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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 [FEE REQUIRED]
For the fiscal year ended December 31, 1999.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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)
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<S> <C>
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)
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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 [ ]
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, 2000: approximately $54,846,723.
Number of shares of Common Stock outstanding as of March 23, 2000: 5,799,811.
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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 9, 2000 are incorporated by reference into Part
III of this Report. Other than those portions specifically incorporated by
reference herein, the 1999 Annual Report to Shareholders and the Proxy Statement
for the Annual Meeting of Shareholders to be held on May 9, 2000 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
Firstwave Technologies, Inc. provides Internet-based customer relationship
management (eCRM) solutions to companies located throughout the world. The
Company markets and supports three product lines: Firstwave eRM, Takecontrol(R),
and Firstwave for Unix. Firstwave eRM is a seamlessly integrated, web-based
suite of applications created to fulfill and manage the e-business relationship
needs of a company in the areas of sales, marketing, and support. Firstwave eRM
manages a company's customer life cycle management, from prospecting targets in
a pre-sales environment to post sales service and account management. The sales
application was released as Netgain(TM) Sales in September 1998 and the
marketing and support applications were integrated with the sales application to
form one integrated application, Firstwave eRM, in December 1999. 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. The Firstwave for Unix product line is a
traditional UNIX, character-based CRM solution.
COMPANY STRATEGY
Firstwave continues its vision of creating an Internet-centric CRM platform that
leverages the Internet to bring value to companies by lowering their total cost
of ownership while enhancing their relationships with customers, prospects and
partners. Unlike web-based systems, web-enabled or client server, CRM
applications historically are costly and take months to implement, are expensive
to maintain and do not provide the flexibility within the product that is
demanded today. Additionally, users of traditional CRM products find them
complex and difficult to use, resulting in a low user acceptance rate. Firstwave
strives to create a user-friendly environment for its users, offering a web site
address to hit over the Internet for application access and an easy web-based
interface once inside the application.
Firstwave's Internet-based applications are also extended to a customer's
channel and business partners outside the internal offices with granular
security measures in place allowing those partners to see only what that company
chooses to allow them to see. Web-enabled or client server CRM applications have
limited partner capabilities.
Management believes that the future of CRM applications must be built around the
Internet (tying in all customer management functions including marketing, sales
and support), be designed with the ability to customize a product to fit a
company or partner's needs and have the ability to be remotely hosted. In the
past year Firstwave has dedicated its Development resources to accomplish that
vision.
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The Company's Internet-based product suite, Firstwave eRM, provides marketing,
sales and support capabilities using Internet technologies. Users can market to
targets utilizing campaign management functionality within the eMarketing
application and turn them over as leads to the sales team. The sales team, using
the eSales application, can then manage their opportunities and accounts
efficiently with added value in order to close sales. Those new customers are
then managed through the eSupport application, where any support issues can be
tracked and resolved quickly and effectively by using a customized knowledge
base and escalation procedures.
Firstwave has also developed a tool set, eWorkbench, that allows for extensive
customizations to the Firstwave eRM product suite. Management believes this tool
set is the strongest and most effective in the industry. Features of eWorkbench
include the ability to set security levels for different users including sales
representatives, marketing representatives, customer support personnel and
business partners outside the company and the capability to change the look and
feel of the application. Business objects within the application are also easily
changed within eWorkbench.
Management's belief in the rise of the Application Service Provider (ASP) model
has led to the development of an ASP optimized-architecture. This architecture,
released in the 3.1 version, allows ASPs to host multiple companies and multiple
applications on a single server, a critical requirement for the success of the
ASP model. Management believes that more companies, especially in Firstwave's
target market of mid-size companies, may choose to have Firstwave eRM hosted
remotely using a lease vs. purchase approach. The Company has recently begun
marketing its products for this model, which when implemented, should provide
recurring revenue for the Company and eliminate many of the difficulties a
company has in implementing and maintaining a software application in-house.
Management believes Internationalization of the Company's product suite is the
next step in becoming an international presence in the eCRM industry and will
provide a key differentiator from the Company's competitors. The application
suite has multi-lingual and multi-currency capabilities.
The Company supports Oracle database technology and the Linux and Unix operating
systems for Firstwave eRM. The Company currently supports the integration of
Firstwave eRM data with Personal Digital Assistants. With the advent of wireless
technology and the anticipated improvement of wireless connection speeds, the
Company believes the demand for this technology will increase.
The Company is committed to its Internet product vision and strengthening the
client base significantly in the near-term. The Company remains dedicated to its
existing customers of Firstwave eRM, Takecontrol and Firstwave for UNIX and
continues to pursue best-of-breed distributors on a global level while staying
on the cutting edge of the world's most current technologies, including database
managers and operating systems.
PROVIDING VALUE AND ENHANCEMENTS TO EXISTING CUSTOMERS
As a core business strategy, Firstwave is committed to its existing customers by
providing value through post-sales consulting, training, support services and
product enhancements. Impeccable customer service is critical to the success of
Firstwave and its reputation as a customer-centric company in the CRM industry.
The Company seeks to differentiate itself from its competitors not only through
product features and technology, but also through an often-overlooked yet
critical business function - customer service.
LEVERAGE STRATEGIC ALLIANCES
The CRM solutions delivered by the Company are a combination of Firstwave's
direct selling efforts and those of various strategic alliance partners. By
leveraging the expertise of our partners, the Company is able to focus on its
core competency of providing innovative web based solutions. The Company's goal
is to select strategic partners who are "best in-class" providers of hardware,
software, telephony, and
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consulting. In addition, Firstwave strongly supports a domestic and
international distribution network committed to developing the market and
promoting sales of the Company's products.
BUSINESS PARTNER SUPPORT
The Firstwave Business Partner program ensures that the Company achieves its
goal by accommodating any opportunity regardless of size or complexity. The
Company wants to ensure our partners are well equipped with the skills and tools
necessary to help them tackle any of these opportunities. These relationships
enable Firstwave to continue to improve service levels so customers can enjoy
quick results and seamless integration of Firstwave eRM solutions.
INTERNATIONAL OPERATIONS
In addition to its corporate headquarters in Atlanta, Georgia, Firstwave
maintains an office in London, England and the Company's global network of
distributors provides an international footprint in over 35 countries.
Through a distributorship with Asia Pathways Pte Ltd, effective February 2000,
Firstwave has established a more formal presence in Asia. Management believes
with the development of an internationalized product suite and a presence in a
growing market for customer relationship management products, the Company will
open a new channel for revenue.
SOFTWARE PRODUCTS
Firstwave actively markets three software applications: Firstwave eRM,
Takecontrol and Firstwave for UNIX. Firstwave eRM consists of eMarketing,
eSales, and eSupport and allows companies to build a secure and synchronized
view of their customers, channels, prospects and partners with one completely
integrated application.
The eRM application suite is a 100% web-based application that can be rapidly
deployed and highly customized. The Company believes that Internet technology,
the ability for a product to be customized easily and a quick implementation of
a customer relationship management application are essential criteria for
success in today's CRM marketplace.
Firstwave eSales extends the sales team to include inside users, mobile users,
remote users and indirect channel partners. It allows a company's extended sales
organization to manage existing customers and prospects for new business and
encourages cross-selling and up-selling opportunities. The current status of a
company's sales pipeline can be traced real-time and customized reports can be
created to provide senior management with information needed to make key
decisions. As in eMarketing, data accumulated through the eSales application is
available to users of other applications within the eRM suite.
Firstwave eMarketing delivers critical marketing information as part of the
comprehensive web-based suite. It empowers a company's marketing organization to
target an audience, manage campaigns, generate qualified leads and turn them
over to sales to close deals, thereby synthesizing its marketing with sales and
support data for a single secure and synchronized view of customers, channels,
prospects and partners.
Firstwave eSupport delivers critical support information as part of its
comprehensive web-based suite. It enhances the support process and revenue
stream by facilitating one-call issue resolution, allowing better opportunities
for cross-selling and up-selling to existing customers and enhancing the
maintenance collection process. eSupport tracks issues and enhancements, manages
and supports customer needs and service agreements and provides for the
escalation of issues to more senior support levels.
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ERM ARCHITECTURE
Firstwave eRM's object-oriented, open architecture, eFramework, has a
significant impact on usability, customization and deployment of the eRM product
suite. Metadata technology is used to configure the application and to capture
customizations. This means that Firstwave eRM is able to support users' business
processes without changing underlying source code.
SERVICES
The Company seeks to differentiate itself from other providers of marketing,
sales and support software by offering an array of specialized professional
services on a fee basis. Firstwave's services consist of (1) education and
training services, (2) implementation and customizations, and (3) 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, its London, England office 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 Firstwave eRM consists of Firstwave End User
Training, System Administrator Training and Customization Training (Level 1 and
Level 2). The classes may be conducted at Firstwave, the customer site or via
the Internet. End User Training is intended for individuals who will use any
application within the Firstwave eRM suite. System Administrator Training is for
technical and administrative professionals who will be required to setup,
maintain and administer the Firstwave eRM application. Customization Training is
for technical and administrative professionals who will be responsible for the
customization of Firstwave eRM. In order for distributors or customers to become
fully certified application integrators, they must attend all training sessions,
including both levels of Customization Training.
IMPLEMENTATION AND CUSTOMIZATIONS
Firstwave's Professional Services Organization (PSO) 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 training and other special processing
requirements related to the implementation of Firstwave eRM. Standard
professional services are offered to clients during the initial sales process
and PSO can be contracted for assistance with future enhancement projects.
Pricing is determined by the scope of the client requirements.
CUSTOMER SUPPORT
Firstwave's customer support group uses Firstwave products to track
individualized service. It provides Firstwave representatives with access to a
problem-tracking database that includes an online 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.
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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 REVENUES, PRICING AND MATERIAL TERMS FOR LICENSING AGREEMENTS
Software revenues consist of license fees for Firstwave eRM, Takecontrol and
Firstwave for Unix. The Company also receives revenues from third-party software
and various distributor agreements. Customers generally pay a license fee for
the software based upon the number of licensed users. Firstwave eRM also offers
customers several pricing alternatives that reflect the various ways it may be
deployed across the Internet throughout the extended enterprise. Perpetual
licenses are available on a per user model. Subscription pricing through remote
hosting services will provide organizations the opportunity to deploy the
application without the need for a high capital outlay. Remote hosting services
will also allow organizations to deploy the applications without the need for
internal hardware infrastructure or system administrative capabilities.
Takecontrol and Firstwave for Unix offer a pricing model based on concurrent
users.
The second component of the Company's revenues is services, which consists 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. Actual travel expenses are billed as incurred.
The Company's maintenance revenues are derived from the provision of: (1)
customer support in the form of customer services via communication channels,
and (2) updates and enhancements of products and related documentation.
Customers are provided maintenance and support 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 those
companies looking for an integrated marketing, sales and support solution.
Systems have been installed in many industries, including technology,
manufacturing, financial services, communications, travel, hospitality and
retail. The Company has licensed its products for thousands of users located in
13 countries with more than 200 customers currently subscribing to maintenance
services.
SALES AND MARKETING
The Company markets and sells its product and services through direct sales and
indirect channels to the North American marketplace. International marketing and
selling is accomplished by direct selling through the Company's United Kingdom
office and indirectly through Firstwave distributors. The North American and
International direct channel is supported by 19 sales and marketing
professionals as of December 31, 1999.
The North American Sales department, overseen by a senior level sales executive,
consists of Business Development Representatives (BDR) and Account Executives
(AE). The BDRs initiate contact with leads and qualify them using the telephone
and the Internet as primary tools. Qualified leads are turned over to AEs. The
Firstwave sales team conducts an Internet demonstration of the product, scopes
the
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requirements of the potential customer with professional services, assists in
providing a cost justification for the purchase and provides references before
closing business.
The Company's marketing department is responsible for generating leads and
promoting brand awareness and mind share among CRM industry professionals and
companies seeking a solution from this market. Primary marketing functions
include web-based direct marketing, traditional direct marketing, advertising,
public and analyst relations and other Internet-based marketing initiatives. The
Marketing department accomplishes many of its goals and objectives through use
of Firstwave eMarketing, an application included in the Company's flagship
product, Firstwave eRM.
Additionally, the Marketing department is responsible for product positioning
and strategy, general product marketing activities, 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 further the growth of Firstwave eRM by using it as a basis
for companies wanting to incorporate an Internet-based, integrated CRM solution
into their business processes. Firstwave's architecture, eFramework, with its
object orientation, adherence to Microsoft standards, incorporation of emerging
web technologies and ASP optimization, facilitates this approach. The Internet
technology embedded within eFramework also allows information residing in
Firstwave eRM to be accessed by wireless Personal Digital Assistants (PDA's).
The technology will be taken international this year as the next version of
Firstwave eRM contains internationalization features, allowing the product to
support multiple languages as well as have multiple currency capabilities.
Relational database management systems supported by Firstwave are Microsoft SQL
Server, Oracle and Microsoft Access.
In June 1999, the Company released 3.0 version of Firstwave eRM, which contained
the extensive tool set, eWorkbench, for customizations. Firstwave partnered with
Sterling Software in September of 1999, enabling the Company to provide a
best-of-breed reporting tool for Firstwave users. At the end of 1999, Firstwave
released the integrated application, Firstwave eRM, complete with marketing,
sales and support.
COMPETITION
The Company faces competition from a multitude of software vendors, including
existing CRM vendors, new web-based CRM vendors and ERP vendors who have
penetrated the CRM industry through acquisitions or product development.
The primary competitors for the Company are Onyx, Pivotal and SalesLogix. These
companies have a middle market focus and offer comprehensive "full solution"
packages which include marketing, sales, and support. These companies also have
integrated some Internet technology into their products and have customization
capabilities within their product sets. The ASP model is also being evaluated by
the afore-mentioned companies.
YouCentric, formerly SalesVision, and Silknet are other CRM vendors who are
viewed as competitors of the Company due to the Internet technology used in
their products. Both companies, it should be noted, do have an upper-tier market
strategy compared to the Company's middle market focus with its product. Siebel
Systems, due to its large international presence and market share, is also a
competitor of the Company. There are also hundreds of vendors addressing the
needs evident in this industry, including specialists who provide cross-industry
solutions and vertically focused solutions, such as pharmaceuticals or finance.
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The Company competes on product flexibility, Internet technology, product
intuitiveness, off-site hosting options, distributor strategies, value, and
heavy emphasis on customer and partner service and support. Management believes
the Company competes favorably with respect to these factors. There can be no
assurance that the Company will be able to achieve the innovative product
development and marketshare necessary to maintain competitive advantage.
PROPRIETARY RIGHTS AND LICENSES
The Company 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, 1999, the Company employed 93 persons, including 19 sales and
marketing professionals, 37 service and support representatives, 16
administrative personnel and 21 persons involved in product innovation and
development. Management believes that the Company's future growth and success
will rely on its ability to retain and attract highly skilled and motivated
personnel in all areas of its operations.
ITEM 2. PROPERTIES.
As of December 31, 1999 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 6,000 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.
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<CAPTION>
1999 First Second Third Fourth 1998 First Second Third Fourth
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High $3.25 $2.50 $8.63 $4.25 High $5.63 $5.13 $5.13 $3.88
Low $1.75 $1.38 $1.50 $1.94 Low $4.31 $4.25 $2.50 $1.63
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As of December 31, 1999 there were approximately 107 shareholders of record and
approximately 4,200 persons or entities that hold common stock in nominee name.
There were no common stock dividends declared during 1999 or 1998.
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.
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<CAPTION>
For the Year Ended December 31,
(In thousands, except per share amounts)
1999 1998 1997 1996 1995
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Net revenues $ 11,193 $ 14,537 $ 15,848 $ 23,222 $ 28,001
Loss before income taxes (1,912) (3,034) (1,377) (10,115) (4,928)
Income tax (provision) benefit (40) (91) (133) 1,055 1,837
Net loss (1,952) (3,125) (1,510) (9,060) (3,091)
Net loss applicable to common shareholders (2,075) (3,125) (1,510) (9,060) (3,091)
Basic and diluted net loss per share (0.40) (0.61) (0.30) (1.81) (0.63)
Total assets 12,023 11,322 14,286 18,367 26,045
Total non current liabilities -- -- -- 125 --
Common stock subject to repurchase $ -- $ -- $ 300 $ -- $ --
Basic and diluted weighted average
shares outstanding 5,250 5,125 5,035 5,000 4,932
</TABLE>
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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 1998 to 1999. Certain percentage columns do not add to 100% due to
rounding.
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Year Ended December 31,
------------------------------------------------ % Change
(in thousands) 1999 1998 1998 to 1999
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Revenues
Software $ 2,430 21.7% $ 3,528 24.3% -31.1%
Services 3,422 30.6% 5,035 34.6% -32.0%
Maintenance 4,923 44.0% 5,431 37.4% -9.4%
Other 418 3.7% 543 3.7% -23.0%
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Net revenues 11,193 100.0% 14,537 100.0% -23.0%
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Costs and expenses
Cost of revenues
Software 920 8.2% 744 5.1% 23.7%
Services 2,400 21.4% 3,566 24.5% -32.7%
Maintenance 1,494 13.3% 1,643 11.3% -9.1%
Other 395 3.5% 500 3.4% -21.0%
Sales and marketing 3,612 32.3% 5,983 41.2% -39.6%
Product development 1,618 14.5% 2,080 14.3% -22.2%
General & administrative 2,789 24.9% 3,233 22.2% -13.7%
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Operating loss (2,035) -18.2% (3,212) -22.1% -36.6%
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Interest income net 123 1.1% 178 1.2% -30.9%
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Loss before income taxes $ (1,912) -17.1% $ (3,034) -20.9% -37.0%
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</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.
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1999 COMPARED TO 1998
The year ended December 31, 1999 was a year of transition for the Company, from
a software company that was dependent on its legacy product, Takecontrol, to an
Internet business being driven by its web-based product, Firstwave eRM (formerly
known as Netgain Sales). Although the year began with declining revenues from
existing product lines, the Company had innovative new products in development
which were released throughout the year. During 1999 the Company gained industry
recognition, new business partners, renewed investor interest, and a growing
revenue stream from a suite of new products.
Total revenues decreased 23.0% from $14,537,000 in 1998 to $11,193,000 in 1999
mainly due to decreases in software and services revenues. Software revenue
decreased 31.1% from $3,528,000 in 1998 to $2,430,000 in 1999 primarily as a
result of declining sales related to the Takecontrol product and a slower than
expected ramp-up in sales related to the Firstwave eRM product. Also, the
Company chose to price the new product at introductory prices resulting in a
lower average deal price compared to the Takecontrol product. Revenues from
international software licenses decreased 53.6% from $2,848,000 in 1998 to
$1,321,000 in 1999, and decreased as a percentage of total revenues from 19.6%
in 1998 to 11.8% in 1999 due to decreased sales by International distributors.
During 1999 international license revenues were primarily from system expansions
of existing Takecontrol customers. Release of an internationalized (language and
currency) version of Firstwave eRM is expected in 2000. Although international
license revenue decreased, total revenues from international sources, which
includes maintenance, software license fees and customizations remained
consistent at 52.5% of total revenues in 1999 compared to 52.7% in 1998, due to
additional revenues provided by Firstwave UK. During 1999 Firstwave UK was a
wholly owned subsidiary for the entire twelve month period compared to eight
months during 1998 following the April 30, 1998 acquisition.
Services revenues decreased 32.0% from $5,035,000 in 1998 to $3,422,000 in 1999.
The decrease in services revenue is consistent with the decrease in software
license revenue as the Company typically provides separate implementation and
training services at the time of software sales. Maintenance revenues remained
strong in 1999 with a decrease of only 9.4% from $5,431,000 in 1998 to
$4,923,000 in 1999 primarily as the result of declining sales of the Takecontrol
product.
Costs of software revenues increased 23.7% from $744,000 in 1998 to $920,000 in
1999 and, as a percentage of software revenues, increased from 21.1% in 1998 to
37.9% in 1999. The increases were primarily due to increased amortization costs
in 1999 related to releases of Firstwave eRM. Costs of software revenues include
costs of third-party software, amortization of capitalized software, and costs
of packaging, media and documentation materials.
Costs of revenues for services decreased 32.7% from $3,566,000 in 1998 to
$2,400,000 in 1999. The decrease is related to decreases in the number of
service personnel and related costs due to changes implemented by management as
a result of lower services and license revenues. Costs of revenues for services
as a percentage of services revenues remained constant at 70.1% in 1999 compared
to 70.8% in 1998. Costs of revenues for maintenance decreased 9.1% from
$1,643,000 in 1998 to $1,494,000 in 1999. The decrease in maintenance cost is
primarily due to decreased royalty costs related to decreased maintenance
revenues generated by international distributors. Costs of revenues for
maintenance as a percentage of maintenance revenues remained constant at 30.3%.
Sales and marketing expenses decreased 39.6% from $5,983,000 in 1998 to
$3,612,000 in 1999, and decreased as a percentage of total revenues from 41.2%
in 1998 to 32.3% for 1999. The decrease is primarily due to decreases in sales
commissions to third party distributors as a result of decreased software
license revenues. The Company has also made changes to its marketing plan,
decreasing costs in trade shows and travel by using the Company's website and
other automated approaches to obtain sales leads.
The Company's product innovation and development expenditures, which includes
amounts capitalized, increased 52.6% from $2,280,000 in 1998 to $3,479,000 in
1999, and increased as a percentage of total
11
<PAGE> 12
revenues from 15.7% in 1998 to 31.1% in 1999. Software development costs
capitalized increased from $200,000 in 1998 to $1,861,000 in 1999. These
increases are related to continued development of Firstwave eRM. The Company
expects that the additional versions of Firstwave eRM will further improve the
product's viability in the CRM market.
General and administrative expenses decreased 13.7% from $3,233,000 in 1998 to
$2,789,000 in 1999 primarily due to lower administrative expenses related to
overall reduced staff levels and decreases in professional services and bad debt
expense. The year over year decrease is inclusive of the additional costs
associated with maintaining the London office and demonstrates the Company's
effective implementation of cost cutting initiatives.
Interest income decreased 30.9% from $178,000 in 1998 to $123,000 in 1999 due to
fluctuations in invested cash balances.
1998 COMPARED TO 1997
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
12
<PAGE> 13
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.
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.
BALANCE SHEET
Net accounts receivable decreased 38.4% from $3,146,000 at December 31, 1998 to
$1,937,000 at December 31, 1999 primarily due to lower revenues. Property and
equipment decreased 38.6% from $1,501,000 at December 31, 1998 to $922,000 at
December 31, 1999 due to year to date depreciation and disposals, offset by
additional fixed asset purchases. Intangible assets, which represents goodwill
related to the 1998 acquisition of Firstwave UK, decreased 26.1% from $644,000
at December 31, 1998 to $476,000 at December 31, 1999 due to amortization.
Capitalized software increased 149.1% from $770,000 at December 31, 1998 to
$1,918,000 at December 31, 1999 due to additional capitalization of $1,861,000
in development costs net of $713,000 in amortization. Accounts payable decreased
57.9% from $1,354,000 at December 31, 1998 to $570,000 at December 31, 1999
consistent with the decrease in operating expenses. Accrued employee
compensation and benefits decreased 39.1% from $284,000 at December 31, 1998 to
$173,000 at December 31, 1999 due to compensation and benefits associated with
fewer employees. Dividends payable at December 31, 1999 were $123,000 related to
the issuance of preferred stock during 1999. There were no dividends payable in
the comparable period of 1998.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, the Company had cash and cash equivalents of $2,029,000
and investments of $1,631,000. The Company historically has been financed from
operations and sales of equity instruments. The Company had no line of credit
payable or notes payable outstanding at December 31, 1999.
During 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 September
15, 2000, bears interest at prime rate but increases to prime plus .50% if the
Company fails to attain certain quarterly financial targets. The line of credit
is secured by the assets of the Company.
The Company issued 20,000 shares of Series A Preferred Stock for $2.0 million
during the second quarter of 1999 and 500,000 shares of unregistered restricted
Common Stock for $1.5 million during the third quarter of 1999.
Management believes that its present liquidity position, recent equity infusions
and the expected cash flow from operations are sufficient to finance the
Company's operations during 2000 and beyond.
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.
13
<PAGE> 14
YEAR 2000
The Company's current product lines are year 2000 compliant. All of the
Company's customers were notified of the availability of a year 2000 compliant
version of the Company's product and the Company assisted its customers in
migrating to current product versions as requested. 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.
As of December 31, 1999 all internal systems had been addressed and the Company
was completely year 2000 compliant. There have been no material issues related
to year 2000 in the Company's products or internal systems as of March 23, 2000.
QUARTERLY FINANCIAL DATA (UNAUDITED)
The table below sets forth certain unaudited operating results for each of the
eight quarters in the two-year period ended December 31, 1999. 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
3/31/99 6/30/99 9/30/99 12/31/99 3/31/98 6/30/98 9/30/98 12/31/98
---------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues $ 3,462 $ 2,700 $ 2,543 $ 2,488 $ 3,610 $ 3,738 $ 3,762 $ 3,427
Operating loss (854) (397) (433) (351) (610) (725) (855) (1,022)
Net loss (840) (396) (402) (314) (573) (717) (826) (1,009)
Net loss applicable to
common shareholders (840) (426) (447) (362) (573) (717) (826) (1,009)
Basic and diluted
loss per share (0.16) (0.08) (0.08) (0.06) (0.11) (0.14) (0.16) (0.20)
</TABLE>
14
<PAGE> 15
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) on page 31 present fairly, in all material
respects, the financial position of Firstwave Technologies, Inc. and its
subsidiary at December 31, 1999 and 1998, and the results of their operations,
changes in shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1999, in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedule listed in the index under Item 14(a)2 on page 31 presents fairly, in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule 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
January 31, 2000
15
<PAGE> 16
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 2,029 $ 2,245
Investment securities, held to maturity 1,631 --
Accounts receivable, less allowance for doubtful
accounts of $345 and $425 1,937 3,146
Deferred tax asset 200 200
Prepaid expenses and other assets 289 195
-------- --------
Total current assets 6,086 5,786
Property and equipment, net 922 1,501
Software development costs, net 1,918 770
Intangible asset 476 644
Deferred tax asset 2,621 2,621
-------- --------
$ 12,023 $ 11,322
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 570 $ 1,354
Sales tax payable 152 265
Deferred revenue 1,519 1,581
Accrued employee compensation and benefits 173 284
Dividends payable 123 --
Other accrued liabilities 78 78
-------- --------
Total current liabilities 2,615 3,562
-------- --------
Commitments and contingencies
Shareholders' equity
Preferred stock, no par; 1,000,000 shares authorized;
20,000 shares issued and outstanding; $100 per share
liquidation preference 2,000 --
Common stock, stated value, $.0019 per share; 10,000,000
shares authorized; 5,740,283 and 5,151,322 shares
issued and outstanding 11 10
Additional paid-in capital 21,574 19,813
Cumulative translation account (5) 34
Accumulated deficit (14,172) (12,097)
-------- --------
9,408 7,760
-------- --------
$ 12,023 $ 11,322
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
16
<PAGE> 17
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
1999 1998 1997
<S> <C> <C> <C>
Net revenues
Software $ 2,430 $ 3,528 $ 5,239
Services 3,422 5,035 4,810
Maintenance 4,923 5,431 5,189
Other 418 543 610
-------- -------- --------
11,193 14,537 15,848
Costs and expenses
Cost of revenues
Software 920 744 675
Services 2,400 3,566 3,528
Maintenance 1,494 1,643 1,687
Other 395 500 606
Sales and marketing 3,612 5,983 6,012
Product development 1,618 2,080 2,003
General and administrative 2,789 3,233 2,186
In process research and development -- -- 696
-------- -------- --------
Operating loss (2,035) (3,212) (1,545)
Interest income, net 123 178 168
-------- -------- --------
Loss before income taxes (1,912) (3,034) (1,377)
-------- -------- --------
Income tax provision (40) (91) (133)
-------- -------- --------
Net loss $ (1,952) $ (3,125) $ (1,510)
-------- -------- --------
Dividends on preferred stock (123) -- --
-------- -------- --------
Net loss applicable to common shareholders $ (2,075) $ (3,125) $ (1,510)
======== ======== ========
Basic and diluted net loss per share $ (0.40) $ (0.61) $ (0.30)
======== ======== ========
Basic and diluted weighted average
shares outstanding 5,250 5,125 5,035
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
17
<PAGE> 18
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
UNREALIZED COMPRE-
COMMON STOCK PREFERRED STOCK ADDITIONAL GAIN/(LOSS) HENSIVE
------------------- ----------------- PAID-IN ON INVESTMENT INCOME
SHARES AMOUNT SHARES AMOUNT CAPITAL SECURITIES (LOSS)
-------- -------- ------- ------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 4,936,555 $ 9 -- $ -- $ 18,909 $(14) $ --
Exercise of common stock options 88,899 -- 281 -- --
Employee stock purchases 7,573 -- 25 -- --
Issuance of stock options -- -- 114 -- --
Net loss -- -- -- -- -- -- --
--------- ------ ------ ------ -------- ---- -------
Balance at December 31, 1997 5,033,027 9 -- -- 19,329 (14) --
Exercise of common stock options 34,511 -- 112 -- --
Employee stock purchases 6,081 -- 19 -- --
Issuance of stock options -- -- 7 -- --
Issuance of stock in connection
with Net gain acquisition 77,703 1 346 -- --
Realized loss on investment
securities -- -- -- 14 --
Comprehensive loss
Net loss -- -- -- -- (3,125)
Foreign currency translation adjustment -- -- -- -- 34
-------
Comprehensive loss (3,091)
-------
--------- ------ ------ ------ -------- ----
Balance at December 31, 1998 5,151,322 10 -- -- 19,813 --
Series A convertible preferred stock 20,000 2,000
Exercise of common stock options 84,066 243 -- --
Employee stock purchases 4,895 9 -- --
Issuance of stock and warrants 500,000 1 1,509 -- --
Comprehensive loss
Net loss -- -- -- -- -- -- (2,075)
Foreign currency translation adjustment -- -- -- -- -- -- (39)
-------
Comprehensive loss $(2,114)
-------
--------- ------ ------ ------ -------- ----
Balance at December 31, 1999 5,740,283 $ 11 20,000 $2,000 $ 21,574 $ --
--------- ------ ------ ------ -------- ----
<CAPTION>
Accumulated
other
comprehensive Accumulated
income/(loss) deficit Total
------------- ------- -------
<S> <C> <C> <C>
Balance at December 31, 1996 $ -- $(7,462) $ 11,442
Exercise of common stock options -- -- 281
Employee stock purchases -- -- 25
Issuance of stock options -- -- 114
Net loss -- (1,510) (1,510)
------ ------- -------
Balance at December 31, 1997 -- (8,972) 10,352
Exercise of common stock options -- -- 112
Employee stock purchases -- -- 19
Issuance of stock options -- -- 7
Issuance of stock in connection
with Net gain acquisition -- -- 347
Realized loss on investment
securities -- -- 14
Comprehensive loss
Net loss -- (3,125) (3,125)
Foreign currency translation adjustment 34 -- 34
Comprehensive loss
------ ------- -------
Balance at December 31, 1998 34 (12,097) 7,760
Series A convertible preferred stock 2,000
Exercise of common stock options -- -- 243
Employee stock purchases -- -- 9
Issuance of stock and warrants -- -- 1,510
Comprehensive loss
Net loss -- (2,075) (2,075)
Foreign currency translation adjustment (39) -- (39)
Comprehensive loss
------ -------- -------
Balance at December 31, 1999 $ (5) $(14,172) $ 9,408
------ -------- -------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
18
<PAGE> 19
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
1999 1998 1997
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $(1,952) $(3,125) $ (1,510)
Adjustments to reconcile net loss to net cash
provided by operating activities
Depreciation and amortization 1,670 1,741 1,565
Write off in process research and development -- -- 696
(Gain)/loss on disposal of fixed assets 71 (13) 142
Provision for bad debts 81 83 22
Deferred income taxes -- -- (65)
Stock compensation 10 7 114
Changes in assets and liabilities (net of acquisition)
Accounts receivable 1,119 (182) 1,051
Prepaid expenses and other assets (94) 121 (46)
Accounts payable (783) 146 (148)
Accrued restructuring -- (325) (786)
Sales tax payable (112) 2 (115)
Deferred revenue (62) (114) 81
Accrued employee compensation and benefits (111) (361) (66)
Other accrued liabilities -- 59 (78)
------- ------- --------
Total adjustments 1,789 1,164 2,367
------- ------- --------
Net cash provided by (used in) operating activities (163) (1,961) 857
------- ------- --------
Cash flows from investing activities
Software development costs (1,861) (200) --
Business acquisitions -- (246) (697)
Purchases of property and equipment,net (309) (496) (261)
Purchase of investment securities (1,631) (9,394) (16,155)
Proceeds from sale of investment securities -- 9,408 19,755
------- ------- --------
Net cash provided by (used in) investing activities (3,801) (928) 2,642
------- ------- --------
Cash flows from financing activities
Proceeds from issuance of preferred stock 2,000 -- --
Proceeds from issuance of common stock 1,500 -- --
Exercise of common stock options 243 112 281
Proceeds from employee stock purchase plan 9 19 25
Borrowing from/(repayment to) line of credit, net -- -- (1,975)
Proceeds from/(repayments to) note payable, net -- -- (208)
------- ------- --------
Net cash provided by (used in) financing activities 3,752 131 (1,877)
------- ------- --------
Effect of exchange rate changes on cash (4) 34 --
Net increase (decrease) in cash (216) (2,724) 1,622
Cash and cash equivalents, beginning of year 2,245 4,969 3,347
------- ------- --------
Cash and cash equivalents, end of year $ 2,029 $ 2,245 $ 4,969
------- ------- --------
Supplemental disclosure of cash flow information
Cash paid during the year for interest $ -- $ 1 $ 84
------- ------- --------
Cash paid for income taxes $ 40 $ 91 $ 198
------- ------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
19
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Firstwave Technologies, Inc. (the "Company") is a provider of Internet
customer relationship management solutions. The Firstwave eRM
(Internet Relationship Management) Suite is a seamlessly integrated,
100% web-based suite of applications created to fulfill and manage the
e-business relationship needs of a company in the areas of sales,
marketing, and support.
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% to 60% 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
and commercial paper. Credit risk from concentration of trade
receivables is minimized as a result of the 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.
20
<PAGE> 21
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 held-to-maturity based on their intent and ability to
hold the securities and accordingly, the Company recorded the
investment securities at cost. The investment securities will mature
in February, 2000.
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 possible that those estimates of anticipated product
revenues, the remaining estimated economic life of the product, or
both could be reduced due to changing technologies.
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.
BASIC AND DILUTED NET LOSS PER COMMON SHARE
Basic net loss per common share is based on the weighted average
number of shares of common stock outstanding during the period. Stock
options and convertible preferred stock would have been included in
the diluted net loss per share calculation had they not been
antidilutive. Net loss applicable to common shareholders includes a
charge for dividends related to the Company's outstanding convertible
preferred stock.
21
<PAGE> 22
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 was
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 of
net 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 four of 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 per 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,
1999 1998
<S> <C> <C>
Computer hardware and other equipment $ 3,377 $ 4,140
Furniture and fixtures 1,037 979
Purchased software 1,106 1,098
------- -------
5,520 6,217
Less: Accumulated depreciation and amortization (4,598) (4,716)
------- -------
$ 922 $ 1,501
======= =======
</TABLE>
22
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS
Depreciation and amortization of property and equipment totaled
approximately $808,000, $1,119,000, and $1,146,000 in 1999, 1998 and
1997, respectively.
4. PRODUCT DEVELOPMENT EXPENSES
Product development expenses are summarized as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
<S> <C> <C> <C>
Total development expenses $3,479 $2,280 $2,003
Less: Additions to capitalized software
development before amortization 1,861 200 --
------ ------ ------
Product development expenses $1,618 $2,080 $2,003
====== ====== ======
</TABLE>
The activity in the capitalized software development account is
summarized as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
<S> <C> <C> <C>
Balance at beginning of year, net $ 770 $ 1,089 $ 1,508
Additions 1,861 200 --
Amortization expense (713) (519) (419)
------- ------- -------
Balance at end of year, net $ 1,918 $ 770 $ 1,089
======= ======= =======
</TABLE>
5. BORROWINGS
In March 1998, the Company and its bank executed a $3,000,000 line of
credit arrangement. The line of credit, which expires September 15,
2000, bears interest at prime rate but increases to prime plus .50% if
the Company fails to attain certain quarterly financial targets. The
line of credit agreement is secured by the assets of the Company.
There were no borrowings against the line of credit as of December 31,
1999.
6. SHAREHOLDERS' EQUITY
During the third quarter of 1999, the Company issued, in a private
placement to an institutional accredited investor, 500,000
unregistered restricted shares of authorized Common Stock at $3.00 per
share for an aggregate amount of $1,500,000.
During the second quarter of 1999, the Company issued 20,000 shares of
Series A Convertible Preferred Stock in a private placement to two
officers. The Company received $1,000,000 in March 1999 and $1,000,000
in April 1999 related to this offering. The Preferred Stock has voting
rights and accumulates dividends at a rate of 9% payable annually when
declared by the Board of Directors and are convertible into Common
Stock of the Company at anytime after April 25, 2000, at a conversion
rate of $2.06 per share of Common Stock. The preferred stock has a
liquidation preference of $100 per share plus all accrued and unpaid
dividends and becomes redeemable at $100 per share at the option of
the Board of Directors after April 26, 2001. At December 31, 1999
23
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS
there were $123,000 dividends payable related to the Preferred Stock,
which were paid in January 2000.
7. INCOME TAXES
The components of the provision for income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
<S> <C> <C> <C>
Current
Foreign $40 $ 91 $ 198
Deferred
Federal -- -- (55)
State -- -- (10)
Foreign -- -- --
--- ---- -----
$40 $ 91 $ 133
=== ==== =====
</TABLE>
The difference between the 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,
1999 1998 1997
<S> <C> <C> <C>
Federal statutory tax rate -34.0% -34.0% -34.0%
State income taxes, net of federal benefit -4.0% -3.1% -5.5%
Change in valuation allowance 12.9% 32.2% 37.2%
Foreign income taxes 2.1% 2.9% 14.4%
Other 25.0% 4.9% -2.4%
----- ---- ----
2.1% 2.9% 9.7%
===== ==== ====
</TABLE>
24
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS
At December 31, 1999 and 1998, deferred tax (assets) liabilities are
comprised of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1999 1998
<S> <C> <C>
Gross deferred tax liabilities
Capitalization of software development costs $ 728 $ 293
Depreciation 231 213
Other 93 --
------- -------
1,052 506
------- -------
Gross deferred tax assets
Net operating loss carryforwards (8,046) (7,195)
Tax credit carryforwards (288) (288)
In process research and development (229) (247)
Allowance for doubtful accounts receivable (151) (162)
Accrued expenses (50) (38)
Other (72) (114)
------- -------
(8,836) (8,044)
Valuation allowance 4,963 4,717
------- -------
(3,873) (3,327)
Net deferred tax assets (2,821) (2,821)
Less: Current portion 200 200
------- -------
$(2,621) $(2,621)
======= =======
</TABLE>
At December 31, 1999, 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 $20,870,000 which expire in years 2009 through 2014.
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. Management's estimate of the valuation allowance could be
affected in the near term based on results of operations in future
periods.
8. 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 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 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 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.
25
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS
At December 31, 1999, 417,073 options were available for grant and
623,447 options were outstanding related to the Option 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, 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
Granted 634,200 1.59 - 5.00 3.26 2.31
Exercised (67,398) 2.56 - 5.00 3.14
Canceled or expired (1,000,402) 1.59 - 5.00 3.22
---------
Outstanding at December 31, 1999 623,447 1.59 - 5.00 3.49
=========
Options exercisable
at December 31, 1999 112,295 3.59
=========
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1999:
<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
1999 Life Price 1999 Price
<S> <C> <C> <C> <C> <C>
$1.59 - $3.25 230,897 8.11 $2.48 75,583 $2.99
$3.69 - $4.00 292,700 9.53 3.82 0 -
$4.69 - $5.00 99,850 7.72 4.82 36,712 4.81
------- --------
$1.59 - $5.00 623,447 8.71 3.49 112,295 3.59
======= ========
</TABLE>
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 was
62,500 options per year from the date of grant. The vesting period for
the remaining 250,000 options was the earlier of the year 2002 or, if
the Company's stock price reached certain targets, vesting would occur
in blocks of 50,000 options for each target price met. The option
exercise price equaled the market price on the date of grant and,
correspondingly, compensation expense was not recognized. As of
December 31, 1999, 125,000 of these options had been
26
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS
exercised and 375,000 were cancelled as of December 31, 1999 when the
officer was no longer employed by the Company.
9. 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 1999 and
1998, 4,895 and 6,081 shares, respectively, were issued under the ESP.
At December 31, 1999, 53,627 shares had been issued cumulatively under
the plan and options to purchase 404 shares were outstanding.
10. 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 1999, 1998 and
1997 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,
1999 1998 1997
<S> <C> <C> <C>
Net loss applicable to common shareholders
As reported $ (2,075) $ (3,125) $ (1,510)
Pro forma (2,267) (3,478) (1,825)
Net loss per share
Basic and diluted
As reported (0.40) (0.61) (0.30)
Pro forma (0.43) (0.68) (0.36)
</TABLE>
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 1999, 1998 and 1997, respectively: dividend yield of 0% for
all years; expected volatility of 92%, 71%, and 52%, risk-free
interest rate ranging from 4.78% 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, 1999,
1998 and 1997, $10,000, $7,000 and $109,000 respectively, was recorded
to expense related to options and warrants granted to non-employees.
27
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS
11. COMMITMENTS AND CONTINGENCIES
The Company leases office space, equipment and automobiles under
noncancelable lease agreements expiring on various dates through 2005.
At December 31, 1999, future minimum rentals for noncancelable leases
are as follows (in thousands):
<TABLE>
<CAPTION>
MINIMUM
YEAR ENDING ANNUAL
DECEMBER 31, RENTALS
<S> <C>
2000 $ 1,050
2001 $ 1,029
2002 $ 991
2003 $ 962
2004 $ 775
2005 $ 483
--------
$ 5,290
========
</TABLE>
Net rent expense under these and other agreements was approximately
$1,056,000, $619,000, and $627,000 for the years ended December 31,
1999, 1998 and 1997, respectively. Rent expense was offset by rental
income from subleased office space in the amounts of $46,000,
$295,000, and $93,000, for the years ended December 31, 1999, 1998,
and 1997 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.
12. 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, 1999, 1998 and 1997,
the Company made matching contributions of approximately $34,500,
$59,100, and $66,400, respectively, to the 401(k) Plan and no
discretionary contributions.
28
<PAGE> 29
NOTES TO FINANCIAL STATEMENTS
13. 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,
1999 1998 1997
<S> <C> <C> <C>
United States $ 5,318 $ 6,877 $10,470
Europe 5,026 6,341 3,962
South America 50 714 193
Australia and New Zealand 787 501 595
Asia -- 68 410
South Africa 12 36 218
------- ------- -------
$11,193 $14,537 $15,848
======= ======= =======
</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 $211,000, or 22.9% of the consolidated balance, are
domiciled in the United Kingdom.
14. 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. 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.
15. RELATED PARTY TRANSACTIONS
During 1997 the Company entered into an agreement with a significant
shareholder relating to a contract for $150,000 in professional
services provided by a third party. As of December 31, 1997, there
were no outstanding payables/receivables with the shareholder relating
to this transaction.
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 1998 payments were made according to a
contract dated January 1, 1998. This thirty-month contract requires
payments of royalties on a quarterly basis with a minimum payment of
$36,750 per quarter.
29
<PAGE> 30
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 9, 2000.
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 9, 2000.
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 9, 2000.
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 9, 2000.
30
<PAGE> 31
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
- Consolidated Balance Sheet at December 31, 1999 and
December 31, 1998
- Consolidated Statement of Operations for the three
years ended December 31, 1999
- Consolidated Statement of Changes in Shareholders'
Equity for the three years ended December 31, 1999
- Consolidated Statement of Cash Flows for the three
years ended December 31, 1999
- Notes to Financial Statements
2. Financial Statement Schedules
- Schedule II - Valuation and Qualifying Accounts, for
the three years ended December 31, 1999
31
<PAGE> 32
<TABLE>
<CAPTION>
3. Exhibits
<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.
10.3 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)). (7)
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)
10.9 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) (7)
10.15 Option Agreement, dated July 25, 1997, between the Company and Netgain
Corporation.(4)
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)
10.18 Eighth Amendment to Lease Agreement dated as of May 8, 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. (5)
</TABLE>
32
<PAGE> 33
<TABLE>
<S> <C>
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)). (7)
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)). (7)
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)). (7)
10.22 Ninth Amendment to Lease Agreement dated as of February 3, 2000
between the Company and National Office Partners Limited Partnership
relating to the Company's principal offices located at 2859 Paces
Ferry Road, Atlanta, GA.
10.23 Tenth Amendment to Lease Agreement dated as of February 28, 2000
between the Company and National Office Partners Limited Partnership
relating to the Company's principal offices located at 2859 Paces
Ferry Road, Atlanta, GA.
13 1999 Annual Report to Shareholders.
23 Consent of Independent Accountants. See page 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 of the same number in the
Company's Form 10-K for the year ended December 31, 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.
(7)Management contract or compensatory plan or arrangement required to be filed
pursuant to Item 14(c) of Form 10-K.
(b) Form 8-K:
None
33
<PAGE> 34
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference the Registration Statements
on Form S-3 (No. 333-46319, and No. 333-83417) 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 January 31, 2000 appearing on page 15 of this Form 10-K.
PricewaterhouseCoopers LLP
Atlanta, Georgia
March 29, 2000
34
<PAGE> 35
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 27, 2000 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.
Date: March 27, 2000 /s/ Richard T. Brock
-------------------------------------------
Richard T. Brock
President and Chief Executive Officer
(Principal Executive Officer)
Date: March 27, 2000 /s/ Judith A. Vitale
-------------------------------------------
Judith A. Vitale
Vice President Finance and Administration
(Principal Financial and Accounting Officer)
Date: March 27, 2000 /s/ James R. Porter
-------------------------------------------
James R. Porter
Chairman
Date: March 27, 2000 /s/ Roger A. Babb
-------------------------------------------
Roger A. Babb
Director
Date: March 27, 2000 /s/ John F. Keane
-------------------------------------------
John F. Keane
Director
Date: March 27, 2000 /s/ Michael T. McNeight
-------------------------------------------
Michael T. McNeight
Director
35
<PAGE> 36
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1999
(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 $ 425 $ 81 $ 161 $ 345
========== ============ ========== ==========
Tax asset valuation allowance $ 4,717 $ 246 $ 0 $ 4,963
========== ============ ========== ==========
</TABLE>
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
========== ========== ========= ==========
</TABLE>
FOR THE YEAR ENDED DECEMBER 31, 1997
(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 $ 1,971 $ 22 $ 1,290 $ 703
========== ========== ========= =========
Tax asset valuation allowance $ 3,195 $ 515 $ 0 $ 3,710
========== ========== ========= =========
</TABLE>
36
<PAGE> 37
EXHIBIT INDEX
37
<PAGE> 38
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
Number Description 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 N/A
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 N/A
Articles of Incorporation and Amended and Restated By-Laws of the
Company defining rights of holders of Common Stock of the Company.
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 N/A
Plan (incorporated herein by reference to Exhibit 4(a) of the
Company's Registration Statement on Form S-8 (Registration No.
333-55939)). (7)
10.5 Tax Indemnification Agreement dated February 4, 1993 among the Company N/A
and certain of its shareholders.(2)
10.6 Form of Selective Distribution Agreement for International N/A
Distributors. (1)
10.7 Form of Software License Agreement.(1) N/A
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 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.(2)
10.11 Fourth Amendment to Lease Agreement dated as of June 24, 1993 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.(2)
10.12 Fifth Amendment to Lease Agreement dated as of March 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.(2)
10.13 Sixth Amendment to Lease Agreement dated as of September 22, 1994 N/A
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. N/A
(incorporated herein by reference to Exhibit 4(a) of the Company's
Registration Statement on Form S-8 (Registration No. 333-55971)). (7)
10.15 Option Agreement, dated July 25, 1997, between the Company and Netgain N/A
Corporation.(4)
10.17 Seventh Amendment to Lease Agreement dated as of January 20, 1998 N/A
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>
38
<PAGE> 39
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
- ------ ----------- ------
<S> <C> <C>
10.18 Eighth Amendment to Lease Agreement dated as of May 8, 1998 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. (5)
10.19 First Amendment to Firstwave Technologies, Inc. 1993 Stock Option Plan N/A
(incorporated herein by reference to Exhibit 4(c) of the Company's
Registration Statement on Form S-8 (Registration No. 333-55939)). (7)
10.20 First Amendment to Firstwave Technologies, Inc. Employee Stock N/A
Purchase Plan (incorporated herein by reference to Exhibit 4(b) of the
Company's Registration Statement on Form S-8 (Registration No.
333-55971)). (7)
10.21 Board of Directors Compensation Plan (incorporated herein by reference N/A
to Exhibit 4(b) of the Company's Registration Statement on Form S-8
(Registration No. 333-55939)). (7)
10.22 Ninth Amendment to Lease Agreement dated as of February 3, 2000 40
between the Company and National Office Partners Limited Partnership
relating to the Company's principal offices located at 2859 Paces
Ferry Road, Atlanta, GA.
10.23 Tenth Amendment to Lease Agreement dated as of February 28, 2000 45
between the Company and National Office Partners Limited Partnership
relating to the Company's principal offices located at 2859 Paces
Ferry Road, Atlanta, GA. N/A
13 1999 Annual Report to Shareholders. 56
23 Consent of Independent Accountants. See page immediately preceding the 34
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 of the same number in the
Company's Form 10-K for the year ended December 31, 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.
(7) Management contract or compensatory plan or arrangement required to be
filed pursuant to Item 14(c) of Form 10-K.
39
<PAGE> 40
EXHIBIT 10.22
40
<PAGE> 1
EXHIBIT 10.22
NINTH AMENDMENT TO LEASE
THIS NINTH AMENDMENT TO LEASE (this "Amendment"), made and entered into
as of the _3rd___ day of ___February__________, 2000, by and between NATIONAL
OFFICE PARTNERS LIMITED PARTNERSHIP, a Delaware limited partnership, as landlord
("Landlord"), and FIRSTWAVE TECHNOLOGIES, INC., a Georgia corporation, as tenant
("Tenant")
W I T N E S S E T H T H A T:
WHEREAS, Atlanta Overlook Associates #3 ("Original Landlord") and Brock
Control Systems, Inc. ("Original Tenant") entered into that certain Office
Building Lease Agreement (the "Lease"), dated January 30, 1988, for certain
premises (the "Premises") in the building located at 2859 Paces Ferry Road,
Atlanta, Georgia (the "Building");
WHEREAS, Original Landlord and Original Tenant entered into that
certain First Amendment of Lease dated as of December 27, 1988 (the "First
Amendment");
WHEREAS, State of California Public Employees Retirement System
("Calpers"), successor-in-interest to Original Landlord, and Original Tenant
entered into that certain Second Amendment of Lease dated as of October 2, 1989
(the "Second Amendment");
WHEREAS, CALPERS and Original Tenant entered into that certain Third
Amendment of Lease dated as of March 10, 1993 (the "Third Amendment");
WHEREAS, CALPERS and Original Tenant entered into that certain Fourth
Amendment of Lease dated as of June 24, 1993 (the "Fourth Amendment");
WHEREAS, CALPERS and Original Tenant entered into that certain Fifth
Amendment of Lease dated as of March 22, 1994 (the "Fifth Amendment");
WHEREAS, CALPERS and Original Tenant entered into that certain Sixth
Amendment of Lease dated as of September 22, 1994 (the "Sixth Amendment");
WHEREAS, Original Tenant changed its name to Brock International, Inc.
and Brock International, Inc. ("Brock International") assumed the obligations of
Original Tenant under the Lease, as amended;
WHEREAS, CALPERS and Brock International entered into that certain
Seventh Amendment of Lease dated as of January 20, 1998 (the "Seventh
Amendment");
WHEREAS, Brock International changed its name to "Firstwave
Technologies, Inc." and Tenant assumed the obligations of Brock International
under the Lease, as amended;
41
<PAGE> 2
WHEREAS, CALPERS and Tenant entered into that certain Eighth Amendment
of Lease dated as of May 8, 1998 (the "Eighth Amendment");
WHEREAS, the Lease, as modified by the First Amendment, Second
Amendment, Third Amendment, Fourth Amendment, Fifth Amendment, Sixth Amendment,
Seventh Amendment and Eighth Amendment are sometimes collectively referred to
herein as the "Lease"; and
WHEREAS, Landlord, as successor-in-interest to CALPERS, and Tenant
desire to reduce the size of the Premises and evidence their agreements and
other matters by means of this Amendment.
NOW THEREFORE, in consideration of the mutual covenants contained
herein, and other good and valuable consideration, the receipt, adequacy and
sufficiency of which are hereby acknowledged, the Lease is hereby amended and
the parties hereto do hereby agree as follows:
1. Reduction Space. Effective on the earlier to occur of (i) February 28,
2000 or (ii) the date set forth in a notice from Landlord that Landlord
has leased the Reduction Space (as hereinafter defined) to a third
party (the "Effective Date"), Tenant shall relinquish and Landlord
shall take back approximately 3,277 square feet of the Premises located
on the fifteenth (15th) floor of the Building as shown on Exhibit "A"
attached hereto and by this reference made a part hereof (the
"Reduction Space"). As of the Effective Date, the total rentable square
feet of space leased pursuant to the Lease shall be decreased to 25,216
rentable square feet which consists of the entire tenth (10th) floor of
the Building, subject to the following terms and conditions:
a. Tenant shall pay, and shall remain liable for, all Rent for
the Reduction Space through the Effective Date.
b. Tenant shall vacate the Reduction Space in accordance with the
terms of the Lease.
c. Effective on the Effective Date through the expiration of the
initial Term of the Lease (October 31, 2000), Base Rent shall
be reduced to $554,752.00 per year ($46,229.33 per month).
d. Effective on the Effective Date, all references to Tenant's
Share (as described in Paragraph 1.1.3 of Exhibit "B" to the
Fourth Amendment) shall exclude the Reduction Space for
purposes of calculating such percentage. Tenant's Share shall
be 5.83% as of the Effective Date.
EXCEPT AS expressly amended and modified hereby, the Lease shall
otherwise remain in full force and effect, the parties hereto hereby ratifying
and confirming the same. To the extent of any inconsistency between the Lease
and this Amendment, the terms of this Amendment shall control.
42
<PAGE> 3
IN WITNESS WHEREOF, the undersigned parties have duly executed this
Amendment as of the day and year first above written.
LANDLORD:
NATIONAL OFFICE PARTNERS LIMITED
PARTNERSHIP, a Delaware limited partnership
By: Hines National Office Partners Limited
Partnership, a Texas limited partnership
general partner
By: Hines Fund Management, L.L.C., a Delaware
limited liability company, its general
partner
By: Hines Interests Limited Partnership,
a Delaware limited partnership its
sole member
By: Hines Holdings, Inc., a Texas
corporation, its general partner
By:
----------------------------
Daniel MacEachron
Vice President
Date Executed by Landlord:
--------------------------------
TENANT:
FIRSTWAVE TECHNOLOGIES, INC.,
a Georgia corporation
By:
------------------------------------------------------
Name:
----------------------------------------------------
Its:
----------------------------------------------------
(CORPORATE SEAL)
Date Executed by Tenant:
--------------------------------
Tenant Tax Identification Number:
----------------------
43
<PAGE> 4
EXHIBIT "A"
Reduction Space
44
<PAGE> 5
EXHIBIT 10.23
45
<PAGE> 1
EXHIBIT 10.23
TENTH AMENDMENT TO LEASE
THIS TENTH AMENDMENT TO LEASE (this "Amendment"), made and entered into
as of the __28th__ day of ____February_, 2000, by and between NATIONAL OFFICE
PARTNERS LIMITED PARTNERSHIP, a Delaware limited partnership, as landlord
("Landlord"), and FIRSTWAVE TECHNOLOGIES, INC., a Georgia corporation, as tenant
("Tenant")
WITNESSETH THAT:
WHEREAS, Atlanta Overlook Associates #3 ("Original Landlord") and Brock
Control Systems, Inc. ("Original Tenant") entered into that certain Office
Building Lease Agreement (the "Lease"), dated January 30, 1988, for certain
premises (the "Premises") in the building located at 2859 Paces Ferry Road,
Atlanta, Georgia (the "Building");
WHEREAS, Original Landlord and Original Tenant entered into that
certain First Amendment of Lease dated as of December 27, 1988 (the "First
Amendment");
WHEREAS, State of California Public Employees Retirement System
("Calpers"), successor-in-interest to Original Landlord, and Original Tenant
entered into that certain Second Amendment of Lease dated as of October 2, 1989
(the "Second Amendment");
WHEREAS, CALPERS and Original Tenant entered into that certain Third
Amendment of Lease dated as of March 10, 1993 (the "Third Amendment");
WHEREAS, CALPERS and Original Tenant entered into that certain Fourth
Amendment of Lease dated as of June 24, 1993 (the "Fourth Amendment");
WHEREAS, CALPERS and Original Tenant entered into that certain Fifth
Amendment of Lease dated as of March 22, 1994 (the "Fifth Amendment");
WHEREAS, CALPERS and Original Tenant entered into that certain Sixth
Amendment of Lease dated as of September 22, 1994 (the "Sixth Amendment");
WHEREAS, Original Tenant changed its name to Brock International, Inc.
and Brock International, Inc. ("Brock International") assumed the obligations of
Original Tenant under the Lease, as amended;
46
<PAGE> 2
WHEREAS, CALPERS and Brock International entered into that certain
Seventh Amendment of Lease dated as of January 20, 1998 (the "Seventh
Amendment");
WHEREAS, Brock International changed its name to "Firstwave
Technologies, Inc." and Tenant assumed the obligations of Brock International
under the Lease, as amended;
WHEREAS, CALPERS and Tenant entered into that certain Eighth Amendment
of Lease dated as of May 8, 1998 (the "Eighth Amendment");
WHEREAS, Landlord, as successor-in-interest to CALPERS, and Tenant
entered into that certain Ninth Amendment of Lease dated as of February 3, 2000
(the "Ninth Amendment");
WHEREAS, the Lease, as modified by the First Amendment, Second
Amendment, Third Amendment, Fourth Amendment, Fifth Amendment, Sixth Amendment,
Seventh Amendment, Eighth Amendment, and Ninth Amendment are sometimes
collectively referred to herein as the "Lease"; and
WHEREAS, Landlord and Tenant desire extend the term of the Lease, amend
certain other terms and conditions of the Lease, and evidence their agreements
and other matters by means of this Amendment.
NOW THEREFORE, in consideration of the mutual covenants contained
herein, and other good and valuable consideration, the receipt, adequacy and
sufficiency of which are hereby acknowledged, the Lease is hereby amended and
the parties hereto do hereby agree as follows:
1. Renewal Term. The term of the Lease is hereby extended for a period of
five (5) years commencing on November 1, 2000 (the "Effective Date")
and expiring on October 31, 2005 (the "Renewal Term").
2. Base Rent. Effective on the Effective Date and continuing during the
Renewal Term, Base Rent for the Premises shall be as follows:
<TABLE>
<CAPTION>
Year of Base Rent per Annual Monthly
Term Square Foot Base Rent Base Rent
------- ------------- --------- ----------
<S> <C> <C> <C>
11/01/00 - 10/31/01 $23.00 $579,968.00 $48,330.67
</TABLE>
Commencing on November 1, 2001, and on each anniversary of the
Effective Date thereafter during the Renewal Term, Base Rent shall
increase as follows:
[(Current Base Rent on a per rentable square foot basis) -
(the Initial Operating Costs, calculated with respect to
calendar year 2001, on a per rentable square foot basis)] x
1.025 + Initial Operating Costs on a per rentable square foot
basis
By way of example only, if the Initial Operating Costs are determined
to be $8.00 per rentable square foot, then Base Rent commencing on
November 1, 2001 shall be ($23.00 - $8.00) x 1.025 + $8.00 = $23.38 per
rentable square foot.
If the Initial Operating Costs are not known as of November 1, 2001,
then the Base Rent adjustment shall be calculated as soon as
practicable and shall be retroactive back to November 1, 2001.
47
<PAGE> 3
On or before January 15 of each calendar year after the calendar year
in which this Lease is executed (or as soon thereafter as practical),
Landlord shall provide Tenant with the projected Operating Costs for
such current calendar year, and Tenant shall thereafter pay the Initial
Operating Costs for operating the Property and Building in excess of
the Initial Operating Costs. Such projected Operating Costs in excess
of the Initial Operating Costs shall be payable in advance on a monthly
basis by paying one-twelfth (1/12th) of such amount during each month
of such respective calendar year. If Landlord has not furnished Tenant
with such comparison by January 15, Tenant shall continue to pay on the
basis of the prior year's estimate until the month after such
comparison is given. Landlord shall, within one hundred twenty (120)
days (or as soon thereafter as practical) after each calendar year
during the Term provide Tenant an unaudited statement of such year's
actual Operating Costs. If actual Operating Costs are greater than
projected Operating Costs, Tenant shall pay Landlord, within thirty
(30) days of such statement's receipt, Tenant's Share of the difference
thereof. If such year's projected Operating Costs are greater than the
actual Operating Costs, Landlord shall credit Tenant, within thirty
(30) days of such statement issuance, Tenant's Share of the difference
between projected Operating Costs and actual Operating Costs.
If this Lease commences at any time other than the first (1st) day of a
calendar year or terminated at any time other than the last day of a
calendar year the amount of Operating Costs due from Tenant shall be
proportionately adjusted based on that portion of the year that this
Lease was in effect.
3. Additional Rent. During the Renewal Term, Tenant shall pay, in
accordance with the terms of Paragraph 5 and Exhibit "B" of the Seventh
Amendment, Tenant's Share of increases in Operating Costs, except the
Initial Operating Costs shall mean Operating Costs for the Building for
calendar year 2001.
4. Notices. Section 1.5 of the Lease regarding the address of Landlord
shall be amended to provide that the address of Landlord is, and all
notices to Landlord shall be sent to:
National Office Partners Limited Partnership
c/o Hines
2839 Paces Ferry Road
Suite 120
Atlanta, Georgia 30339
5. Termination Option. Notwithstanding anything to the contrary contained
in the Lease, in the event that Landlord is unable to reasonably
accommodate Tenant's expansion needs, or if the Termination Standard
(as that term is defined below) is met and provided Tenant is not in
default hereunder, Tenant shall have the option to terminate the Lease,
effective on April 30, 2003 (the "Termination Date") by providing
Landlord with written notice of such Termination Option election (the
"Termination Notice"). Such Termination Notice shall be effective only
if it is given to Landlord by July 31, 2002 (the "Termination Notice
Deadline"); accordingly, if Tenant has not given its Termination Notice
to Landlord prior to the Termination Notice Deadline, this Termination
Option shall expire and be of no further force or effect, and Tenant
shall have no right or option to terminate the Lease pursuant to
48
<PAGE> 4
this paragraph at any time after the Termination Notice Deadline. The
"Termination Standard" shall mean that Tenant satisfies two (2) out of
the following three (3) requirements as of the date of Tenant's
Termination Notice: (i) Tenant's shareholder's equity (as determined in
accordance with generally accepted accounting principles ("GAAP")
consistently applied) is $5,000,000 or less, (ii) Tenant's quick ratio
(i.e. Tenant's current assets divided by Tenant's current liabilities)
is less than 1.5, as determined by GAAP, and (iii) Tenant's cash, cash
equivalents and investment securities are less than $2,000,000. As a
condition precedent to any termination of the Lease pursuant to the
provisions of this paragraph, Tenant must have delivered to Landlord,
together with its Termination Notice, written certification executed by
Tenant that it satisfies the Termination Standard and supporting
documentation evidencing Tenant's compliance, as well as an amount as a
termination fee equal to the unamortized portion (amortized at eleven
percent (11%) per annum) of any tenant improvement allowance paid by
Landlord to Tenant under this Amendment. It is hereby acknowledged that
any such amount required to be paid by Tenant in connection with such
early termination is not a penalty but a reasonable pre-estimate of the
damages which would be incurred by Landlord as a result of such early
termination of the Lease (which damages are impossible to calculate
more precisely) and, in that regard, constitutes liquidated damages
with respect to such loss. Tenant shall continue to be liable for its
obligations under the Lease up to and through the Termination Date
including, without limitation, additional rental that accrues pursuant
to the terms of the Lease, with all of such obligations surviving the
early termination of the Lease. The rights granted to Tenant under this
paragraph are personal to Tenant, and in the event of any assignment of
the Lease or sublease by Tenant, this Termination Option shall
thenceforth be void and of no further force or effect.
6. Reduction Option. Provided that Tenant is not in default hereunder,
Tenant shall have a one-time option (the "Reduction Option") to reduce
the size of the Premises by excluding therefrom a portion equal to
approximately 12,237 rentable square feet as shown on Exhibit "A"
attached hereto (the "Excluded Space"). Such Reduction Option shall be
subject to the following terms and conditions:
a. The Reduction Option shall be effective as of April 30,
2003 (the "Reduction Date"), and Tenant shall exercise the
Reduction Option by providing Landlord with written notice
(the "Reduction Notice") thereof on or before July 31, 2002
(the "Reduction Notice Deadline"), including specificity as to
square footage and location of the Excluded Space. Such
Reduction Notice shall be effective only if it is given to
Landlord by the Reduction Notice Deadline; accordingly, if
Tenant has not given its Reduction Notice to Landlord prior to
the Reduction Notice Deadline, this Reduction Option shall
expire and be of no further force or effect, and Tenant shall
have no right or option to reduce the size of the Premises
pursuant to this paragraph at any time after the Reduction
Notice Deadline. If Tenant fails to timely exercise the
Reduction Option, it shall lapse unexercised and Tenant shall
have no further right to reduce the size of the Premises
pursuant hereto.
b. Within thirty (30) days after Tenant's exercise of the
Reduction Option hereunder, Landlord and Tenant agree to enter
into an amendment to the Lease to
49
<PAGE> 5
document such exercise, which amendment, in addition to the
matters outlined above, shall adjust the area of the Premises
and all other provisions of the Lease which are affected by a
reduction in the size of the Premises.
c. Should Tenant fail to enter into an amendment, as set forth
above, Landlord may at its option treat such failure as a
failure to properly exercise Tenant's Reduction Option and the
Reduction Option shall be void and of no further force and
effect.
d. As a condition precedent to Tenant's exercise of its
Reduction Option, Tenant must have delivered to Landlord,
together with the Reduction Notice, an amount equal to the
unamortized portion of any tenant improvement allowance
(amortized at eleven percent (11%) per annum). It is hereby
acknowledged that any such amount required to be paid by
Tenant in connection with such reduction of the Premises is
not a penalty but a reasonable pre-estimate of the damages
which would be incurred by Landlord as a result of such
reduction of the Premises (which damages are impossible to
calculate more precisely) and, in that regard, constitutes
liquidated damages with respect to such loss.
e. Tenant shall also be responsible for all costs and expenses
incurred by Landlord for any necessary construction,
(including, without limitation, constructing a demising wall,
electricity and plumbing) as a result of the separation of the
Excluded Space from the Premises and Tenant shall be
responsible for correcting any code violations within the
Premises solely caused by the separation of the Excluded Space
from the Premises. To the extent that additional common
corridors are required due to the separation of the Excluded
Space from the Premises, Landlord and Tenant will share
equally in the cost of constructing such common corridors.
f. If Tenant elects to exercise the Reduction Option, Tenant
agrees that it shall not lease any space in any other building
in Atlanta, Georgia without first providing Landlord with the
right to lease to Tenant similar space on the terms and
conditions of a new lease at another building.
g. The rights granted to Tenant under this paragraph are
personal to Tenant, and in the event of any assignment of the
Lease or sublease by Tenant, this Reduction Option shall
thenceforth be void and of no further force or effect. In the
event that Tenant exercises this Reduction Option, the Right
of First Offer (as defined below) of Tenant as set forth
hereinbelow shall be void immediately upon the delivery of the
Reduction Notice from Tenant to Landlord.
7. Right of First Offer.
a. So long as no event of default on the part of Tenant then
exists, and subject to any current right to an expansion
option, renewal option, first right to lease or other such
right granted to a tenant of the Building prior to the date
this Amendment
50
<PAGE> 6
is executed, and so long as there is no sublease of any
portion of the Premises or any assignment of the Lease,
Landlord shall not at any time lease all or any portion of the
space located on the eleventh (11th) floor of the Building as
it becomes available (the "Offer Space"), as more particularly
described on Exhibit A, without first giving notice to tenant
of the proposed lease with a bona fide prospect for such space
(the "Availability Notice"). Such notice shall contain all of
the material, economic terms of the proposed lease. Tenant
must elect to lease the Offer Space within ten (10) days of
the notice from Landlord, by giving notice to Landlord of
Tenant's notice. If Landlord does not receive such notice from
Tenant within said ten (10) days, Tenant shall be deemed to
have elected not to lease the space in question, Tenant shall
have no further rights to said space, and Landlord shall be
free to lease the space to another party.
(b) Tenant shall have the right to lease the Offer
Space offered at the then prevailing market base rental rate
and leasehold improvement allowance as determined by landlord
in is sole, good faith judgment, and indicated by Landlord in
the Availability Notice. If Tenant elects to exercise this
right to lease, Tenant shall deliver notice of such exercise
to Landlord. Upon such notice by Tenant, Tenant shall be bound
to lease said portion of said floor on the same terms and
conditions as under the Lease, but at the rental rate and
other terms as set forth in the Availability Notice.
8. Tenant Improvement Allowance. Landlord shall provide to Tenant an
improvement allowance up to $6.00 per rentable square foot of the
Premises (the "Allowance") to be used towards refurbishment work in the
Premises. Landlord agrees that it shall refurbish the Premises at
Landlord's sole cost and expense (subject to reimbursement from, but
not to exceed, the Allowance), in a good and workmanlike manner
substantially in accordance with construction drawings and plans to be
mutually agreed upon by Landlord and Tenant. Otherwise, Tenant hereby
accepts the Premises "AS IS" (except as otherwise provided herein).
Except for the Allowance, Tenant shall be responsible for all costs and
expenses of refurbishing the Premises (including, without limitation, a
five percent (5%) construction management fee payable to Landlord
calculated on all costs and expenses of construction).
9. Extension Option. So long as the Lease is in full force and effect and
Tenant is not in default thereunder, Tenant shall have the option (the
"Extension Option") to extend the term for the entire Premises for an
additional period of five (5) years (the "Extension Period") subject to
the following terms and conditions:
a. Tenant shall not have the right to assign the Extension
Option to any sublessee or assignee of the Premises, nor may
such sublessee or assignee exercise or enjoy the benefit of
such Extension Option.
b. Tenant shall have given Landlord written notice of its
exercise of the Extension Option on or before nine (9) months
prior to the expiration of the Renewal Term.
51
<PAGE> 7
c. The Extension Option shall only be applicable to the entire
Premises, as it may have expanded or contracted from time to
time pursuant to the terms of the Lease.
d. The terms and conditions of the Lease, as amended from time
to time, shall remain in full force and effect during any
Extension Period except that the term "Base Rent" shall be
modified to mean the rent charged at the Prevailing Market
Rate (as hereinafter defined).
e. "Prevailing Market Rate" shall mean the then prevailing
market rate for rent for leases in similar quality buildings
in the market for space comparable to the Premises taking into
account such factors offered to third party tenants for
comparable space as the base services year for pass-through
expenses, the value of the tenant improvements already in
place in the Premises at the commencement of the Extension
Period, rent concessions, tenant improvement allowances, lease
commissions saved or incurred, and moving allowances.
f. Within thirty (30) days after the establishment of the
Prevailing Market Rate, Landlord and Tenant agree to enter
into an amendment to the Lease to evidence the exercise of the
Extension Option. If Landlord and Tenant are unable to agree
upon the Prevailing Market Rate within such 30-day period,
then Tenant's exercise of this Extension Option shall be void
and the Lease shall expire at the end of the Renewal Term.
10. Parking. Landlord shall provide Tenant with four (4) unreserved parking
spaces per 1,000 usable square feet of the Premises at no charge during
the Renewal Term. Landlord shall provide Tenant with eight (8) reserved
parking spaces in the Overlook III parking facility at no charge during
the Renewal Term. Tenant shall have the right to park in the Building
parking facilities in common with other tenants of the Building. Tenant
agrees not to overburden the parking facilities and agrees to cooperate
with Landlord and other tenants in use of the parking facilities.
Landlord reserves the right in its absolute discretion to determine
whether the parking facilities are becoming overburdened and to
allocate and assign parking spaces among Tenant and other tenants, and
to reconfigure the parking area and modify the existing ingress to and
egress from the parking area as Landlord shall deem appropriate.
11. Deletions and Modifications. Sections 49, 50, 51, 53 and 57 of the
Lease; Section 307 of the First Amendment; Sections 6, 8 and 10 of the
Fourth Amendment; Section 3 of the Fifth Amendment; Sections 4 and 5 of
the Sixth Amendment; and Sections 5 and 7 of the Seventh Amendment
shall each be deleted in its entirety. Section 7 of the Fourth
Amendment shall be modified by deleting the phrase "in excess of
thirty-five thousand (35,000)" and inserting in lieu thereof the phrase
"the entire 10th floor consisting of twenty-five thousand two hundred
sixteen (25,216)".
12. Brokers. Landlord and Tenant hereby represent and warrant to the other
that neither it nor
52
<PAGE> 8
its officers or agents nor anyone acting on its behalf has dealt with
any real estate broker other than Hines Properties, Inc. who
represented Landlord and CB Richard Ellis who represented Tenant in the
negotiating or making of this Amendment, and Landlord and Tenant hereby
agree to indemnify and hold the other party, its agents, employees,
partners, directors, shareholders and independent contractors harmless
from all liabilities, costs, demands, judgments, settlements, claims,
and losses, including reasonable attorneys' fees and costs, incurred by
such party in conjunction with any such claim or claims of any other
broker or brokers claiming to have interested the Tenant in the
Building or Premises or claiming to have caused Tenant to enter into
this Amendment, except as disclosed hereinabove.
13. Tenant hereby agrees that there are, as of the date hereof, regardless
of the giving of notice and the passage of time, or both, no defaults
or breaches on the part of Landlord or Tenant under the Lease.
14. All capitalized terms used herein and not otherwise defined herein
shall have the meanings ascribed to them in the Lease.
15. This Amendment represents the entire agreement between the parties
hereto. Landlord and Tenant agree that there are no collateral or oral
agreements or understandings between them with respect to the Premises
or the Building. This Amendment supersedes all prior negotiations,
agreements, letters or other statements with respect to this
modification of the Lease.
EXCEPT AS expressly amended and modified hereby, the Lease shall
otherwise remain in full force and effect, the parties hereto hereby ratifying
and confirming the same. To the extent of any inconsistency between the Lease
and this Amendment, the terms of this Amendment shall control.
53
<PAGE> 9
IN WITNESS WHEREOF, the undersigned parties have duly executed this
Amendment as of the day and year first above written.
LANDLORD:
NATIONAL OFFICE PARTNERS LIMITED PARTNERSHIP,
a Delaware limited partnership
By: Hines National Office Partners Limited
Partnership, a Texas limited partnership
general partner
By: Hines Fund Management, L.L.C., a Delaware
limited liability company, its general
partner
By: Hines Interests Limited Partnership,
a Delaware limited partnership its
sole member
By: Hines Holdings, Inc., a Texas
corporation, its general partner
By:
--------------------------------
Daniel MacEachron
Vice President
Date Executed by Landlord:
-----------------------------------
TENANT:
FIRSTWAVE TECHNOLOGIES, INC.,
a Georgia corporation
By:
-----------------------------------------------------
Name:
---------------------------------------------------
Its:
---------------------------------------------------
(CORPORATE SEAL)
Date Executed by Tenant:
--------------------------------
Tenant Tax Identification Number:
----------------------
54
<PAGE> 10
EXHIBIT "A"
EXCLUDED SPACE
55
<PAGE> 11
EXHIBIT 13
56
<PAGE> 1
[FIRSTWAVE LOGO]
FIRSTWAVE TECHNOLOGIES, INC.
1999 ANNUAL REPORT
<PAGE> 2
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the Year Ended December 31,
--------------------------------------------------------------------
(In thousands, except per share amounts)
1999 1998 1997 1996 1995
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenues ..................................... $ 11,193 $ 14,537 $ 15,848 $ 23,222 $ 28,001
Loss before income taxes ......................... (1,912) (3,034) (1,377) (10,115) (4,928)
Income tax (provision) benefit ................... (40) (91) (133) 1,055 1,837
Net loss ......................................... (1,952) (3,125) (1,510) (9,060) (3,091)
Net loss applicable to common shareholders ....... (2,075) (3,125) (1,510) (9,060) (3,091)
Basic and diluted net loss per share ............. (0.40) (0.61) (0.30) (1.81) (0.63)
Total assets ..................................... 12,023 11,322 14,286 18,367 26,045
Total non current liabilities .................... -- -- -- 125 --
Common stock subject to repurchase ............... $ -- $ -- $ 300 $ -- $ --
Basic and diluted weighted
average shares outstanding ..................... 5,250 5,125 5,035 5,000 4,932
</TABLE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Letter to Shareholders ......................................................... 2
Report of Independent Accountants .............................................. 4
Condensed Consolidated Balance Sheet ........................................... 5
Condensed Consolidated Statement of Operations ................................ 6
Condensed Consolidated Statement of Changes in Shareholders' Equity ............ 7
Condensed Consolidated Statement of Cash Flows ................................. 8
Board of Directors ............................................................. 9
Officers ....................................................................... 9
Shareholder Information ........................................................ 10
</TABLE>
1
<PAGE> 3
LETTER TO SHAREHOLDERS
I am excited to report that Firstwave Technologies begins 2000 with industry
recognition, new business partners, renewed investor interest and a growing
revenue stream from a suite of new products. In my CEO letter of June 30, 1999,
I outlined the challenges that I felt Firstwave was facing and how we needed to
address them in order to become a successful Company in the Customer
Relationship Management (CRM) industry. In the eight months since that letter,
Firstwave has become a formidable challenger once again in a competitive, yet
lucrative, industry and the future of our 15-year-old company is brighter than
ever.
During the past year, Firstwave has attracted talented employees with dynamic
ideas and "start up company" energy. We renewed our focus on customers and their
business requirements and reflected these market needs in our development
efforts. We took a "pay now" as opposed to "pay later" approach, choosing to
focus on the development of our web-based product suite, Firstwave eRM, and
investing less in the marketing and selling of the product. Our rewards are an
Internet-based relationship management product suite with technology and
customization tools that we believe are the best in the industry. In January
2000, we received an award from a leading industry analyst for providing the
"BEST INTERNET-BASED CRM SOLUTION" with our Firstwave eRM suite.
The last quarter of 1999 represented a major transition period from a software
company that was dependent on its legacy products to an Internet business being
driven by its web-based product. Although posted revenues of $11.2 million for
1999 represented a decline over 1998 revenues, our 4th quarter license revenue
for Firstwave eRM increased by 304% over 3rd quarter 1999 from $112,000 to
$452,000. We gained 10 new clients in the 4th quarter, including our first
international eRM customers in Canada and the United Kingdom.
NEW PARTNERSHIPS HAVE INCREASED OUR MARKET PRESENCE
In 1999, we established "best-of-breed" partnerships with emerging companies
Breakaway Solutions, Cereus Technology Partners and Intuitive Manufacturing
Systems (IMS). These relationships provide exposure to many qualified prospects.
For example, our relationship with IMS introduces our application suite to more
than 600 IMS customer companies and 100 IMS distributors. We believe this
channel will provide opportunities for growth revenues.
INCREASED INVESTOR INTEREST
The investor interest in Firstwave has increased dramatically and is evident
when reviewing the average volume over the last two quarters of 1999. At the
beginning of the third quarter, an average of 6,400 shares was traded on a daily
basis. Our average daily volume as of March 23, 2000 was over 103,000 shares.
This provides liquidity for investors and renews institutional interest in our
stock.
2
<PAGE> 4
LEVERAGING OUR GROWTH POTENTIAL
Last year we focused on the development of the Firstwave Internet suite. Now our
human and financial resources will be shifted toward marketing and selling the
application. The integrated application suite will continue to be marketed
through highly effective direct marketing efforts. A revamped sales force,
headed by newly promoted Debora Schum as Vice President, North American Sales,
will continue to convert qualified leads into more Firstwave sales. A growing
channel of resellers, partners, and Application Service Providers should give us
the market coverage our product deserves.
LOOKING AHEAD
Our Company has a strong new sales pipeline and has a good Professional Services
backlog. With the "Best Internet-Based CRM Solution" in a CRM market that is
growing at an estimated 40% per year, we believe we can become one of the market
leaders. Our Company has the key ingredients needed to become successful - a
great product, a talented staff with great morale, and awareness in the
investment community - all in a high-growth industry.
I would like to extend my personal invitation for you to attend our Annual
Meeting of Shareholders on May 9, 2000. In addition to routine business, we will
offer demonstrations of our products and discussions with employees. On behalf
of our Board of Directors, 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.
3
<PAGE> 5
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 balance sheet of Firstwave Technologies, Inc. and its subsidiaries
as of December 31, 1999 and 1998, and the related consolidated statements of
operations, of changes in shareholders' equity, and of cash flows for the three
years then ended (not presented herein); and in our report dated January 31,
2000, we expressed an unqualified opinion on those consolidated financial
statements.
In our opinion, the information set forth in the accompanying condensed
consolidated financial statements is fairly stated, in all material respects, in
relation to the consolidated financial statements from which it has been
derived.
PricewaterhouseCoopers LLP
January 31, 2000
4
<PAGE> 6
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 2,029 $ 2,245
Investment securities, held to maturity 1,631 --
Accounts receivable, less allowance for doubtful
accounts of $345 and $425 1,937 3,146
Deferred tax asset 200 200
Prepaid expenses and other assets 289 195
-------- --------
Total current assets 6,086 5,786
Property and equipment, net 922 1,501
Software development costs, net 1,918 770
Intangible asset 476 644
Deferred tax asset 2,621 2,621
-------- --------
$ 12,023 $ 11,322
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 570 $ 1,354
Sales tax payable 152 265
Deferred revenue 1,519 1,581
Accrued employee compensation and benefits 173 284
Dividends payable 123 --
Other accrued liabilities 78 78
-------- --------
Total current liabilities 2,615 3,562
-------- --------
Commitments and contingencies
Shareholders' equity
Preferred stock, no par; 1,000,000 shares authorized;
20,000 shares issued and outstanding; $100 per share
liquidation preference 2,000 --
Common stock, stated value, $.0019 per share; 10,000,000
shares authorized; 5,740,283 and 5,151,322 shares
issued and outstanding 11 10
Additional paid-in capital 21,574 19,813
Cumulative translation account (5) 34
Accumulated deficit (14,172) (12,097)
-------- --------
9,408 7,760
-------- --------
$ 12,023 $ 11,322
======== ========
</TABLE>
5
<PAGE> 7
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
1999 1998 1997
<S> <C> <C> <C>
Net revenues
Software $ 2,430 $ 3,528 $ 5,239
Services 3,422 5,035 4,810
Maintenance 4,923 5,431 5,189
Other 418 543 610
-------- -------- --------
11,193 14,537 15,848
Costs and expenses
Cost of revenues
Software 920 744 675
Services 2,400 3,566 3,528
Maintenance 1,494 1,643 1,687
Other 395 500 606
Sales and marketing 3,612 5,983 6,012
Product development 1,618 2,080 2,003
General and administrative 2,789 3,233 2,186
In process research and development -- -- 696
-------- -------- --------
Operating loss (2,035) (3,212) (1,545)
Interest income, net 123 178 168
-------- -------- --------
Loss before income taxes (1,912) (3,034) (1,377)
Income tax provision (40) (91) (133)
-------- -------- --------
Net loss $ (1,952) $ (3,125) $ (1,510)
-------- -------- --------
Dividends on preferred stock (123) -- --
-------- -------- --------
Net loss applicable to common shareholders $ (2,075) $ (3,125) $ (1,510)
======== ======== ========
Basic and diluted net loss per share $ (0.40) $ (0.61) $ (0.30)
======== ======== ========
Basic and diluted weighted average
shares outstanding 5,250 5,125 5,035
======== ======== ========
</TABLE>
6
<PAGE> 8
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
UNREALIZED
COMMON STOCK PREFERRED STOCK ADDITIONAL GAIN/(LOSS) ON
---------------------- ----------------- PAID-IN INVESTMENT
SHARES AMOUNT SHARES AMOUNT CAPITAL SECURITIES
------ ------ ------ ------ ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 4,936,555 $ 9 -- $ -- $ 18,909 $(14)
Exercise of common stock options 88,899 -- 281 --
Employee stock purchases 7,573 -- 25 --
Issuance of stock options -- -- 114 --
Net loss -- -- -- -- -- --
--------- ------ ----- ------ -------- ----
Balance at December 31, 1997 5,033,027 9 -- -- 19,329 (14)
Exercise of common stock options 34,511 -- 112 --
Employee stock purchases 6,081 -- 19 --
Issuance of stock options -- -- 7 --
Issuance of stock in connection
with Netgain acquisition 77,703 1 346 --
Realized loss on investment
securities -- -- -- 14
Comprehensive loss
Net loss -- -- -- --
Foreign currency translation adjustment -- -- -- --
Comprehensive loss
--------- ------ ----- ------ -------- ----
Balance at December 31, 1998 5,151,322 10 -- -- 19,813 --
Series A convertible preferred stock 20,000 2,000
Exercise of common stock options 84,066 243 --
Employee stock purchases 4,895 9 --
Issuance of stock and warrants 500,000 1 1,509 --
Comprehensive loss
Net loss -- -- -- -- -- --
Foreign currency translation adjustment -- -- -- -- -- --
Comprehensive loss
----------- ------ ----- ------ -------- ----
Balance at December 31, 1999 5,740,283 $ 11 20,000 $2,000 $ 21,574 $ --
=========== ====== ====== ====== ======== ====
<CAPTION>
COMPRE- ACCUMULATED
HENSIVE OTHER
INCOME COMPREHENSIVE ACCUMULATED
(LOSS) INCOME/(LOSS) DEFICIT TOTAL
------- ------------- --------- -------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 $ -- $ -- $ (7,462) $ 11,442
Exercise of common stock options -- -- -- 281
Employee stock purchases -- -- -- 25
Issuance of stock options -- -- -- 114
Net loss -- -- (1,510) (1,510)
------- -------- -------- -------
Balance at December 31, 1997 -- -- (8,972) 10,352
Exercise of common stock options -- -- -- 112
Employee stock purchases -- -- -- 19
Issuance of stock options -- -- -- 7
Issuance of stock in connection
with Netgain acquisition -- -- -- 347
Realized loss on investment
securities -- -- -- 14
Comprehensive loss
Net loss (3,125) -- (3,125) (3,125)
Foreign currency translation adjustment 34 34 -- 34
--------
(3,091)
--------
Comprehensive loss
------- -------- -------
Balance at December 31, 1998 34 (12,097) 7,760
Series A convertible preferred stock 2,000
Exercise of common stock options -- -- -- 243
Employee stock purchases -- -- -- 9
Issuance of stock and warrants -- 1,510
Comprehensive loss
Net loss (2,075) -- (2,075) (2,075)
Foreign currency translation adjustment (39) (39) -- (39)
-------
Comprehensive loss $(2,114)
=======
------- -------- -------
Balance at December 31, 1999 $ (5) $(14,172) $ 9,408
======= ======== =======
</TABLE>
7
<PAGE> 9
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
1999 1998 1997
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $(1,952) $(3,125) $ (1,510)
Adjustments to reconcile net loss to net cash
provided by operating activities
Depreciation and amortization 1,670 1,741 1,565
Write off in process research and development -- -- 696
(Gain)/loss on disposal of fixed assets 71 (13) 142
Provision for bad debts 81 83 22
Deferred income taxes -- -- (65)
Stock compensation 10 7 114
Changes in assets and liabilities (net of acquisition)
Accounts receivable 1,119 (182) 1,051
Prepaid expenses and other assets (94) 121 (46)
Accounts payable (783) 146 (148)
Accrued restructuring -- (325) (786)
Sales tax payable (112) 2 (115)
Deferred revenue (62) (114) 81
Accrued employee compensation and benefits (111) (361) (66)
Other accrued liabilities -- 59 (78)
------- ------- -------
Total adjustments 1,789 1,164 2,367
------- ------- -------
Net cash provided by (used in) operating activities (163) (1,961) 857
------- ------- -------
Cash flows from investing activities
Software development costs (1,861) (200) --
Business acquisitions -- (246) (697)
Purchases of property and equipment, net (309) (496) (261)
Purchase of investment securities (1,631) (9,394) (16,155)
Proceeds from sale of investment securities -- 9,408 19,755
------- ------- -------
Net cash provided by (used in) investing activities (3,801) (928) 2,642
------- ------- -------
Cash flows from financing activities
Proceeds from issuance of preferred stock 2,000 -- --
Proceeds from issuance of common stock 1,500 -- --
Exercise of common stock options 243 112 281
Proceeds from employee stock purchase plan 9 19 25
Borrowing from/(repayment to) line of credit, net -- -- (1,975)
Proceeds from/(repayments to) note payable, net -- -- (208)
------- ------- -------
Net cash provided by (used in) financing activities 3,752 131 (1,877)
------- ------- -------
Effect of exchange rate changes on cash (4) 34 --
Net increase (decrease) in cash (216) (2,724) 1,622
Cash and cash equivalents, beginning of year 2,245 4,969 3,347
------- ------- -------
Cash and cash equivalents, end of year $ 2,029 $ 2,245 $ 4,969
------- ------- -------
Supplemental disclosure of cash flow information
Cash paid during the year for interest $ -- $ 1 $ 84
------- ------- -------
Cash paid for income taxes $ 40 $ 91 $ 198
------- ------- -------
</TABLE>
8
<PAGE> 10
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. From February 1997 through June
1999, Mr. Porter served as Chairman of the Board of CCI/Triad and continues to
serve on the CCI/Triad Board of Directors. Previously, he served as Executive
Vice President of 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 Technical Services. Mr. Porter earned his BS from Texas A&M and
attended Harvard Graduate School of Business.
ROGER A. BABB
Mr. Babb has been a director of the Company since March 26, 1999. He 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 Vice President of
Babb Lumber Company, Inc., related building material manufacturing companies. He
earned his BS in Electrical Engineering from the Georgia Institute of
Technology.
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 Research Institute of America. 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
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.
OFFICERS
RICHARD T. BROCK
President and Chief Executive Officer
JUDITH A. VITALE
Vice President, Finance and Administration
DEBORA L. SCHUM
Vice President, North American Sales
9
<PAGE> 11
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 National Bank
Shareholder Services Administration
1525 West WT Harris Blvd., 3C3
Charlotte, NC 28288-1153
Information Contact:
Mr. Patrick Edwards
704-590-7386
ANNUAL MEETING OF SHAREHOLDERS
Tuesday, May 9, 2000 at 2:00 p.m.
Firstwave Technologies, Inc. Corporate Offices
Overlook III, Suite 1000
2859 Paces Ferry Road
Atlanta, GA 30339
CORPORATE COUNSEL
Kilpatrick Stockton 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, 1999, 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
Vice President, 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/toll-free 800-540-6061. Visit
Firstwave's web site at www.firstwave.net.
10
<PAGE> 12
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, 1999 there were approximately 107 shareholders of record and
approximately 4,200 persons or entities who hold common stock in nominee name.
STOCK PRICE TABLE
<TABLE>
1999 First Second Third Fourth
- ---- -------- ----------- -------- --------
<S> <C> <C> <C> <C>
High $ 3.25 $ 2.50 $ 8.63 $ 4.25
Low $ 1.75 $ 1.38 $ 1.50 $ 1.94
1998 First Second Third Fourth
- ---- ----- ------- ----- ------
High $ 5.63 $ 5.13 $ 5.13 $ 3.88
Low $ 4.31 $ 4.25 $ 2.50 $ 1.63
</TABLE>
11
<PAGE> 13
FIRSTWAVE TECHNOLOGIES, INC.
OVERLOOK III, SUITE 1000
2859 PACES FERRY ROAD
ATLANTA, GA 30339
PHONE 770-431-1200
FAX 770-431-1201
WWW.FIRSTWAVE.NET
(C)2000 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 THE FORM
10-K OF FIRSTWAVE TECHNOLOGIES, INC. FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 2,029
<SECURITIES> 1,631
<RECEIVABLES> 1,937<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,086
<PP&E> 922<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,023
<CURRENT-LIABILITIES> 2,615
<BONDS> 0
0
2,000
<COMMON> 11
<OTHER-SE> 7,397
<TOTAL-LIABILITY-AND-EQUITY> 12,023
<SALES> 2,430
<TOTAL-REVENUES> 11,193
<CGS> 920
<TOTAL-COSTS> 5,209
<OTHER-EXPENSES> 8,019
<LOSS-PROVISION> (64)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,912)
<INCOME-TAX> (40)
<INCOME-CONTINUING> (1,952)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,952)
<EPS-BASIC> (.40)
<EPS-DILUTED> (.40)
<FN>
<F1>
A/R AND PPE asset values represent net amounts.
</FN>
</TABLE>
