares were issued in reliance upon the
exemption from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"), provided by Section 4(2) thereof. These shares
were subsequently registered for resale under the Securities Act.
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected financial data about the Company for
each of the last five fiscal years. The information presented below has been
derived from the Company's audited Financial Statements.
<TABLE>
<CAPTION>
For the Year Ended December 31,
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(In thousands, except per share amounts)
1998 1997 1996 1995 1994
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenues $14,537 $ 15,848 $ 23,222 $ 28,001 $ 30,697
Income (loss) before income taxes (3,034) (1,377) (10,115) (4,928) 737
Income tax (provision) benefit (91) (133) 1,055 1,837 (192)
Net income (loss) (3,125) (1,510) (9,060) (3,091) 545
Basic and diluted net income (loss) per share (0.61) (0.30) (1.81) (0.63) 0.11
Total assets 11,322 14,286 18,367 26,045 29,127
Total non current liabilities -- -- 125 -- 960
Common stock subject to repurchase $ -- $ 300 $ -- $ -- $ --
Basic and diluted weighted average common
and common share equivalents 5,125 5,035 5,000 4,932 4,960
</TABLE>
11
<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with the Financial
Statements and Notes thereto of the Company presented elsewhere herein.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated selected financial data
and the percentages of the Company's net revenues represented by each line item
presented. It also sets forth the percentage change in each line item presented
from 1997 to 1998. Certain percentage columns do not add to 100% due to
rounding.
<TABLE>
<CAPTION>
Year Ended December 31, % Change
(in thousands) 1998 1997 1997 to 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues
Software $ 3,528 24.3% $ 5,239 33.1% -32.7%
Services 5,035 34.6% 4,810 30.4% 4.7%
Maintenance 5,431 37.4% 5,189 32.7% 4.7%
Other 543 3.7% 610 3.8% -11.0%
------------------- ------------------ ------
Net revenues 14,537 100.0% 15,848 100.0% -8.3%
------------------- ------------------ ------
Costs and expenses
Cost of revenues
Software 744 5.1% 675 4.3% 10.2%
Services 3,566 24.5% 3,528 22.3% 1.1%
Maintenance 1,643 11.3% 1,687 10.6% -2.6%
Other 500 3.4% 606 3.8% -17.5%
Sales and marketing 5,983 41.2% 6,012 37.9% -0.5%
Product development 2,080 14.3% 2,003 12.6% 3.8%
General & administrative 3,233 22.2% 2,186 13.8% 47.9%
In process research and
development 0 0.00% 696 4.39% -100.0%
------------------- ------------------ ------
Operating loss (3,212) -22.1% (1,545) -9.7% 107.9%
------------------- ------------------ ------
Interest income net 178 1.2% 168 1.1% 6.0%
------------------- ------------------ ------
Loss before income taxes $ (3,034) -20.9% $ (1,377) -8.7% 120.3%
------------------- ------------------ ------
</TABLE>
In general, competition in the software industry has increasingly been
characterized by shortening product cycles. No assurance can be given that the
Company will be immune to this trend. If the product cycle for the Company's
systems proves to be shorter than management anticipates, the Company's pricing
structure and revenues could be impaired. In addition, in order to remain
competitive, the Company may be required to expend a greater percentage of its
revenues on product innovation and development than has historically been the
case. In either case, the Company's gross profit margins and results of
operations could be materially adversely affected.
12
<PAGE> 13
1998 COMPARED TO 1997
The plan for 1998 was to continue to stabilize operating performance and develop
capacity for future growth. In 1998 the Company launched a new corporate
identity - Firstwave Technologies, Inc. Firstwave is the combination of three
companies: (1) Brock International, Inc., an established public company, (2)
Netgain Corporation, an early stage technology company, which was acquired on
December 31, 1997, and (3) Co-cam UK, the Company's largest distributor which
was acquired on April 30, 1998. The Company believes the combination of these
three synergistic companies each with its own expertise, is a solid platform to
launch its new generation of customer relationship management solutions based on
Internet technologies.
Total revenues decreased 8.3% from $15,848,000 in 1997 to $14,537,000 in 1998
mainly due to decreases in software revenue offset by increases in services and
maintenance revenues. Software revenue decreased 32.7% from $5,239,000 in 1997
to $3,528,000 in 1998 primarily as a result of fewer Takecontrol licenses sold
to new customers. Revenues from international software licenses decreased 14.1%
from $3,314,000 in 1997 to $2,848,000 in 1998, and decreased as a percentage of
total revenues from 20.9% in 1997 to 19.6% in 1998 due to decreased sales by
Asia and Pacific Rim distributors. Total revenues from international sources,
which includes maintenance, software license fees and customizations, increased
from 33.9% of total revenues in 1997 to 52.7% of total revenues in 1998 due to
additional revenues provided by Firstwave UK and decreased domestic Takecontrol
software licenses.
Services revenues increased 4.7% from $4,810,000 in 1997 to $5,035,000 in 1998
primarily due to the additional services revenues provided by Firstwave UK.
Maintenance revenues remained strong with a 4.7% increase from $5,189,000 in
1997 to $5,431,000 in 1998.
Costs of software revenues increased 10.2% from $675,000 in 1997 to $744,000 in
1998 and, as a percentage of software revenues, increased from 12.9% in 1997 to
21.1% in 1998. The increases were primarily due to increased amortization costs
in 1998 which included twelve months of Takecontrol amortization, compared to
ten months of amortization in 1997 after a February 1997 release. Costs of
software revenues include costs of third-party software, amortization of
capitalized software costs, and costs of packaging and documentation materials
and related media costs.
Costs of revenues for services increased 1.1% from $3,528,000 in 1997 to
$3,566,000 in 1998 due to the addition of Firstwave UK service personnel. Costs
of revenues for services as a percentage of services revenues decreased from
73.3% in 1997 to 70.8% in 1998. Costs of revenues for maintenance decreased 2.6%
from $1,687,000 in 1997 compared to $1,643,000 in 1998 primarily due to
decreased international maintenance revenues. Costs of revenues for maintenance
as a percentage of maintenance revenues also decreased from 32.5% in 1997
compared to 30.3% in 1998.
Sales and marketing expenses decreased slightly from $6,012,000 in 1997 to
$5,983,000 in 1998, but increased as a percentage of total revenues from 37.9%
in 1997 compared to 41.2% for 1998. The decrease in total expense is primarily
due to decreases in sales commissions consistent with decreases in software
license revenues offset by the addition of Firstwave UK personnel and costs
associated with marketing materials for the new corporate identity and new
product launch.
The Company's product innovation and development expense including write-off of
in process research and development cost, net of costs capitalized, decreased
22.9% from $2,699,000 in 1997 to $2,080,000 in 1998, and decreased as a
percentage of total revenues from 17.0% in 1997 to 14.3% in 1998. The decrease
in net cost is primarily due to the in-process research and development one time
charge of $696,000 related to the acquisition of Netgain Corporation during the
fourth quarter of 1997, offset by additional development personnel and personnel
related costs in 1998 associated with the development of the Netgain product
line.
The Company capitalized additional product development expenditures of $200,000
during the fourth quarter of 1998 related to releases of version 1.1 and 2.0 of
Netgain Sales.
13
<PAGE> 14
General and administrative expenses increased 47.9% from $2,186,000 in 1997 to
$3,233,000 in 1998. As a percentage of total revenues, general and
administrative expenses increased from 13.8% in 1997 to 22.2% in 1998. These
increases resulted primarily from the addition of Firstwave UK and its London
office, offset by domestic decreases in rent expense due to subleasing excess
office space. Professional fees increased in 1998 due to the one-time favorable
settlement of a legal dispute that resulted in a $603,000 credit to general and
administrative expense during the third quarter of 1997. Interest income
decreased 13.9% from $208,000 in 1997 to $179,000 in 1998, due to decreased
interest on invested cash balances.
1997 COMPARED TO 1996
The Company implemented a restructuring plan in December 1996 that was designed
to restore financial health and lay the foundation for future growth. See Note
13 of Notes to Financial Statements for details and information regarding
one-time expenses associated with the restructuring. The plan for 1997 was to
stabilize operating performance, leverage assets, make progress toward
profitability each quarter, while developing the capacity for future growth. The
Company accomplished these goals during 1997. While revenues decreased from
1996, they, along with expense reductions, were on target with the plan. The
reduction in personnel and enhancements in expense management included in the
restructuring plan are the primary reasons for the overall decreases in
expenses.
Total revenues decreased 31.8% from $23,222,000 in 1996 to $15,848,000 in 1997
as a result of decreased software, services and other revenues. Software
revenues decreased 46.7% from $9,834,000 in 1996 to $5,239,000 in 1997 primarily
as a result of fewer licenses sold to new customers. Revenues from international
software licenses decreased 39.4% from $5,471,000 in 1996 to $3,314,000 in 1997,
and decreased as a percentage of total revenues from 23.6% in 1996 to 20.9% in
1997. However, total revenues from international sources, which includes
maintenance, software license fees and customizations, remained consistent at
33.9% of total revenues in 1997 compared to 33.3% in 1996.
Services revenues decreased 33.8% from $7,267,000 in 1996 to $4,810,000 in 1997
primarily due to the decrease in software license revenues. Maintenance revenues
increased slightly from $5,143,000 in 1996 to $5,189,000 in 1997.
While revenues declined on an annual basis, the Company showed improvement in
the fourth quarter of 1997 when compared to third quarter 1997 and fourth
quarter 1996. Fourth quarter 1997 total revenues increased 38.2% over third
quarter 1997 and 3.1% over fourth quarter 1996. Software revenues for fourth
quarter 1997 increased 161.5% over third quarter 1997 and 41.5% over fourth
quarter 1996 as a result of increased international revenue.
Costs of software revenues decreased 86.2% from $4,883,000 in 1996 to $675,000
in 1997 and, as a percentage of software revenues, decreased from 49.7% in 1996
to 12.9% in 1997. The decreases were primarily due to an adjustment in 1996 of
approximately $2,583,000 to write down remaining capitalized software to net
realizable value, as well as, the associated decrease in the amount of
amortization of capitalized software costs from $2,080,000 in 1996 to $419,000
in 1997.
Costs of revenues for services decreased 40.3% from $5,908,000 in 1996 to
$3,528,000 in 1997 due to decreases in service personnel, and personnel related
costs. Costs of revenues for services as a percentage of services revenues
decreased from 81.3% in 1996 to 73.3% in 1997. Costs of revenues for maintenance
decreased 15.7% from $2,002,000 in 1996 compared to $1,687,000 in 1997. Costs of
revenues for maintenance as a percentage of maintenance revenues also decreased
from 38.9% in 1996 compared to 32.5% in 1997.
Sales and marketing expenses decreased 40.4% from $10,083,000 in 1996 to
$6,012,000 in 1997, and decreased as a percentage of total revenues from 43.4%
in 1996 compared to 37.9% for 1997. The decrease is primarily due to decreases
in sales commissions consistent with decreases in software license revenues and
decreases in personnel and personnel related costs including travel.
14
<PAGE> 15
The Company's product innovation and development expense, net of costs
capitalized, including the write-off of in process research and development
costs of $696,000, increased 34.3% from $2,010,000 in 1996 to $2,699,000 in
1997, and increased as a percentage of total revenues from 8.7% in 1996 to 17.0%
in 1997. The Company capitalized additional product development expenditures of
$2,657,000 in 1996. No additional capitalization was recorded during 1997
because development activities qualifying for capitalization were immaterial.
The increase in net cost is primarily due to the combination of no new costs
being capitalized and the in process research and development one time charge of
$696,000 related to the acquisition of Netgain Corporation during the fourth
quarter of 1997.
General and administrative expenses decreased 63.7% from $6,027,000 in 1996 to
$2,186,000 in 1997. As a percentage of total revenues, general and
administrative expenses decreased from 26.0% in 1996 to 13.8% in 1997. These
decreases resulted from decreases in bad debt expense consistent with the
decrease in revenue, a favorable settlement of a legal dispute which resulted in
a $603,000 credit to general and administrative expense during the third quarter
of 1997, rent expense related to reduction in office space as a result of
restructuring, and decreases in personnel and related costs.
Interest income decreased 7.6% from $225,000 in 1996 to $208,000 in 1997, due to
decreased interest on invested cash balances. Interest expense decreased 74.4%
from $156,000 in 1996 to $40,000 in 1997, due to the March 1997 payment in full
of the outstanding line of credit balance and equipment note payable.
BALANCE SHEET
Cash and cash equivalents decreased 54.8% from $4,969,000 at December 31, 1997
to $2,245,000 at December 31, 1998 due to cash invested in product development,
launch of the Netgain product, and acquisition costs and funding of operations
of Firstwave UK. Intangible assets increased 162.9% from $245,000 at December
31, 1997 to $644,000 at December 31, 1998 due to goodwill related to the
acquisition of Co-cam UK offset by the related amortization. Capitalized
software decreased 29.3% from $1,089,000 at December 31, 1997 to $770,000 at
December 31, 1998 due to amortization expense offset by additional capitalized
software related to Netgain Sales versions 1.1 and 2.0. Accounts payable
increased 56.0% from $868,000 at December 31, 1997 to $1,354,000 at December 31,
1998 due the acquisition of Co-cam. Accrued restructuring costs decreased 100%
from $325,000 at December 31, 1997 to no accrual at December 31, 1998 due to the
expiration of non-cancelable leases of excess office space. Accrued employee
compensation and benefits decreased 53.8% from $614,000 at December 31, 1997 to
$284,000 at December 31, 1998 due to lower commissions payable associated with
lower software revenue and lower employee incentives due to changing from an
annual plan in 1997 to a quarterly plan in 1998. Common stock subject to
repurchase related to the acquisition of Netgain Corporation was reclassified to
stockholder's equity after the shares were registered on February 13, 1998.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1998, the Company had cash and cash equivalents of
$2,245,000. Cash provided by (used in) operating activities was ($1,961,000) and
$857,000 for 1998 and 1997, respectively. Cash provided by (used in) investing
activities was ($928,000) and $2,642,000 for 1998 and 1997, respectively. Cash
used to purchase property and equipment was $496,000 and $261,000, respectively,
for 1998 and 1997. Cash provided by (used in) financing activities was $131,000
and ($1,877,000) for 1998 and 1997, respectively. The Company had no line of
credit payable or notes payable outstanding at December 31, 1998.
In March 1999, the Company renewed its $3,000,000 line of credit agreement with
its bank for another one-year term. The line of credit, which expires March 15,
2000, bears interest at prime rate plus 1.5% and reduces to prime rate upon the
Company's attainment of quarterly targets for results of operations or
additional financing objectives. The line of credit is secured by the assets of
the Company.
15
<PAGE> 16
Funds generated from operations and the net remaining proceeds from the
Company's initial public offering were sufficient to finance the Company's
operations during 1998. The Company believes that funds generated from
operations, cash on hand, and the renewal of the line of credit agreement will
sufficiently fund the operations for 1999.
YEAR 2000
The Company's current product line is year 2000 compliant. However, some of the
Company's customers are running older product versions that are not year 2000
compliant. All of the Company's customers have been notified of the availability
of a year 2000 compliant version of the Company's product they are running and
the Company has been encouraging its customers to migrate to current product
versions. Although the Company has designed and tested the most current versions
of its products to be year 2000 compliant, there can be no assurance that they
do not contain undetected errors or other defects associated with year 2000 date
functions that may result in material costs to the Company.
A Year 2000 evaluation was completed during 1998 to assess the Company's Year
2000 readiness related to its internal systems. As of December 31, 1998 all
critical systems had been addressed and the Company was 80% complete in bringing
the balance of internal systems into compliance. The Company expects to
substantially complete year 2000 readiness preparations by the end of June 1999
and to continue testing through calendar 1999. Although the cost associated with
completing year 2000 readiness for the Company's internal systems has been
determined to be immaterial, there can be no assurance that the Company will not
experience serious unanticipated negative consequences caused by undetected
errors or defects in the technology used in its internal systems, which are
composed of third party software and hardware. The Company is in the process of
implementing contingency plans and business resumption plans that will be
completed during the remainder of fiscal 1999.
The Company has no material commitments for capital expenditures. Management
does not believe that inflation has historically had a material effect on the
Company's results of operations.
QUARTERLY FINANCIAL DATA (UNAUDITED)
The tables below set forth certain unaudited operating results for each of the
eight quarters in the two- year period ended December 31, 1998. This information
has been prepared by the Company on the same basis as the Financial Statements
appearing elsewhere in this document and includes all adjustments necessary to
present fairly this information when read in conjunction with the Company's
Financial Statements and Notes thereto. The Company's operating results for any
one quarter are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
3/31/98 6/30/98 9/30/98 12/31/98 3/31/97 6/30/97 9/30/97 12/31/97
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues $ 3,610 $ 3,738 $ 3,762 $3,427 $3,408 $4,080 $ 3,510 $ 4,850
Operating income (loss) (610) (725) (855) (1,022) (807) (288) 9 (459)
Net income (loss) (573) (717) (826) (1,009) (799) (244) 55 (522)
Basic and diluted
income (loss) per share (0.11) (0.14) (0.16) (0.20) (0.16) (0.05) 0.01 (0.10)
</TABLE>
16
<PAGE> 17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Information included under Item 14 (a) (1) and (2)
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Firstwave Technologies, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) and (2) on page 33 present fairly, in all material
respects, the financial position of Firstwave Technologies, Inc. and its
subsidiary at December 31, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
Atlanta, Georgia
February 2, 1999
17
<PAGE> 18
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
==============================================================================
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 2,245 $ 4,969
Accounts receivable, less allowance for doubtful
accounts of $425 and $703 3,146 3,047
Deferred tax assets 200 459
Prepaid expenses and other 195 177
-------- --------
Total current assets 5,786 8,652
Property and equipment, net 1,501 1,938
Software development costs, net 770 1,089
Intangible asset 644 245
Deferred tax asset 2,621 2,362
-------- --------
$ 11,322 $ 14,286
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 1,354 $ 868
Accrued restructuring costs -- 325
Sales tax payable 265 263
Deferred revenue 1,581 1,545
Accrued employee compensation and benefits 284 614
Other accrued liabilities 78 19
-------- --------
Total current liabilities 3,562 3,634
Common stock subject to repurchase -- 300
-------- --------
3,562 3,934
-------- --------
Commitments and contingencies
Shareholders' equity
Preferred stock, no par; 1,000,000 shares authorized; and
no shares issued or outstanding
Common stock, stated value $.0019 per share; 10,000,000 shares authorized;
5,151,322 and 5,033,027 shares
issued and outstanding 10 9
Additional paid-in capital 19,813 19,329
Unrealized loss on investment securities -- (14)
Cumulative translation account 34 --
Accumulated deficit (12,097) (8,972)
-------- --------
7,760 10,352
-------- --------
$ 11,322 $ 14,286
======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
18
<PAGE> 19
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
==============================================================================
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
Net revenues
Software $ 3,528 $ 5,239 $ 9,834
Services 5,035 4,810 7,267
Maintenance 5,431 5,189 5,143
Other 543 610 978
-------- -------- --------
14,537 15,848 23,222
Cost and expenses
Cost of revenues
Software 744 675 4,883
Services 3,566 3,528 5,908
Maintenance 1,643 1,687 2,002
Other 500 606 895
Sales and marketing 5,983 6,012 10,083
Product development 2,080 2,003 2,010
General and administrative 3,233 2,186 6,027
In process research and development -- 696 --
Restructuring costs -- -- 1,598
-------- -------- --------
Operating loss (3,212) (1,545) (10,184)
Interest expense (1) (40) (156)
Interest income 179 208 225
-------- -------- --------
Loss before income taxes (3,034) (1,377) (10,115)
Income tax benefit (provision) (91) (133) 1,055
-------- -------- --------
Net loss $ (3,125) $ (1,510) $ (9,060)
======== ======== ========
Net loss per share
Basic $ (0.61) $ (0.30) $ (1.81)
======== ======== ========
Diluted $ (0.61) $ (0.30) $ (1.81)
======== ======== ========
Weighted average shares outstanding
Basic 5,125 5,035 5,000
======== ======== ========
Diluted 5,125 5,035 5,000
======== ======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
19
<PAGE> 20
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
================================================================================
<TABLE>
<CAPTION>
UNREALIZED COMPRE- OTHER
ADDITIONAL GAIN/(LOSS) HENSIVE COMPRE- RETAINED
COMMON STOCK PAID-IN ON INVESTMENT INCOME HENSIVE EARNINGS
SHARES AMOUNT CAPITAL SECURITIES (LOSS) INCOME (DEFICIT) TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 4,908,815 $ 9 $18,744 $ (121) $ -- $ -- $ 1,598 $ 20,230
Exercise of common stock options 9,242 -- 59 -- -- -- -- 59
Employee stock purchases 18,498 -- 106 -- -- -- -- 106
Unrealized gain on investment
securities -- -- -- 107 -- -- -- 107
Net loss -- -- -- -- -- -- (9,060) (9,060)
------------ ---- ------- --------- ------- --------- -------- --------
Balance at December 31, 1996 4,936,555 9 18,909 (14) -- -- (7,462) 11,442
Exercise of common stock options 88,899 -- 281 -- -- -- -- 281
Employee stock purchases 7,573 -- 25 -- -- -- -- 25
Issuance of stock options -- -- 114 -- -- -- -- 114
Net loss -- -- -- -- -- -- (1,510) (1,510)
------------ ---- ------- --------- ------- --------- -------- --------
Balance at December 31, 1997 5,033,027 9 19,329 (14) -- -- (8,972) 10,352
Exercise of common stock options 34,511 112 -- -- -- -- 112
Employee stock purchases 6,081 19 -- -- -- -- 19
Issuance of stock options -- 7 -- -- -- -- 7
Issuance of stock in connection
with Netgain acquisition 77,703 1 346 -- -- -- -- 347
Realized loss on investment
securities -- -- -- 14 -- -- -- 14
Comprehensive loss
Net loss -- -- -- -- (3,125) -- (3,125) (3,125)
Foreign currency translation adjustment -- -- -- -- 34 34 -- 34
-------
Comprehensive loss $(3,091)
------------ ---- ------- --------- ======= --------- -------- --------
Balance at December 31, 1998 5,151,322 $ 10 $19,813 $ -- $ 34 $(12,097) $ 7,760
============ ==== ======= ========= ========= ======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
20
<PAGE> 21
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
==============================================================================
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $(3,125) $ (1,510) $ (9,060)
Adjustments to reconcile net loss to net cash
provided by operating activities
Depreciation and amortization 1,741 1,565 3,431
Write down of software development cost to net
realizable value -- -- 2,583
Write off in process research and development -- 696 --
(Gain)/loss on disposal of fixed assets (13) 142 646
Provision for bad debts 83 22 1,837
Deferred income taxes -- (65) (1,130)
Stock compensation 7 114 --
Changes in assets and liabilities (net of acquisition)
Accounts receivable (182) 1,051 2,135
Prepaid expenses and other 121 (46) 40
Accounts payable 146 (148) 55
Accrued restructuring (325) (786) 1,111
Sales tax payable 2 (115) (255)
Deferred revenue (114) 81 (507)
Accrued employee compensation and benefits (361) (66) (446)
Other accrued liabilities 59 (78) (46)
------- -------- --------
Total adjustments 1,164 2,367 9,454
------- -------- --------
Net cash provided by (used in) operating activities (1,961) 857 394
------- -------- --------
Cash flows from investing activities
Software development costs (200) -- (2,186)
Business acquisitions (246) (697) --
Purchases of property and equipment (496) (261) (869)
Purchase of investment securities (9,394) (16,155) (13,689)
Proceeds from sale of investment securities 9,408 19,755 18,051
------- -------- --------
Net cash provided by (used in) investing activities (928) 2,642 1,307
------- -------- --------
Cash flows from financing activities
Exercise of common stock options 112 281 59
Proceeds from employee stock purchase plan 19 25 106
Borrowing from/(repayment to) line of credit, net -- (1,975) 990
Proceeds from/(repayments to) note payable, net -- (208) 208
------- -------- --------
Net cash provided by (used in) financing activities 131 (1,877) 1,363
------- -------- --------
Foreign currency translation adjustment 34 -- --
Net increase (decrease) in cash (2,724) 1,622 3,064
Cash and cash equivalents, beginning of year 4,969 3,347 283
------- -------- --------
Cash and cash equivalents, end of year 2,245 4,969 3,347
------- -------- --------
Supplemental disclosure of cash flow information
Cash paid during the year for interest $ 1 $ 84 $ 157
------- -------- --------
Cash paid for income taxes $ 91 $ 198 $ 73
------- -------- --------
</TABLE>
21
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS
==============================================================================
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Firstwave Technologies, Inc. (the "Company") provides computer-based
systems to automate customers' business activities, including sales
lead generation and monitoring, account management, and post-sale
customer support. Effective March 1998, the Company changed its name
from Brock International, Inc. to Firstwave Technologies, Inc.
REVENUE RECOGNITION
Revenue from product sales is recognized upon shipment of the product
when the Company has no significant obligations remaining and
collection of the resulting receivable is probable. The Company accrues
for estimated warranty costs at the time it recognizes revenue.
Services revenue is recognized as services are performed. Maintenance
revenue is recognized on a pro rata basis over the term of the
maintenance agreements.
International revenues are generated by independent distributors who
offer licenses of the Company's products in specific geographic areas.
Under the terms of the Company's international distributor agreements,
international distributors collect license fees and maintenance
revenues on behalf of the Company, and generally remit 50% of standard
license fees and maintenance revenues they produce. The Company
recognizes international sales at the gross license amount, with the
amount paid to the distributors reflected as a selling expense. The
Company's international maintenance fees are reflected as maintenance
revenues, with the amount retained by distributors shown as a cost of
maintenance revenue. International revenues also include revenue from
Firstwave Technologies UK, Ltd., a wholly owned subsidiary.
The Company's adoption of American Institute of Certified Public
Accountants Statement of Position, 97-2, Software Revenue Recognition,
as of January 1, 1998 did not have a material impact on its financial
statements.
Advanced billings for services and maintenance contracts are recorded
as deferred revenue in the accompanying balance sheet.
CONSOLIDATION
The consolidated financial statements include the accounts of Firstwave
Technologies, Inc. and its wholly owned subsidiary Firstwave
Technologies UK, Ltd. All significant intercompany profits,
transactions, and balances have been eliminated in consolidation.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentration of credit risk consist primarily of investment securities
and trade receivables. The Company invests in marketable securities
including government securities with high credit ratings. Credit risk
from concentration of trade receivables is minimized as a result of the
large and diverse nature of the Company's customer base.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid investment
instruments with an original maturity of three months or less.
22
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS
==============================================================================
INVESTMENT SECURITIES
In accordance with FAS 115, "Accounting for Certain Investments in Debt
and Equity Securities," the Company classifies its investment
securities as available-for-sale based on their intent and ability to
hold the securities and accordingly, unrealized holding gains and
losses are presented as a separate component of shareholders' equity.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated
depreciation and amortization. Depreciation and amortization for
financial reporting purposes are recorded using the straight-line
method over estimated useful lives ranging from three to six years.
Expenditures for maintenance and repairs are charged to expense as
incurred.
SOFTWARE DEVELOPMENT COSTS
Capitalized software development costs consist principally of salaries
and certain other expenses related to development and modifications of
software products capitalized in accordance with the provisions of FAS
86, "Accounting for the Costs of Computer Software to be Sold, Leased,
or Otherwise Marketed". Capitalization of such costs begins only upon
establishment of technological feasibility as defined in FAS 86 and
ends when the resulting product is available for sale. All costs
incurred to establish the technological feasibility of software
products are classified as research and development and are expensed as
incurred.
Software development costs which are capitalized are subsequently
reported at the lower of unamortized cost or net realizable value.
Amortization of capitalized software costs is provided at the greater
of the ratio of current product revenue to the total of current and
anticipated product revenue or on a straight-line basis over the
estimated economic life of the software, which is not more than three
years. It is reasonably possible that those estimates of anticipated
product revenues, the remaining estimated economic life of the product,
or both may be reduced significantly in the near term due to changing
technologies. As a result, the carrying amount of capitalized software
costs may be reduced materially in the near term.
INCOME TAXES
The Company accounts for income taxes utilizing the liability method
and deferred income taxes are determined based on the estimated future
tax effects of differences between the financial reporting and income
tax basis of assets and liabilities given the provisions of the enacted
tax laws.
STOCK-BASED COMPENSATION
The Company has chosen to continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations and to elect the disclosure
option of FAS 123, "Accounting for Stock-Based Compensation".
Accordingly, compensation cost for stock options is measured as the
excess, if any, of the quoted market price of the Company's stock at
the date of the grant over the amount an employee must pay to acquire
the stock.
FOREIGN CURRENCIES
Assets and liabilities recorded in foreign currencies are translated at
the exchange rate on the balance sheet date and the effects of foreign
currency translation adjustments are included as a component of
stockholders' equity. At December 31, 1998, accumulated foreign
translation gains were $34,000.
BASIC AND DILUTED NET INCOME/(LOSS) PER COMMON SHARE
Basic net income/(loss) per common share is based on the weighted
average number of shares of common stock outstanding during the period.
Stock options were the only securities issued which would have been
included in the diluted income/(loss) per share calculation had they
not been antidilutive.
23
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS
==============================================================================
2. ACQUISITIONS
On April 30, 1998 the Company acquired its largest international
distributor, Co-cam UK. Based in London, Co-cam UK now operates as
Firstwave Technologies UK, Ltd. The transaction was an asset purchase
from PMS Creative Ltd., a wholly owned subsidiary of Policy Management
Systems Corporation. The purchase price of approximately $426,000 is
payable in cash in four quarterly installments beginning July 31, 1998
after an initial payment at closing of approximately $85,000. The
excess of cost over the estimated fair value of the net assets acquired
was $455,000 (including cost of acquisition of approximately $180,000)
and was accounted for as goodwill which is being amortized over five
years.
On December 31, 1997, Brock Acquisition, Inc. a wholly-owned subsidiary
of the Company acquired legal title to the net assets of Netgain
Corporation, an Internet application developer, in exchange for
$697,000 in cash and 67,989 shares of the Company's common stock valued
at $300,000 (recorded as common stock subject to repurchase at December
31, 1997). The shares subject to repurchase were registered by the
Company in February 1998 at which time the repurchase feature
automatically terminated. After expensing $696,000 of in-process
research and development costs, the excess of cost over fair value net
of assets acquired amounted to $245,000 which was accounted for as
goodwill and is being amortized over five years. The acquisition was
accounted for using the purchase method of accounting. Brock
Acquisition, Inc. changed its name to Netgain Inc. and was subsequently
merged with the Company. In addition, 200,000 shares of the Company's
common stock were placed in escrow as of December 31, 1997 to be issued
to the former shareholders of Netgain Corporation upon attainment of
certain future revenue targets for the sale of Netgain products. Such
targets were not achieved and accordingly these shares were not issued.
In July 1998, the Company issued 9,714 additional shares of its common
stock valued at $46,433 to the former shareholders of Netgain
Corporation to settle matters directly related to the acquisition. This
amount has been recorded as goodwill in the accompanying financial
statements.
The following presents the unaudited pro forma consolidated results of
operations as if both acquisitions had occurred as of January 1, 1997.
(in thousands, except share data):
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
Unaudited
<S> <C> <C>
Revenues $ 15,489 $ 19,656
Net loss (3,345) (2,123)
Basic and diluted net loss per share (.65) (.42)
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
<S> <C> <C>
Computer hardware and other equipment $ 4,140 $ 3,672
Furniture and fixtures 979 1,289
Purchased software 1,098 1,027
-------- --------
6,217 5,988
Less: Accumulated depreciation and amortization (4,716) (4,050)
-------- --------
$ 1,501 $ 1,938
======== ========
</TABLE>
24
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS
==============================================================================
Depreciation and amortization of property and equipment totaled
approximately $1,119,000, $1,146,000 and $1,351,000 in 1998, 1997 and
1996, respectively.
4. PRODUCT DEVELOPMENT EXPENSES
Product development expenses are summarized as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
Total development expenses $ 2,280 $ 2,003 $ 4,667
Less: Additions to capitalized software
development before amortization 200 -- 2,657
------- ------- -------
Product development expenses $ 2,080 $ 2,003 $ 2,010
======= ======= =======
</TABLE>
The activity in the capitalized software development account is
summarized as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
Balance at beginning of year, net $ 1,089 $ 1,508 $ 3,985
Additions 200 -- 2,657
Amortization expense (519) (419) (2,080)
Discontinuance of product prior to release - -- (471)
Write-down to net realizable value - -- (2,583)
-------- ------- -------
Balance at end of year, net $ 770 $ 1,089 $ 1,508
======== ======= =======
</TABLE>
During the fourth quarter of 1996, the Company wrote off capitalized
software costs of approximately $471,000 related to its restructuring
(see Note 13). In addition, during the fourth quarter of 1996, the
Company recorded an adjustment of approximately $2,583,000 to write
down remaining capitalized software costs of its Takecontrol product
line to net realizable value.
5. BORROWINGS
On March 21, 1997, the Company paid off its existing line of credit and
equipment note payable and the agreements were terminated. The line of
credit agreement required that the Company pay a quarterly fee of .375%
on the unused portion of the line of credit and accrued interest at the
prime rate.
In March 1998, the Company and its bank executed a $3,000,000 line of
credit arrangement, which expires on March 31, 1999. The line of credit
bears interest at the prime rate plus 1% and reduces to the prime rate
upon the Company's attainment of quarterly income objectives. The line
of credit is secured by substantially all of the corporate assets of
the Company with a negative pledge on intellectual property. There were
no borrowings against the line of credit as of December 31, 1998. (See
Note 15)
25
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS
==============================================================================
6. INCOME TAXES
The components of the (benefit) provision for income taxes are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
Current
Foreign $ 91 $ 198 $ 73
Deferred
Federal -- (55) (938)
State -- (10) (178)
Foreign -- -- (12)
---- ------- -------
$ 91 $ 133 $(1,055)
==== ======= =======
</TABLE>
The difference between the (benefit) provision for income taxes at the
statutory federal income tax rate of 34% and the Company's effective
tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
Federal statutory tax rate (34.0)% (34.0)% (34.0)%
State income taxes, net of federal benefit (3.1)% (5.5)% (2.8)%
Change in valuation allowance 32.2% 37.2% 29.6%
Foreign income taxes 2.9% 14.4% 1.0%
Other 4.9% (2.4)% (3.4)%
----- ----- -----
2.9% 9.7% (10.5)%
===== ===== =====
</TABLE>
26
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS
==============================================================================
At December 31, 1998 and 1997, deferred tax (assets) liabilities are
comprised of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1998 1997
<S> <C> <C>
Gross deferred tax liabilities
Capitalization of software development costs $ 293 $ 413
Depreciation 213 371
--------- ---------
506 784
--------- ---------
Gross deferred tax assets
Net operating loss carryforwards (7,195) (5,764)
Tax credit carryforwards (288) (876)
In process research and development (247) (216)
Allowance for doubtful accounts receivable (162) (341)
Accrued expenses (38) (115)
Other (114) (3)
--------- ---------
(8,044) (7,315)
Valuation allowance 4,717 3,710
--------- ---------
(3,327) (3,605)
Net deferred tax assets (2,821) (2,821)
Less: Current portion 200 459
--------- ---------
$ (2,621) $ (2,362)
========= =========
</TABLE>
At December 31, 1998, the Company has alternative minimum tax credit
and general business tax credit carryforwards of approximately $43,000
and $245,000, respectively, which will expire in years 2008 through
2011. The Company also has net operating loss carryforwards of
approximately $18,955,000 which expire in years 2009 through 2013.
FAS 109 specifies that deferred tax assets are to be reduced by a
valuation allowance if it is more likely than not that some portion or
all of the deferred tax assets will not be realized. A valuation
allowance has been provided for those net operating loss carryforwards
and foreign tax credits which are estimated to expire before they are
utilized. During 1998, the Company recorded an increase in the
valuation allowance of approximately $1,007,000. Management's estimate
of the valuation allowance could be affected in the near term based on
results of operations in future periods.
7. STOCK OPTION PLANS
In February 1993, the Board of Directors adopted a Stock Option Plan
(the "Option Plan"). The Company has reserved 1,200,000 shares of
common stock for issuance under the Option Plan. Pursuant to the terms
of the Option Plan, a committee of the Board of Directors is authorized
to grant options to key employees of the Company who are eligible to
receive options under the Option Plan. The committee is further
authorized to establish the exercise price, which for incentive stock
options will be equal to the fair market value of the stock at the date
of grant. A portion of the options granted to key employees vest on the
first anniversary of the date of grant and the remainder vest over a
two to five-year period thereafter as specified by the individual grant
agreements. Vesting may accelerate based on Company performance
criteria as specified
27
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS
==============================================================================
by the individual grant agreements. Options previously granted to
non-management directors under a formula, as specified by the Option
Plan, become exercisable in one-fourth increments on the first, second,
third and fourth anniversaries of the date of grant. Options expire ten
years after the date of grant.
Prior to adoption of the Option Plan, certain officers and key
employees of the Company were granted nonqualified options to purchase
the Company's common shares. In each case, the exercise price of the
options equaled the estimated fair market value of the common stock on
the date of grant. Pursuant to the plan, if any option expires or
terminates without being exercised, the Board may grant options with
respect to those non-purchased shares to the same Optionee or to
another employee of the Company. At December 31, 1998, 7,001 options
were available for grant and there were no options outstanding related
to this plan.
A summary of stock option activity is as follows:
<TABLE>
<CAPTION>
EXERCISE WEIGHTED WEIGHTED
PRICE AVG EXERCISE AVERAGE
SHARES PER SHARE PRICE FAIR VALUE
<S> <C> <C> <C> <C>
Outstanding at December 31, 1995 482,727 $8.00 - 19.50 $ 9.10
Granted 1,755,384 3.13 - 10.25 5.80 $ 2.01
Exercised (5,250) 4.52 - 8.00 6.47
Canceled or expired (1,332,543) 6.50 - 21.50 7.89
------------
Outstanding at December 31, 1996 900,318 3.13 - 8.00 7.24
Granted 424,119 2.31 - 4.94 3.32 1.83
Exercised (88,899) 3.13 - 3.25 3.21
Canceled or expired (205,662) 2.75 - 8.00 3.38
------------
Outstanding at December 31, 1997 1,029,876 2.31 - 4.94 3.20
Granted 461,500 1.88 - 5.00 3.53 2.10
Exercised (34,511) 3.25 3.25
Canceled or expired (399,818) 2.50 - 5.00 3.48
------------
Outstanding at December 31, 1998 1,057,047 1.88 - 5.00 3.35
============
Options exercisable
at December 31, 1998 150,567
============
</TABLE>
The following table summarizes information about stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
NUMBER WEIGHTED NUMBER
OUTSTANDING AVERAGE WEIGHTED OUTSTANDING WEIGHTED
AT REMAINING AVERAGE AT AVERAGE
DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
1998 LIFE PRICE 1998 PRICE
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$1.875 - $2.750 281,000 9.44 $ 2.497 13,950 $ 2.437
$3.125 - $3.125 437,500 7.92 3.125 62,500 3.125
$3.250 - $5.000 338,547 8.34 4.337 74,117 3.791
------------------ --------
$1.875 - $5.000 1,057,047 8.46 3.346 150,567 3.389
</TABLE>
28
<PAGE> 29
NOTES TO FINANCIAL STATEMENTS
==============================================================================
During July and November 1996, the Company provided holders of options
with exercise prices ranging from $6.50 to $21.50 and $4.52 to $4.75,
respectively, the election to reprice their options at the then current
market price. As a result of this election, 253,042 and 497,421 options
were canceled and reissued in July 1996 and November 1996,
respectively. Options repriced in November included those previously
repriced in July. The new option exercise price equals the market price
on the date of the repricing and, correspondingly, compensation expense
was not recognized. The vesting period of these options remained
unchanged. However, employees, excluding officers and directors, who
elected to reprice their options could not exercise vested options
until July 1997.
In December 1996, the Company granted nonqualified stock options to an
officer of the Company to acquire up to 500,000 shares of the Company's
common stock. The vesting period for 250,000 options is 62,500 options
per year from the date of grant. At December 31, 1998, 62,500 of these
options had been exercised and 62,500 were fully vested and available
for exercise. The vesting period for the remaining 250,000 options is
the earlier of the year 2002 or, if the Company's stock price reaches
certain targets, vesting will occur in blocks of 50,000 options for
each target price met. The options exercise price equals the market
price on the date of grant and, correspondingly, compensation expense
was not recognized. At December 31, 1998, none of these options were
vested.
8. EMPLOYEE STOCK PURCHASE PLAN
The Company has reserved 70,000 shares of common stock for issuance
under its Employee Stock Purchase Plan ("ESP"). The ESP was designed to
qualify as an employee stock purchase plan under Section 423 of the
Internal Revenue Code. The ESP provides that eligible employees may
contribute up to 10% of their base earnings each quarter for an option
to purchase the Company's common stock. The exercise price of the
option was 85% of the lower of the fair market value of the common
stock at either the beginning or end of the quarter. Effective April 1,
1998, the exercise price is 85% of the fair market value of the common
stock on the last business day of each quarter. No compensation expense
is recorded in connection with this plan. During 1998 and 1997, 6,081
and 7,573 shares, respectively, were issued under the ESP. At December
31, 1998, options to purchase 1,266 shares were outstanding under the
ESP.
9. STOCK COMPENSATION
The Company has adopted the disclosure only provisions of FAS 123,
"Accounting for Stock-Based Compensation." Had compensation cost for
the Company's stock option grants described above been determined based
on the fair value at the grant date for awards in 1998,1997 and 1996
consistent with the provisions of FAS 123, the Company's net loss and
loss per share would have been reduced to the pro forma amounts
indicated below (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
Net loss
As reported $ (3,125) $ (1,510) $ (9,060)
Pro forma (3,478) (1,825) (9,859)
Net loss per share
Basic and diluted
As reported (0.61) (0.30) (1.81)
Pro forma (0.68) (0.36) (1.97)
</TABLE>
29
<PAGE> 30
NOTES TO FINANCIAL STATEMENTS
==============================================================================
The fair value of each option grant and the employees' purchase rights
is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions
used in 1998, 1997 and 1996, respectively: dividend yield of 0% for all
years; expected volatility of 71%, 52%, and 47%, risk-free interest
rate ranging from 4.91% to 6.32% and expected life of 4.5 years for
grants in all years and 90 days for stock purchase rights for all
quarters.
In accordance with FAS 123, for the years ended December 31, 1998 and
1997, $7,000 and $109,000 respectively, was recorded to expense related
to options granted to non-employees.
10. COMMITMENTS AND CONTINGENCIES
The Company leases office space, equipment and automobiles under
noncancelable lease agreements expiring on various dates through 2001.
At December 31, 1998, future minimum rentals for noncancelable leases
are as follows (in thousands):
MINIMUM
YEAR ENDING ANNUAL
DECEMBER 31, RENTALS
<TABLE>
<S> <C>
1999 $ 875
2000 593
2001 41
---------
$ 1,509
=========
</TABLE>
Net rent expense under these and other agreements was approximately
$619,000, $627,000 and $1,036,000 for the years ended December 31,
1998, 1997 and 1996, respectively. Rent expense was offset by rental
income from subleased office space in the amounts of $295,000, $93,000,
and $8,000 for the years ended December 31, 1998, 1997, and 1996
respectively.
The Company is subject to legal proceedings and claims which may arise
in the ordinary course of its business. In the opinion of management,
the amount of the ultimate liability with respect to these actions will
not materially affect the financial position of the Company. During
1997 the Company settled a legal dispute resulting in the receipt of
$970,000 which included $367,000 in outstanding accounts receivable
with the remaining $603,000 credited to general and administrative
expense.
11. EMPLOYEE SAVINGS PLAN
Effective August 1, 1991, the Company established a defined
contribution plan (the "401(k) Plan") which qualifies under Section 401
(k) of the Internal Revenue Code for the benefit of eligible employees
and their beneficiaries. Employees may elect to contribute up to 20% of
their annual compensation to the 401(k) Plan. For each payroll period,
the Company matches 30% of the lesser of (1) the participants'
contribution or (2) 5% of the participants' compensation. In addition,
the Company may make discretionary annual contributions. For the years
ended December 31, 1998, 1997 and 1996, the Company made matching
contributions of approximately $59,100, $66,400 and $78,000,
respectively, to the 401(k) Plan and no discretionary contributions.
30
<PAGE> 31
NOTES TO FINANCIAL STATEMENTS
==============================================================================
12. SEGMENT INFORMATION
During June 1997, the Financial Accounting Standards Board issued
Financial Accounting Standard No. 131 - "Disclosures about Segments of
an Enterprise and Related Information" (FAS 131). The statement
requires detailed disclosures surrounding operating segments and
certain enterprise-wide disclosures. Management believes that it has
only a single segment consisting of software sales with related
services and support. The enterprise-wide disclosures required by FAS
131 are presented below. The Company exports its products through
agreements with international distributors that it grants territorial
rights.
A summary of international revenues including the Company's UK
subsidiary by geographic area is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
United States $ 6,877 $ 10,470 $ 15,495
Europe 6,341 3,962 5,495
South America 714 193 954
Australia and New Zealand 501 595 811
Asia 68 410 381
South Africa 36 218 86
--------- --------- ---------
$ 14,537 $ 15,848 $ 23,222
========= ========= =========
</TABLE>
Long-lived assets of the Company are recorded primarily in the United
States. However, as a result of the Co-cam acquisition (Note 2), fixed
assets of $220,000, or 14.7% of the consolidated balance, are domiciled
in the United Kingdom.
13. RESTRUCTURING
During the fourth quarter of 1996, the Company implemented a
restructuring plan (the "Plan") designed to enhance overall
competitiveness, productivity and efficiency through the reduction of
overhead costs. The Plan resulted in a pre-tax charge of approximately
$1,598,000. The charge principally reflected severance costs resulting
from workforce reductions of 41 employees and realignments throughout
the Company, write off of certain nonproductive assets (including
abandonment of a software product prior to release), employee
termination costs and costs associated with noncancelable leases net of
estimated sublease rental income. As of December 31, 1996, $1,111,000
was accrued related to this restructuring. During 1998 and 1997,
$325,000, and $786,000 were charged against the accrual respectively
resulting in a zero balance as of December 31, 1998.
14. RELATED PARTY TRANSACTIONS
During 1997 the Company entered into an agreement with a majority
shareholder relating to a contract for $150,000 in professional
services provided by a third party. The shareholder coordinated the
relationship between the Company and the third party with payments to
the third party being made by the shareholder and reimbursed by the
Company. As of December 31, 1997, there were no outstanding
payables/receivables with the shareholder relating to this transaction.
31
<PAGE> 32
NOTES TO FINANCIAL STATEMENTS
==============================================================================
During 1998 and 1997, the Company incurred expense of $147,000 and
$175,000, respectively, related to a third party software provider
whose President was a member of the Board of Directors of the Company
through April 1998. The current year payments were made according to a
contract dated January 1, 1998, the thirty-month contract requires
payments of royalties on a quarterly basis with a minimum payment of
$36,750 per quarter.
15. SUBSEQUENT EVENTS (UNAUDITED)
In March 1999, the Company renewed its $3,000,000 line of credit
agreement for another one-year term. The line of credit, which expires
March 15, 2000, bears interest at the prime rate plus 1.5% and reduces
to the prime rate upon the Company's attainment of quarterly targets
for results of operations or additional financing objectives. The line
of credit is secured by the assets of the Company.
The Company's Articles of Incorporation provide for the issuance of
shares of preferred stock from time to time in one or more series and
the Board of Directors, without further approval from the Company's
shareholders, is authorized to fix the rights and terms applicable to
each such series. The Board of Directors has approved the issuance, in
a private placement in reliance upon the exemption from the
registration provisions of the Securities Act of 1933, as amended,
afforded by Regulation D thereof, of shares of Series A Convertible
Preferred Stock. The proposed terms of the Series A Convertible
Preferred Stock include (i) an aggregate offering amount of up to
$2,000,000; (ii) dividends to be paid at a rate of 9% per annum in
either cash or in shares of the Company's common stock, at the
Company's option; (iii) the convertibility of the shares of the
Preferred Stock into shares of the Company's Common Stock at a
conversion price equal to 120% of the average closing price for the
Company's common stock for the 20 trading days prior to subscription
for the Preferred Stock; (iv) liquidation preferences; (v) voting
rights with the Company's common stock. On March 26, 1999, Richard T.
Brock, the President and Chief Executive Officer of the Company,
subscribed for an aggregate amount of $1,000,000 of Series A
Convertible Preferred Stock.
32
<PAGE> 33
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
NONE.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item is incorporated by reference to
information under the caption "Election of Directors - Director Nominee
Biographical Information", "- Executive Officers" and "- Compliance with Section
16(a) of the Securities Exchange Act of 1934" of the Company's Proxy Statement
for the Annual Meeting of Shareholders to be held on May 6, 1999.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference to
information under the captions "Election of Directors - Additional Information
Concerning the Board of Directors" and "Executive Compensation" (exclusive of
the subsections entitled "Compensation Committee Report on Executive
Compensation" and "Performance Graph") in the Company's Proxy Statement for the
Annual Meeting of Shareholders to be held on May 6, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is incorporated by reference to
information under the caption "Beneficial Ownership of Common Stock" in the
Company's Proxy Statement for the Annual Meeting of Shareholders to be held on
May 6, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is incorporated by reference to
information under the caption "Executive Compensation - Compensation Committee
Interlocks and Insider Participation" and "Certain Transactions" in the
Company's Proxy Statement for the Annual Meeting of Shareholders to be held on
May 6, 1999.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
1. Financial Statements
- Report of Independent Accountants
- Balance Sheet at December 31, 1998 and December 31, 1997.
- Statement of Operations for the three years ended
December 31, 1998.
- Statement of Changes in Shareholders' Equity for the three
years ended December 31, 1998.
- Statement of Cash Flows for the three years ended
December 31, 1998.
- Notes to Financial Statements
2. Financial Statement Schedules
- Schedule II - Valuation and Qualifying Accounts, for the
three years ended December 31, 1998.
33
<PAGE> 34
3. Exhibits
<TABLE>
<S> <C>
3.1 Amended and Restated Articles of Incorporation of the Company.(1)
3.2 Amended and Restated By-laws of the Company (incorporated herein by reference to
Exhibit 3(b) of the Company's Registration Statement on Form S-8
(Registration No. 333-55939)).
4.1 See Exhibits 3.1 and 3.2 for provisions of the Amended and Restated Articles of
Incorporation and Amended and Restated By-Laws of the Company defining rights
of holders of Common Stock of the Company.
10.2 Promissory Note in the amount of up to $2,250,000 dated as of December 15, 1992 by the
Company in favor of NationsBank of Georgia, N.A. (1)
10.3 Lease dated January 30, 1988 between the Company and Atlanta
Overlook Associates #3 concerning the Company's principal
offices located at 2859 Paces Ferry Road, Atlanta, GA, as
amended by that certain First Amendment of Office Building
Lease dated as of December 27, 1988 and as further amended by
that certain Second Amendment of Office Building Lease dated as
of October 2, 1989. (1)
10.4 Firstwave Technologies, Inc. Amended and Restated 1993 Stock
Option Plan (incorporated herein by reference to Exhibit 4(a)
of the Company's Registration Statement on Form S-8
(Registration No. 333-55939)).
10.5 Tax Indemnification Agreement dated February 4, 1993 among the Company and
certain of its shareholders.(2)
10.6 Form of Selective Distribution Agreement for International Distributors. (1)
10.7 Form of Software License Agreement. (1)
10.8 Selective Distribution Agreement dated September 1, 1991 between the Company and
Co-Cam Computer Services (U.K.) Ltd. (1)
10.9 Computer Software License Marketing Agreement dated December 21, 1987
between the Company and Co-Cam Computer Services, Pty. Ltd. (1)
10.10 Third Amendment to Lease Agreement dated as of March 10, 1993 between the
Company and State of California Public Employees Retirement System relating to
the Company's principal offices located at 2859 Paces Ferry Road, Atlanta, GA.(2)
10.11 Fourth Amendment to Lease Agreement dated as of June 24, 1993 between the
Company and State of California Public Employees Retirement System relating to
the Company's principal offices located at 2859 Paces Ferry Road, Atlanta,
GA.(2)
10.12 Fifth Amendment to Lease Agreement dated as of March 22, 1994 between the
Company and State of California Public Employees Retirement System relating to
the Company's principal offices located at 2859 Paces Ferry Road, Atlanta,
GA.(2)
10.13 Sixth Amendment to Lease Agreement dated as of September 22, 1994 between
the Company and State of California Public Employees Retirement System relating to the
Company's principal offices located at 2859 Paces Ferry Road, Atlanta, GA.(3)
10.14 Firstwave Technologies, Inc. Employee Stock Purchase Plan. (incorporated herein by
reference to Exhibit 4(a) of the Company's Registration Statement on Form S-8
(Registration No. 333-55971)
10.15 Option Agreement, dated July 25, 1997, between the Company and Netgain
Corporation.(4)
10.16 Agreement and Plan of Merger, dated December 31, 1997, among the Company, Netgain
Corporation, and Brock Acquisition, Inc.(5)
10.17 Seventh Amendment to Lease Agreement dated as of January 20, 1998 between the Company
and State of California Public Employees Retirement System relating to the Company's
principal offices located at 2859 Paces Ferry Road, Atlanta, GA.(6)
</TABLE>
34
<PAGE> 35
<TABLE>
<S> <C>
10.18 Eighth Amendment to Lease Agreement dated as of January 20, 1998 between
the Company and State of California Public Employees Retirement System relating to the
Company's principal offices located at 2859 Paces Ferry Road, Atlanta, GA.
10.19 First Amendment to Firstwave Technologies, Inc. 1993 Stock Option Plan (incorporated
herein by reference to Exhibit 4(c) of the Company's Registration Statement on Form S-8
(Registration No. 333-55939)).
10.20 First Amendment to Firstwave Technologies, Inc. Employee Stock Purchase Plan
(incorporated herein by reference to Exhibit 4(b) of the Company's Registration
Statement on Form S-8 (Registration No. 333-55971)).
10.21 Board of Directors Compensation Plan (incorporated herein by reference to Exhibit 4(b) of
the Company's Registration Statement on Form S-8 (Registration No. 333-55939)).
13 1998 Annual Report to Shareholders.
23 Consent of Independent Accountants. See pages immediately preceding the
signature page to this Report.
27 Financial Data Schedule (for SEC use only).
</TABLE>
(1) Incorporated herein by reference to exhibit of the same number in the
Company's Registration Statement on Form S-1 (Registration No. 33-57984).
(2) Incorporated herein by reference to exhibit of the same number in the
Company's Form 10-K for the year ended December 31, 1993.
(3) Incorporated herein by reference to exhibit of the same number in the
Company's Form 10-K for the year ended December 31, 1994.
(4) Incorporated herein by reference to exhibit of the same number in the
Company's Form 10-Q for the quarter ended June 30, 1997.
(5) Incorporated herein by reference to Exhibit 2 in the Company's Form 8-K
dated January 13, 1998.
(6) Incorporated herein by reference to exhibit of the same number in the
Company's Form 10-K for the year ended December 31, 1997.
(b) Form 8-K:
None
35
<PAGE> 36
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 333-46319) and
the Registration Statements on Form S-8 (No. 33-66456, No. 33-75374, No.
33-81102, No. 33-88304, No. 333-55939 and No. 333-55971) of Firstwave
Technologies, Inc. of our report dated February 2, 1999 appearing on page 17 of
this Form 10-K.
PRICEWATERHOUSECOOPERS LLP
Atlanta, Georgia
March 29, 1999
36
<PAGE> 37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Firstwave Technologies, Inc.
Date: March 29, 1999 By: /s/ Richard T. Brock
------------------------------------
Richard T. Brock
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<S> <C>
Date: March 29, 1999 /s/ Richard T. Brock
--------------------------------------------
Richard T. Brock
President and Chief Executive Officer
(Principal Executive Officer)
Date: March 29, 1999 /s/ Judith A. Vitale
--------------------------------------------
Judith A. Vitale
Director Finance and Administration
(Principal Financial and Accounting Officer)
Date: March 29, 1999 /s/ James R. Porter
--------------------------------------------
James Porter
Chairman
Date: March 29, 1999 /s/ John F. Keane
--------------------------------------------
John F. Keane
Director
Date: March 29, 1999 /s/ Michael T. McNeight
--------------------------------------------
Michael T. McNeight
Director
</TABLE>
37
<PAGE> 38
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1998
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING CHARGED TO ACCOUNTS END
OF COSTS AND WRITTEN OF
DESCRIPTION PERIOD EXPENSES OFF/RELEASED PERIOD
----------- ------ -------- ------------ ----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts $ 703 $ 66 $ 344 $ 425
========== =========== ========= ==========
Tax asset valuation allowance $ 3,710 $ 1,007 $ 0 $ 4,717
========== =========== ========= ==========
FOR THE YEAR ENDED DECEMBER 31, 1997
(THOUSANDS OF DOLLARS)
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING CHARGED TO ACCOUNTS END
OF COSTS AND WRITTEN OF
DESCRIPTION PERIOD EXPENSES OFF/RELEASED PERIOD
----------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts $ 1,971 $ 22 $ 1,290 $ 703
========== =========== ========= ========
Tax asset valuation allowance $ 3,195 $ 515 $ 0 $ 3,710
========== ============ ========= ========
FOR THE YEAR ENDED DECEMBER 31, 1996
(THOUSANDS OF DOLLARS)
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING CHARGED TO ACCOUNTS END
OF COSTS AND WRITTEN OF
DESCRIPTION PERIOD EXPENSES OFF/RELEASED PERIOD
----------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts $ 1,415 $ 1,837 $ 1,281 $ 1,971
========== ========== ========= =========
Tax asset valuation allowance $ 197 $ 2,998 $ 0 $ 3,195
========== ========== ========== =========
</TABLE>
38
<PAGE> 39
EXHIBIT INDEX
39
<PAGE> 40
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description Page Number
- ------ ----------- -----------
<S> <C> <C>
3.1 Amended and Restated Articles of Incorporation of the Company.(1) N/A
3.2 Amended and Restated By-laws of the Company (incorporated herein by reference to N/A
Exhibit 3(b) of the Company's Registration Statement on Form S-8
(Registration No. 333-55939)).
4.1 See Exhibits 3.1 and 3.2 for provisions of the Amended and Restated Articles of N/A
Incorporation and Amended and Restated By-Laws of the Company defining rights
of holders of Common Stock of the Company.
10.2 Promissory Note in the amount of up to $2,250,000 dated as of December 15, 1992 by the N/A
Company in favor of NationsBank of Georgia, N.A. (1)
10.3 Lease dated January 30, 1988 between the Company and Atlanta Overlook N/A
Associates #3 concerning the Company's principal offices
located at 2859 Paces Ferry Road, Atlanta, GA, as amended by
that certain First Amendment of Office Building Lease dated as
of December 27, 1988 and as further amended by that certain
Second Amendment of Office Building Lease dated as of October
2, 1989. (1)
10.4 Firstwave Technologies, Inc. Amended and Restated 1993 Stock Option Plan (incorporated N/A
herein by reference to Exhibit 4(a) of the Company's Registration Statement on Form S-8
(Registration No. 333-55939)).
10.5 Tax Indemnification Agreement dated February 4, 1993 among the Company and N/A
certain of its shareholders.(2)
10.6 Form of Selective Distribution Agreement for International Distributors. (1) N/A
10.7 Form of Software License Agreement. (1) N/A
10.8 Selective Distribution Agreement dated September 1, 1991 between the Company and N/A
Co-Cam Computer Services (U.K.) Ltd. (1)
10.9 Computer Software License Marketing Agreement dated December 21, 1987 N/A
between the Company and Co-Cam Computer Services, Pty. Ltd. (1)
10.10 Third Amendment to Lease Agreement dated as of March 10, 1993 between the N/A
Company and State of California Public Employees Retirement System relating to
the Company's principal offices located at 2859 Paces Ferry Road, Atlanta, GA.(2)
10.11 Fourth Amendment to Lease Agreement dated as of June 24, 1993 between the N/A
Company and State of California Public Employees Retirement System relating to
the Company's principal offices located at 2859 Paces Ferry Road, Atlanta, GA.(2)
10.12 Fifth Amendment to Lease Agreement dated as of March 22, 1994 between the N/A
Company and State of California Public Employees Retirement System relating to
the Company's principal offices located at 2859 Paces Ferry Road, Atlanta, GA.(2)
10.13 Sixth Amendment to Lease Agreement dated as of September 22, 1994 between N/A
the Company and State of California Public Employees Retirement System relating to the
Company's principal offices located at 2859 Paces Ferry Road, Atlanta, GA.(3)
10.14 Firstwave Technologies, Inc. Employee Stock Purchase Plan. (incorporated herein by N/A
reference to Exhibit 4(a) of the Company's Registration Statement on Form S-8
(Registration No. 333-55971)).
10.15 Option Agreement, dated July 25, 1997, between the Company and Netgain N/A
Corporation.(4)
10.16 Agreement and Plan of Merger, dated December 31, 1997, among the Company, Netgain N/A
Corporation, and Brock Acquisition, Inc. (5)
10.17 Seventh Amendment to Lease Agreement dated as of January 20, 1998 between the Company N/A
and State of California Public Employees Retirement System relating to the Company's
principal offices located at 2859 Paces Ferry Road, Atlanta, GA(6)
</TABLE>
40
<PAGE> 41
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
- ------ ----------- ------
<S> <C> <C>
10.18 Eighth Amendment to Lease Agreement dated as of January 20, 1998 between 42
the Company and State of California Public Employees Retirement
System relating to the Company's principal offices located at
2859 Paces Ferry Road, Atlanta, GA.
10.19 First Amendment to Firstwave Technologies, Inc. 1993 Stock Option Plan (incorporated N/A
herein by reference to Exhibit 4(c) of the Company's Registration Statement on Form S-8
(Registration No. 333-55939)).
10.20 First Amendment to Firstwave Technologies, Inc. Employee Stock Purchase Plan N/A
(incorporated herein by reference to Exhibit 4(b) of the Company's Registration
Statement on Form S-8 (Registration No. 333-55971)).
10.21 Board of Directors Compensation Plan (incorporated herein by N/A
reference to Exhibit 4(b) of the Company's Registration
Statement on Form S-8 (Registration No. 333-55939)).
13 1998 Annual Report to Shareholders. 47
23 Consent of Independent Accountants. See pages immediately preceding the 36
signature page to this Report.
27 Financial Data Schedule (for SEC use only).
</TABLE>
(1)Incorporated herein by reference to exhibit of the same number in the
Company's Registration Statement on Form S-1 (Registration No. 33-57984).
(2)Incorporated herein by reference to exhibit of the same number in the
Company's Form 10-K for the year ended December 31, 1993.
(3)Incorporated herein
by reference to exhibit of the same number in the Company's Form 10-K for the
year ended December 31, 1994.
(4)Incorporated herein by reference to exhibit of
the same number in the Company's Form 10-Q for the quarter ended June 30, 1997.
(5)Incorporated herein by reference to Exhibit 2 in the Company's Form 8-K dated
January 13, 1998.
(6)Incorporated herein by reference to exhibit of the same
number in the Company's Form 10-K for the year ended December 31, 1997.
41
<PAGE> 1
EXHIBIT 10.18
42
<PAGE> 2
EIGHTH AMENDMENT TO LEASE
THIS EIGHTH AMENDMENT TO LEASE (the "Eighth Amendment"), is made this
_______ day of May, 1998 by and between STATE OF CALIFORNIA PUBLIC EMPLOYEES'
RETIREMENT SYSTEM (as "Landlord") and FIRST WAVE TECHNOLOGIES, INC. (as
"Tenant").
WITNESSETH:
WHEREAS, Atlanta Overlook Associates #3 ("AOA") and Tenant did enter
into that certain Lease Agreement (the "Original Lease"), dated as of January
30, 1988, for space in that certain building known as "Overlook III" (the
"Building"); and
WHEREAS, AOA and Tenant did enter into that certain First Amendment of
Office Building Lease (the "First Amendment"), dated as of December 27, 1988;
and
WHEREAS, AOA did convey its interest in the Building and Original
Lease, as amended, to Landlord; and
WHEREAS, Landlord and Tenant did enter into that certain Second
Amendment of Office Building Lease (the "Second Amendment"), dated as of October
2, 1989; and
WHEREAS, Landlord and Tenant did enter into that certain Third
Amendment of Office Building Lease (the "Third Amendment"), dated as of March
10, 1993; and
WHEREAS, Landlord and Tenant did enter into that certain Fourth
Amendment of Office Building Lease (the "Fourth Amendment"), dated as of June
24, 1993; and
WHEREAS, Landlord and Tenant did enter into that certain Fifth
Amendment of Office Building Lease (the "Fifth Amendment"), dated as of March
22, 1994; and
WHEREAS, Landlord and Tenant did enter into that certain Sixth
Amendment of Office Building Lease (the "Sixth Amendment"), dated as of
September 22, 1994; and
WHEREAS, Brock Control Systems, Inc. did change its name to Brock
International, Inc. and Brock International, Inc. did assume the obligations of
Brock Control Systems, Inc. under the Original Lease, as amended; and
WHEREAS, Landlord and Tenant did enter into that certain Seventh
Amendment of Office Building Lease (the "Seventh Amendment"), dated as of
January 20, 1998; and
WHEREAS, Brock International, Inc. did change its name to First Wave
Technologies, Inc. and First Wave Technologies, Inc. did assume the obligations
of Brock International, Inc. under the Original Lease, as amended; and
WHEREAS, the Original Lease, as modified by the First Amendment, Second
Amendment, Third Amendment, Fourth Amendment, Fifth Amendment, Sixth Amendment,
and Seventh Amendment are sometimes herein referred to as the Lease; and
WHEREAS, Landlord and Tenant desire to modify and amend the Lease, in
the manner and for the purposes herein set forth.
NOW, THEREFORE, for and in consideration of the mutual covenants
contained herein, and for Ten and No/100 Dollars ($10.00) and other good and
valuable consideration, paid by the parties hereto to one another, the receipt
and sufficiency of which are hereby acknowledged by the parties hereto, the
parties hereto hereby covenant and agree as follows:
43
<PAGE> 3
1. Expansion Space. (a) From and after November 1, 1998 (the
"Expansion Space Commencement Date"), Landlord shall lease to Tenant and Tenant
shall lease from Landlord that certain space consisting of approximately 3,277
rentable square feet of space on the fifteenth (15th) floor of the Building
(hereinafter sometimes collectively referred to as the "Expansion Space"), as
such space is more particularly described as outlined in Exhibit "A" which is
attached hereto and incorporated herein by reference. The term of lease (the
"Expansion Lease Term") for such Expansion Space is from November 1, 1998
through October 31, 2000.
(b) From and after November 1, 1998, any reference in the Lease to
the "Premises" shall include the Expansion Space as shown on Exhibit "A" to this
Eighth Amendment.
2. Base Rent. The Base Rent during the Expansion Space Term,
shall be as follows:
<TABLE>
<CAPTION>
PER RSF PER
PERIOD ANNUM BASE RENT
------ ---------------
<S> <C>
11/01/98 - 10/31/00 $22.00
</TABLE>
Such Base Rent shall be paid by Tenant at the time and in the manner
that Base Rent is paid under the Lease. The aforesaid charges do not include any
other charges which might otherwise be due from Tenant under the terms and
conditions of the Lease.
3. Tenant's Share. Tenant's Share as described in Paragraph 4 of
the Seventh Amendment shall be adjusted accordingly and, from and after November
1, 1998, Tenant's Share shall be (subject to further adjustments as provided in
the Lease) 6.59%.
4. Escalation. Beginning January 1, 1999, in addition to the Base
Rent, Tenant agrees to pay as Additional Rent to Landlord, Tenant's Share of
Estimated Operating Costs in excess of the Operating Costs for the Building for
1998, as such terms are defined in Paragraph 5 of the Seventh Amendment and
Exhibit "B" of the Seventh Amendment.
5. Tenant Improvements. (a) Tenant hereby takes and accepts the
Expansion Space "as is, where is", with no representation or warranty by
Landlord as to the fitness or suitability of the Expansion Space for Tenant's
purpose.
(b) If Tenant desires any additional work in the Expansion Space,
then the work will be provided subject to Landlord's prior consent only, and by
Landlord at Tenant's sole cost and expense. Such amount will be paid to Landlord
within thirty (30) days after demand therefor is made by Landlord.
6. Brokerage. LASALLE PARTNERS MANAGEMENT LIMITED ("LASALLE") HAS
REPRESENTED LANDLORD IN THIS TRANSACTION AND SHALL BE PAID A COMMISSION BY
LANDLORD IN CONNECTION WITH THIS AMENDMENT UNDER A SEPARATE AGREEMENT. Tenant
warrants that it has had no dealings with any broker or agent in connection with
the negotiation or execution of this Eighth Amendment, and Tenant agrees to
indemnify Landlord against all costs, expenses, attorneys' fees or other
liability for commissions or other compensation or charges claimed by any broker
or agent claiming the same by, through or under Tenant.
7. Expansion Rights. Paragraph 7 (Expansion Rights) of the
Seventh Amendment is hereby deleted in its entirety, and shall be of no further
force or effect.
8. No Other Modifications. Except as set forth herein to the
contrary, all of the terms and conditions of the Lease shall remain in full
force and effect and shall govern and control Tenant's lease
44
<PAGE> 4
from Landlord of the Premises. Tenant acknowledges and agrees that the Lease is
in full effect in accordance with its terms.
9. Transfers, Successors and Assigns. This Eighth Amendment shall
inure to the benefit of and shall be binding upon Landlord, Tenant and their
respective transfers, successors and assigns.
10. Georgia Law. This Eighth Amendment shall be construed and
interpreted under and pursuant to the laws of the State of Georgia.
11. Exhibit. This Eighth Amendment includes Exhibit "A" (one page,
attached).
IN WITNESS WHEREOF, the undersigned have caused this Eighth Amendment
to be executed under seal and delivered on the date and year first above
written.
"LANDLORD"
State of California Public Employees' Retirement
System
By: LaSalle Advisors Capital Management, Inc.,
its Agent
By:
--------------------------------------
--------------------------------------
By:
--------------------------------------
-------------------------------------
"TENANT"
Firstwave Technologies, Inc.
By:
--------------------------------------
its:
--------------------------------
Attest:
--------------------------------------
its:
--------------------------------
(CORPORATE SEAL)
45
<PAGE> 5
EXHIBIT "A"
Attached to and made part of
Lease Agreement dated: May ____, 1998
Landlord: State of California Public Employees' Retirement System
Tenant: Firstwave Technologies, Inc.
[PHOTO]
46
<PAGE> 1
EXHIBIT 13
47
<PAGE> 2
================================================================================
[FIRSTWAVE LOGO]
Firstwave Technologies, Inc.
1998 Annual Report
<PAGE> 3
================================================================================
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the Year Ended December 31,
(In thousands, except per share amounts)
1998 1997 1996 1995 1994
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 14,537 $ 15,848 $ 23,222 $ 28,001 $ 30,697
Income (loss) before income taxes (3,034) (1,377) (10,115) (4,928) 737
Income tax (provision) benefit (91) (133) 1,055 1,837 (192)
Net income (loss) (3,125) (1,510) (9,060) (3,091) 545
Basic and diluted net income (loss)
per common share (0.61) (0.30) (1.81) (0.63) 0.11
Total assets 11,322 14,286 18,367 26,045 29,127
Total non current liabilities -- -- 125 -- 960
Common stock subject to repurchase $ -- $ 300 $ -- $ -- $ --
Basic and diluted weighted average common
and common share equivalents 5,125 5,035 5,000 4,932 4,960
</TABLE>
Table of Contents
<TABLE>
<S> <C>
Letter to Shareholders ................................................. 3
Report of Independent Accountants ...................................... 5
Condensed Consolidated Balance Sheet ................................... 6
Condensed Consolidated Statement of Operations ........................ 7
Condensed Consolidated Statement of Changes in Shareholders' Equity .... 8
Condensed Consolidated Statement of Cash Flows ......................... 9
Board of Directors ..................................................... 10
Officers ............................................................... 10
Shareholder Information ................................................ 11
</TABLE>
2
<PAGE> 4
================================================================================
LETTER TO SHAREHOLDERS
The Internet provides an ideal framework for a new generation of systems that
will enable companies to fundamentally change the way they manage their revenues
and relationships. Internet applications are more targeted and economical, and
results are more immediate. During 1998, we created Firstwave(R) to seize this
opportunity. The result was a year of dramatic change as we combined three
businesses, established a new identity, and delivered our first Internet
product.
Our long-term expansion strategies strained short-term financial results. The
company posted revenues of $14.5 million and a net loss of $3.1 million ($0.61
per share). During the year, we invested more than $4 million in product
development and marketing to establish Firstwave as a leader in the emerging
market for Internet-based customer information systems. We entered 1999 with a
solid base business and an innovative new Internet product, Netgain(TM) Sales.
We are building on this foundation to increase revenues in 1999 and beyond.
NETGAIN(TM) As with many pioneering products, development of our first Internet
product was an ambitious undertaking that took longer than expected. We
delivered a quality release of Netgain Sales at year-end. Initial production
customers implemented the application in the first quarter of 1999 and were
pleased with their new Internet solutions. Prospective customer interest is
building, and additional features scheduled for delivery in the second quarter
should increase the product's appeal.
The overall market for customer information systems exceeds $2.5 billion today
and is growing more than 40% per year. The fastest-growing segment is the middle
market. At the beginning of 1999, we sharpened Netgain's focus to target
mid-size implementations in businesses with revenues of $20 to $500 million. We
have refined product development and marketing and introduced an array of new
services to respond to the needs of this pragmatic market. Application hosting
minimizes customers' technical burdens; around-the-clock support simplifies
deployment; a flexible pricing plan reduces customers' initial financial
commitment; and a rapid implementation process gives customers prompt return on
their Netgain investments.
In the second quarter of 1999, we will add support for Microsoft's popular
Outlook(R) technology, deliver a customization workbench for customers to tailor
Netgain to their unique needs, and introduce Internet portal capabilities to
increase customers' sales effectiveness. In future releases, we will broaden the
Netgain suite with complementary marketing and customer service applications.
Our goal is to capitalize on the rapidly developing Internet market with a
complete solution for managing customer relationships. Developing, marketing,
and supporting the complete Netgain(TM) Enterprise suite drives our growth
strategy.
TAKECONTROL(R) The Takecontrol line of traditional Unix and client/server
products operated profitably every quarter in 1998. Positive cash flows from the
US, UK, and affiliate operations have helped fund our Netgain investments. We
remain dedicated to the thousands of users who depend on these products, and we
continue to support and enhance the Takecontrol line. These full-featured
products help manage sales, marketing, and customer service functions for
companies in 20 countries. In cooperation with affiliates around the world, we
maintain the products, offer upgrades, remain compatible with the most popular
database managers and operating systems, and provide personal service whenever
customers need it.
We increased product quality at year-end with Takecontrol'99, our second Year
2000 compliant release. To maintain this product line's financial contribution
and ensure customer satisfaction, we are encouraging the more than 200
enterprises using Takecontrol to upgrade to a Year 2000 compliant release,
convert to a new version based on Microsoft Visual Basic technology, or acquire
our Internet solution, Netgain. The revenues and customer relationships
cultivated by Takecontrol provide a secure base business and leverage for future
expansion.
3
<PAGE> 5
================================================================================
SHAREHOLDER VALUE The company's board and management take seriously our
responsibility to increase the value of your investments. Financial performance
and shareholder returns have been delayed while we transformed the business for
growth in the Internet era. We are singularly focused on strategies to improve
performance this year and in the future. We have streamlined management and
staff and concentrated on the most attractive growth opportunities to conserve
financial resources. We are considering an infusion of capital during 1999 to
support future expansion.
Firstwave is poised on the brink of growth in one of the world's most dynamic
industries. Our vision is clear and compelling, the Internet is gaining momentum
rapidly, and our revolutionary Internet product is now available. As the product
and market mature, I am confident revenue growth planned for 1999 and beyond
will have a positive impact on your investments in Firstwave.
I would like to extend my personal invitation for you to attend our Annual
Meeting of Shareholders on May 6, 1999. In addition to routine business, we will
offer demonstrations of the products, interviews with employees and discussions
with customers. On behalf of our board of directors and employees, I would like
to thank you for your continuing support.
RICHARD T. BROCK
President and Chief Executive Officer
Note: This letter contains forward-looking statements. The actual results may
vary and involve a number of uncertainties and risks such as potential
fluctuations in quarterly results due to market demand, competition,
technological developments, and the size, timing, and contractual terms of
orders.
4
<PAGE> 6
================================================================================
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF FIRSTWAVE TECHNOLOGIES, INC.
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements of Firstwave Technologies, Inc. as of December
31, 1998 and 1997 and for each of the three years in the period ended December
31, 1998 appearing under item 14(a)(1) and (2) on page 33 in the Company's
Annual Report on Form 10K (which statements are not presented herein); and in
our report dated February 2, 1999, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion the information set forth in
the accompanying condensed consolidated balance sheets as of December 31, 1998
and 1997 and the related condensed consolidated statements of operations,
changes in shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1998, when read in conjunction with the
consolidated financial statements from which it has been derived, is fairly
stated in all material respects in relation thereto.
PRICEWATERHOUSECOOPERS LLP
Atlanta, Georgia
February 2, 1999
5
<PAGE> 7
================================================================================
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 2,245 $ 4,969
Accounts receivable, less allowance for doubtful
accounts of $425 and $703 3,146 3,047
Deferred tax assets 200 459
Prepaid expenses and other 195 177
-------- --------
Total current assets 5,786 8,652
Property and equipment, net 1,501 1,938
Software development costs, net 770 1,089
Intangible asset 644 245
Deferred tax asset 2,621 2,362
-------- --------
$ 11,322 $ 14,286
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 1,354 $ 868
Accrued restructuring costs -- 325
Sales tax payable 265 263
Deferred revenue 1,581 1,545
Accrued employee compensation and benefits 284 614
Other accrued liabilities 78 19
-------- --------
Total current liabilities 3,562 3,634
Common stock subject to repurchase -- 300
-------- --------
3,562 3,934
-------- --------
Commitments and contingencies
Shareholders' equity
Preferred stock, no par; 1,000,000 shares authorized; and
no shares issued or outstanding
Common stock, stated value $.0019 per share; 10,000,000
shares authorized; 5,151,322 and 5,033,027 shares
issued and outstanding 10 9
Additional paid-in capital 19,813 19,329
Unrealized loss on investment securities -- (14)
Cumulative translation account 34 --
Accumulated deficit (12,097) (8,972)
-------- --------
7,760 10,352
-------- --------
$ 11,322 $ 14,286
-------- --------
</TABLE>
6
<PAGE> 8
================================================================================
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
Net revenues
Software $ 3,528 $ 5,239 $ 9,834
Services 5,035 4,810 7,267
Maintenance 5,431 5,189 5,143
Other 543 610 978
-------- -------- --------
14,537 15,848 23,222
Cost and expenses
Cost of revenues
Software 744 675 4,883
Services 3,566 3,528 5,908
Maintenance 1,643 1,687 2,002
Other 500 606 895
Sales and marketing 5,983 6,012 10,083
Product development 2,080 2,003 2,010
General and administrative 3,233 2,186 6,027
In process research and development -- 696 --
Restructuring costs -- -- 1,598
-------- -------- --------
Operating loss (3,212) (1,545) (10,184)
Interest expense (1) (40) (156)
Interest income 179 208 225
-------- -------- --------
Loss before income taxes (3,034) (1,377) (10,115)
Income tax benefit (provision) (91) (133) 1,055
-------- -------- --------
Net loss $ (3,125) $ (1,510) $ (9,060)
-------- -------- --------
Net loss per share
Basic $ (0.61) $ (0.30) $ (1.81)
-------- -------- --------
Diluted $ (0.61) $ (0.30) $ (1.81)
======== ======== ========
Weighted average shares outstanding
Basic 5,125 5,035 5,000
======== ======== ========
Diluted 5,125 5,035 5,000
======== ======== ========
</TABLE>
7
<PAGE> 9
================================================================================
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED COMPRE- OTHER
ADDITIONAL GAIN/(LOSS) HENSIVE COMPRE- RETAINED
COMMON STOCK PAID-IN ON INVESTMENT INCOME HENSIVE EARNINGS
SHARES AMT. CAPITAL SECURITIES (LOSS) INCOME (DEFICIT) TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 4,908,815 $ 9 $18,744 $(121) $ -- $ -- $ 1,598 $ 20,230
Exercise of common stock options 9,242 -- 59 -- -- -- -- 59
Employee stock purchases 18,498 -- 106 -- -- -- -- 106
Unrealized gain on investment
securities -- -- -- 107 -- -- -- 107
Net loss -- -- -- -- -- -- (9,060) (9,060)
--------- ---- ------- ----- ------- -------- -------- -------
Balance at December 31, 1996 4,936,555 9 18,909 (14) -- -- (7,462) 11,442
Exercise of common stock options 88,899 -- 281 -- -- -- 281
Employee stock purchases 7,573 -- 25 -- -- -- 25
Issuance of stock options -- -- 114 -- -- -- 114
Net loss -- -- -- -- -- -- (1,510) (1,510)
--------- ---- ------- ----- ------- -------- -------- -------
Balance at December 31, 1997 5,033,027 9 19,329 (14) -- -- (8,972) 10,352
Exercise of common stock options 34,511 112 -- -- -- -- 112
Employee stock purchases 6,081 -- 19 -- -- -- -- 19
Issuance of stock options -- 7 -- -- -- -- 7
Issuance of stock in connection
with Netgain acquisition 77,703 1 346 -- -- -- -- 347
Realized loss on investment
securities -- -- -- 14 -- -- -- 14
Comprehensive loss
Net loss -- -- -- -- (3,125) -- (3,125) (3,125)
Foreign currency translation adj -- -- -- -- 34 34 -- 34
-------
Comprehensive loss $(3,091)
--------- ---- ------- ----- ======= -------- -------- -------
Balance at December 31, 1998 5,151,322 $ 10 $19,813 $ -- $ 34 $(12,097) $ 7,760
========= ==== ======= ===== ======== ========= =======
</TABLE>
8
<PAGE> 10
================================================================================
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $(3,125) $ (1,510) $ (9,060)
Adjustments to reconcile net loss to net cash
provided by operating activities
Depreciation and amortization 1,741 1,565 3,431
Write down of software development cost to net
realizable value -- -- 2,583
Write off in process research and development -- 696 --
(Gain)/loss on disposal of fixed assets (13) 142 646
Provision for bad debts 83 22 1,837
Deferred income taxes -- (65) (1,130)
Stock compensation 7 114 --
Changes in assets and liabilities (net of acquisition)
Accounts receivable (182) 1,051 2,135
Prepaid expenses and other 121 (46) 40
Accounts payable 146 (148) 55
Accrued restructuring (325) (786) 1,111
Sales tax payable 2 (115) (255)
Deferred revenue (114) 81 (507)
Accrued employee compensation and benefits (361) (66) (446)
Other accrued liabilities 59 (78) (46)
------- -------- --------
Total adjustments 1,164 2,367 9,454
------- -------- --------
Net cash provided by (used in)
operating activities (1,961) 857 394
------- -------- --------
Cash flows from investing activities
Software development costs (200) -- (2,186)
Business acquisitions (246) (697) --
Purchases of property and equipment (496) (261) (869)
Purchase of investment securities (9,394) (16,155) (13,689)
Proceeds from sale of investment securities 9,408 19,755 18,051
------- -------- --------
Net cash provided by (used in) investing
activities (928) 2,642 1,307
------- -------- --------
Cash flows from financing activities
Exercise of common stock options 112 281 59
Proceeds from employee stock purchase plan 19 25 106
Borrowing from/(repayment to) line of credit, net -- (1,975) 990
Proceeds from/(repayments to) note payable, net -- (208) 208
------- -------- --------
Net cash provided by (used in)
financing activities 131 (1,877) 1,363
Foreign currency translation adjustment 34 -- --
Net increase (decrease) in cash (2,724) 1,622 3,064
Cash and cash equivalents, beginning of year 4,969 3,347 283
------- -------- --------
Cash and cash equivalents, end of year 2,245 4,969 3,347
======= ======== ========
Supplemental disclosure of cash flow information
Cash paid during the year for interest $ 1 $ 84 $ 157
======= ======== ========
Cash paid for income taxes $ 91 $ 198 $ 73
======= ======== ========
</TABLE>
9
<PAGE> 11
================================================================================
BOARD OF DIRECTORS
JAMES R. PORTER, CHAIRMAN
Mr. Porter has been a director of the Company since the Company's initial public
offering in March 1993. He served from September 1985 until February 1997 as
President, Chief Executive Officer and a director of Triad Systems Corporation,
a provider of business and information management solutions for the retail hard
lines industry and the automotive aftermarket, and now serves as Chairman of the
Board. Previously, he served in executive capacities at Informatics General
Corporation and United Systems International. Mr. Porter serves on the Board of
Regents of Pepperdine University and on the Board of Trustees of Abilene
Christian University. Mr. Porter is also a director of Silicon Valley Bank,
Cardone Industries, Inc., and Cellular Technology Services. Mr. Porter earned
his BS from Texas A&M and attended Harvard Graduate School of Business.
RICHARD T. BROCK
Mr. Brock has served on the Board of Directors since the Company's inception in
October 1984, and currently serves as the Company's President and Chief
Executive Officer. He also served as the Company's Chief Executive Officer from
October 1984 until November 1992, and from November 1994 until December 1996.
Mr. Brock is the founder of Brock Capital Partners, a capital investment firm.
He is also a director of Datastream Systems, Inc., a leading provider of
maintenance software. Prior to founding the Company, Mr. Brock founded and
served as Chief Executive Officer of Management Control Systems, Inc., now a
division of CLR Professional Software. Mr. Brock received an MBA from Louisiana
State University and a BS from Spring Hill College. He is also a Certified
Public Accountant.
JOHN F. KEANE
Mr. Keane has been a director of the Company since December 1997. He is Chairman
and Chief Executive Officer of Keane, Inc., an application development,
outsourcing and integration services firm, which he founded in 1965. Previous to
this, Mr. Keane held various positions in marketing for IBM and was a consultant
for Arthur D. Little. He serves as a director of EG&G, a global technology
company that supplies products and technical services to industrial and
governmental markets. He is a graduate of Harvard College and Harvard School of
Business.
MICHAEL T. MCNEIGHT
Mr. McNeight has been a director of the Company since May 1998. He has served as
Vice President of Sales Operations of Internet Security Systems, Inc., a
software company providing network security analysis and intrusion detection
systems, since 1996. From 1995 to 1996, Mr. McNeight was Senior Vice President
at TSW International, Inc., a leading supplier of plant performance and
maintenance management software. From 1993 through 1994, he served as Vice
President and then President and Chief Executive Officer of Aurum Software,
Inc., a leading software company specializing in sales, marketing and customer
support automation. He received his BA from Oklahoma State University and his MS
from Texas Christian University.
ROGER A. BABB
Mr. Babb is President of Operation Simulation Associates, Inc., a software
company developing power system simulation software and providing consulting
services to the electric power industry, which he founded in 1983. He is also
Chief Executive Officer of Babb Cellular Concrete International and Chief
Financial Officer of Babb Lumber Company, Inc., related building material
manufacturing companies. He has not previously served as a director of the
Company. Mr. Babb brings experience in the management of software development,
technical competence and financial expertise to the Board. He earned his BS in
Electrical Engineering from the Georgia Institute of Technology.
OFFICERS
RICHARD T. BROCK
President and Chief Executive Officer
KATE C. DEVER
Vice President of Development and Support
JUDITH A. VITALE
Director of Finance and Administration
10
<PAGE> 12
SHAREHOLDER INFORMATION
CORPORATE HEADQUARTERS
Firstwave Technologies, Inc.
Overlook III, Suite 1000
2859 Paces Ferry Road
Atlanta, GA 30339
(770) 431-1200
TRANSFER AGENT AND REGISTRAR
First Union of North Carolina
Shareholder Services Group
Two First Union Center
Charlotte, NC 28288-1154
Information Contact:
Mr. Patrick Edwards
704-383-1973
ANNUAL MEETING OF SHAREHOLDERS
Thursday, May 6, 1999 at 2:00 p.m.
Firstwave Technologies, Inc. Headquarters
Overlook III, Suite 1000
2859 Paces Ferry Road
Atlanta, GA 30339
CORPORATE COUNSEL
Powell, Goldstein, Frazer & Murphy LLP
Atlanta, GA
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
Atlanta, GA
STOCK LISTING
NASDAQ Symbol: FSTW
FORM 10-K
A copy of the Company's Annual Report on Form 10K for the fiscal year ended
December 31, 1998, as filed with the Securities and Exchange Commission, will be
sent to all stockholders. Additional copies will be sent upon request in writing
to:
Judith A. Vitale
Director of Finance and Administration
Firstwave Technologies, Inc.
Overlook III, Suite 1000
2859 Paces Ferry Road
Atlanta, GA 30339
PRODUCT INQUIRIES
For more information about the Company's products and services, e-mail Firstwave
at [email protected] or call 770-431-1200 or visit Firstwave's web site at
http://www.firstwave.net.
11
<PAGE> 13
================================================================================
The following table shows the price range of the Company's Common Stock (high
and low close information) for the indicated fiscal quarters. The prices
represent quotations between dealers and do not necessarily represent actual
transactions and do not include retail mark-ups, mark-downs or commissions. As
of December 31, 1998 there were approximately 85 shareholders of record and
approximately 1,725 persons or entities who hold common stock in nominee name.
STOCK PRICE TABLE
<TABLE>
<CAPTION>
1997 First Second Third Fourth
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
High $ 4.50 $ 6.50 $ 5.75 $ 5.25
Low $ 3.00 $ 2.19 $ 4.50 $ 3.44
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1998 First Second Third Fourth
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
High $ 5.63 $ 5.13 $ 5.13 $ 3.88
Low $ 4.31 $ 4.25 $ 2.50 $ 1.63
- ---------------------------------------------------------------
</TABLE>
12
<PAGE> 14
Firstwave Technologies, Inc.
Overlook III, Suite 1000
2859 Paces Ferry Road
Atlanta, GA
PH 770-431-1200
FX 770-431-1201
www.firstwave.net
(C)1999 Firstwave Technologies, Inc. Firstwave and the Firstwave logo are
registered trademarks of Firstwave Technologies, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K OF
FIRSTWAVE FOR YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.<F1>
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 2,245
<SECURITIES> 0
<RECEIVABLES> 3,146
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,786
<PP&E> 1,501
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,322
<CURRENT-LIABILITIES> 3,562
<BONDS> 0
0
0
<COMMON> 10
<OTHER-SE> 7,750
<TOTAL-LIABILITY-AND-EQUITY> 11,322
<SALES> 3,528
<TOTAL-REVENUES> 14,537
<CGS> 744
<TOTAL-COSTS> 6,453
<OTHER-EXPENSES> 11,296
<LOSS-PROVISION> 83
<INTEREST-EXPENSE> 1
<INCOME-PRETAX> (3,034)
<INCOME-TAX> (91)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,125)
<EPS-PRIMARY> (.61)
<EPS-DILUTED> (.61)
<FN>
<F1>A/R AND PPE ASSET VALUES REPRESENT NET AMOUNTS.
</FN>
</TABLE>
