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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1996
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-24454
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Wave Technologies International, Inc.
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(Exact name of small business issuer as specified in its charter)
Missouri 43-1481443
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(State or other jurisdiction of incorporation or organization)(IRS Employer ID
No.)
10845 Olive Boulevard, Suite 250, Saint Louis, Missouri 63141
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(Address of principal executive offices)
(314) 995-5767
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(Issuer's telephone number)
n/a
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(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all the reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
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APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: The issuer had 3,920,993 shares of
common stock, par value $.50, outstanding as of September 9, 1996
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Transitional Small Business Disclosure Format (check one) Yes No X
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WAVE TECHNOLOGIES INTERNATIONAL, INC.
Table of Contents
Form 10-Q for the Quarterly Period
Ended July 31, 1996
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<CAPTION>
PART I FINANCIAL INFORMATION PAGE
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Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at July 31, 1996,
and April 30, 1996 3
Consolidated Statements of Operations for the
three months ended July 31, 1996 and 1995 4
Consolidated Statements of Cash Flows for the
three months ended July 31, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of
Operation 7
PART II OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES
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ITEM 1. FINANCIAL STATEMENTS
WAVE TECHNOLOGIES INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
April 30 July 31
ASSETS 1996 1996
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Current assets:
Cash and cash equivalents $ 747,064 $ 833,907
Accounts receivable (less allowance of $474,000
and $436,000, respectively) 5,044,471 4,816,283
Inventory 699,914 699,945
Prepaid expenses 203,296 195,441
Other current assets 168,141 169,016
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Total current assets 6,862,886 6,714,592
Property, plant & equipment - net 3,883,263 3,721,288
Prepaid direct mail cost 467,517 502,599
Deferred courseware 1,617,634 1,616,009
Other assets 826,510 789,553
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Total assets $13,657,810 $13,344,041
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LIABILITIES AND SHAREHOLDERS' EQUITY
- ---------------------------------------
Current liabilities:
Accounts payable $ 1,969,700 $ 1,894,843
Accrued expenses 1,260,578 1,319,025
Deferred revenue 3,121,444 2,893,790
Bank line-of-credit 228,000 --
Current portion of long-term debt and
capital lease obligations 228,163 233,501
Related party 32,973 42,586
Other
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Total current liabilities 6,840,858 6,383,745
Long-term debt
Related party 431,612 370,972
Other 56,295 38,763
Accrued rent liability 345,496 331,750
Common shareholders' equity:
Common stock, $.50 par value, authorized
20,000,000 shares; issued, 3,920,993
shares; outstanding, 3,913,636 shares 1,960,497 1,960,497
Additional paid-in capital 7,012,474 7,012,474
Accumulated deficit (2,996,833) (2,779,188)
Cumulated translation adjustment 22,109 39,726
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Total 5,998,247 6,233,509
Less treasury stock, at cost (7,357 shares) (14,698) (14,698)
----------- -----------
Total common shareholders' equity 5,983,549 6,218,811
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Total liabilities and shareholders equity' $13,657,810 $13,344,041
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WAVE TECHNOLOGIES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
July 31
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1995 1996
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Revenues:
Publishing $2,949,293 $2,794,175
Instructor-led training 1,961,366 2,402,484
Custom solutions 993,921 1,470,381
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Total revenues 5,904,580 6,667,040
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Cost and Expenses:
Cost of services, products and development 3,122,471 3,283,105
Sales and marketing 1,782,299 1,628,598
General and administrative 1,481,848 1,515,341
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Total costs and expenses 6,386,618 6,427,044
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Income/(loss) from operations (482,038) 239,996
Other income/(expenses) - net (7,221) (22,351)
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Income/(loss) before tax (489,259) 217,645
Provision for income taxes -- --
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Net income/(loss) $ (489,259) $ 217,645
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Net income/(loss) per common share $ (0.13) $ 0.06
========== ==========
Weighted average common share 3,659,625 3,951,559
========== ==========
</TABLE>
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WAVE TECHNOLOGIES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended July 31
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1995 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) $ (489,259) $ 217,645
Adjustments to reconcile net income/(loss) to net cash
used in operating activities
Depreciation and amortization 338,051 410,620
Barter revenue (87,261) (104,651)
Loss on disposal of capital asset -- 108
Other -- 17,617
Net changes in other assets and liabilities:
Accounts receivable (695,281) 228,188
Inventory (66,089) (31)
Other current assets 122,836 12,655
Prepaid direct mail 828,849 (35,082)
Deferred courseware (269,807) 1,625
Other assets 14,584 (4,246)
Accounts payable (121,721) (74,857)
Accrued expenses 112,448 58,447
Deferred charges 146,862 (241,400)
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Net cash provided by (used in) operating activities (165,788) 486,638
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (254,627) (110,286)
Disposal of capital equipment 1,712
Acquisition of ETI, Inc. (152,738) --
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Net cash used in investing activities (407,365) (108,574)
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CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from borrowings under line of credit - net 430,000 (228,000)
Repayments of notes payable (27,776) (55,303)
Payments of capital lease obligations (7,250) (7,918)
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Net cash provided by (used in) financing activities 394,974 (291,221)
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (178,179) 86,843
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,090,693 747,064
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 912,514 $ 833,907
========== ==========
</TABLE>
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<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE I. - GENERAL
The financial information herein is unaudited. However, in the opinion of
management, such information reflects all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation of the results of
operation for the period being reported. Additionally, it should be noted that
the accompanying condensed consolidated financial statements do not purport to
contain complete disclosures in conformity with generally accepted accounting
principles.
The results of operations for the three months ended July 31, 1996, are not
necessarily indicative of the results of operations for the full year.
These condensed consolidated financial statements should be read in conjunction
with the Company's consolidated financial statements for the year ended April
30, 1996, and the notes thereto.
The Company has reclassified certain 1996 fiscal year amounts to conform to
current year presentation.
NOTE II. - DEBT
On January 5, 1996, the Company issued a three-year term note to a bank in the
amount of $600,000, bearing interest at 9.25% per year, secured by certain of
Wave's equipment. The Company's operating line of credit of is with the same
bank, and was increased from $1,500,000 to $2,000,000 effective September 1,
1996. It bears interest at the bank's prime rate and is secured by the
Company's accounts receivable, inventory and equipment. The Chairman of the
Board of the bank is a member of the Board of Directors of the Company.
NOTE III. - EARNINGS PER SHARE
Net income per common share is computed by dividing net income by the weighted
average number of shares of common stock and common share equivalents. The
earnings per share calculation for the first quarter of fiscal 1997 included
dilutive stock options along with the average number of common shares
outstanding. For fiscal 1996, such potentially dilutive securities have not
been included in the calculation as a result of their anti-dilutive effect.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
OVERVIEW
The Company designs, develops and delivers training and instructional
products addressing data communications, networking and client/server computing
technologies. Wave delivers these products and services through instructor-led
courses, informational seminars, published products and the Internet. The
Company markets its courses and published products to management information
professionals, systems integrators, value-added resellers and others with
systems management responsibilities.
The Company delivers its instructor-led training through twelve Company-
owned facilities in the United States and one center in the United Kingdom. The
Company increasingly sells training solutions utilizing a mix of multi-media
published materials and live training. Wave has developed both domestic and
international distribution channels for its products.
THREE MONTHS JULY 31, 1996 COMPARED TO
THREE MONTHS ENDED JULY 31, 1995
Total revenues increased $762,000, or 13%, in the quarter ended July 31,
1996, to $6,667,000 from $5,905,000 in the same quarter in fiscal 1996.
International revenues accounted for approximately 19% of Wave's total revenues
in the quarter ended July 31, 1996, compared to 11% in the same quarter in
fiscal 1996.
Publishing revenues decreased $155,000, or 5%, from $2,949,000 for the
fiscal 1996 quarter to $2,794,000, and decreased as a percentage of total
revenues to 42% from 50% in the same quarter in fiscal 1996. Sales slowed
during the quarter in anticipation of Wave's release of updates and new versions
of several products.
Instructor-led training ("ILT") revenues increased to $2,402,000 from
$1,961,000 in the same quarter in fiscal 1996, and increased slightly as a
percentage of total revenues to 36%, compared to 33% in the same quarter of the
prior year. The increase in instructor-led training revenues resulted from
dramatic international growth in ILT revenues, of 220%. Domestic ILT revenues
decreased slightly, by 4%, [primarily as the result of the continued decline in
demand for Novell training]. In the first quarter of fiscal 1997, Novell-
related ILT revenues represented approximately 32% of total ILT revenues,
compared to 59% of total ILT revenues in the same quarter of fiscal 1996. The
Company believes the shift from Novell-related courses to other curricula,
particularly Microsoft and Internet PC service and support, will continue.
Club Wave is a discounted subscription program providing open access to
Wave ILT classes for one year, and a package of certain published products
titles. The Company recognized $595,000 in Club Wave revenues in the quarter
ended July 31, 1996, compared to $573,000 in the same quarter of fiscal 1996.
Deferred revenue for Club Wave sales was $634,000 as of the end of the quarter,
and total deferred revenue was $2,894,000 as of that date. This compares to
Club Wave deferred revenue at April 30, 1996 of $625,000 and total deferred
revenue at that date of $3,121,000.
Custom solutions revenues increased significantly, by 48%, from the same
period in fiscal 1996, and represented 22% of total revenues, compared to 17% in
the first quarter of fiscal 1996. Custom solutions revenues in any particular
quarter can be significantly affected by the timing of such services. Custom
solutions revenues for the first quarter of fiscal 1997 included $551,000 of
revenues from GTE University, compared to $145,000 of revenues from GTE
University in the first quarter of fiscal 1996. Before this fiscal year, the
GTE University program was substantially complete by Wave's fiscal year end.
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<PAGE>
Cost of services, products and development increased $161,000, or 5%, in
the quarter ended July 31, 1996, to $3,283,000, but decreased as a percentage of
total revenues to 49% from 53% in the same quarter in fiscal 1996. Domestic
cost of services, product and development decreased slightly, by $38,000, while
cost of services for international operations increased $199,000, as
international operations and revenues continued to grow rapidly. Production
costs for published products represented the most significant increase, of
$244,000, including a $92,000 increase in international production costs. This
increase was more than offset by a $480,000 net decrease in payroll and
temporary labor costs. Amortization of courseware development expenses
increased by $133,000, while the capitalization of courseware development
expenses, which reduces cost of services, decreased by $244,000.
Total sales and marketing expenses for the quarter ended July 31, 1996,
decreased $154,000, or 9%, to $1,629,000, from the same quarter in fiscal 1996,
and decreased as a percentage of total revenues, to 24% from 30%. Supporting
the continued growth in international sales, international sales and marketing
expenses increased by $57,000. Total sales and marketing payroll increased by
$370,000 as the result of Wave's new major accounts sales team implemeted during
the second quarter of fiscal 1996 and the expansion of the international sales
force. A decrease in direct mail expenses, which are capitalized and amortized
over six months, of $627,000 over the same period last year more than offset
increased payroll.
General and administrative expenses increased only $33,000, or 2%, to
$1,515,000 for the first quarter of fiscal 1997, but decreased as a percentage
of total revenues to 23% from 25% in the same quarter in fiscal 1996. General
and administrative payroll for the first quarter of fiscal 1997 increased
$218,000 over the same quarter in fiscal 1996, including a $170,000 increase in
international payroll, but was offset by reduced expenses in several categories,
including a $117,000 decrease in professional fees and a $39,000 decrease in
payments for temporary services. Depreciation expense increased by $52,000 over
the same period in fiscal 1996, as the result of the addition of new equipment.
The Company recognized net income of $218,000, or $.06 per share, for the
first quarter of fiscal 1997, compared to a net loss of $489,000, or $.13 per
share, in the quarter ended July 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash balance at July 31, 1996, was $834,000, compared to
$747,000 at April 30, 1996. During the first fiscal 1997 quarter, Wave reduced
accounts payable by $75,000, from $1,970,000 at April 30, 1996, to $1,895,000 at
July 31, 1996. Total accounts receivable also decreased slightly from
$5,044,000 at April 30, 1996, to $4,816,000 at July 31, 1996.
Prepaid direct mail increased slightly, by $35,000, to $503,000 at July 31,
1996. While prepaid advertising appears as an asset on the balance sheet, that
amount will be expensed over the following six months. Similarly, deferred
revenue is booked as a liability, but the $2,894,000 in deferred revenue at July
31, 1996, will be recognized as revenues over the next twelve months. This
amount represents a $227,000 decrease in deferred revenue from the fiscal year
end as Wave recognized $551,000 of the April 30, 1996 deferred revenue balance
during the quarter.
After the end of the July 31, 1996 quarter, the Company increased its
existing line of credit by $500,000, to $2,000,000. See Note II of Notes to
Consolidated Financial Statements. Wave had nothing outstanding on the line of
credit at quarter end, and had overnight borrowing balances on the line only
eleven times during the first quarter of fiscal 1997.
Wave believes that cash generated from operations, together with existing
cash balances and its increased credit line, should be sufficient to satisfy the
Company's cash requirements for the next several months.
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<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
3.1 Articles of Incorporation, as amended and restated (filed as
Exhibit 3.1 to Registrant's Registration Statement on Form SB-2
(File No. 33-80556) and incorporated herein by reference)
3.2 Restated Bylaws (filed as Exhibit 3.2 to Registrant's
Registration Statement on Form SB-2 (File No. 33-80556) and
incorporated herein by reference)
4.1 Specimen Stock Certificate (filed as Exhibit 4.1 to Registrant's
Registration Statement on Form SB-2 (File No. 33-80556) and
incorporated herein by reference)
4.2 Warrant Agreement, including Form of Representatives' Warrant
(filed as Exhibit 4.2 to Registrant's Registration Statement on
Form SB-2 (File No. 33-80556) and incorporated herein by
reference)
10.1 Employment Agreement dated February 1, 1994, by and between the
Company and Kenneth W. Kousky (filed as Exhibit 10.1 to
Registrant's Registration Statement on Form SB-2 (File No. 33-
80556) and incorporated herein by reference)
10.2 Service Agreement dated June 1, 1994, by and between the Company
and John A. Kirkham (filed as Exhibit 10.2 to Registrant's
Registration Statement on Form SB-2 (File No. 33-80556) and
incorporated herein by reference)
10.3 Amended and Restated 1993 Stock Option Plan (filed as Exhibit
10.3 to Registrant's Registration Statement on Form SB-2 (File
No. 33-80556) and incorporated herein by reference)
10.4 Wave Technologies International, Inc. Outside Directors Stock
Option Plan (filed as Exhibit 10.4 to Registrant's annual report
on Form 10K-SB for the fiscal year ended April 30, 1995, and
incorporated herein by reference)
10.5 Distribution Agreement between the Company and Ingram Micro,
Inc., dated April 19, 1996 (filed as exhibit 10.8 to Registrant's
annual report on Form 10K-SB for the fiscal year ended April 30,
1995, and incorporated herein by reference)
10.6 Stock Purchase Agreement between the Company and Radnor Venture
Partners, L.P. (filed as Exhibit 10.9 to Registrant's
Registration Statement on Form SB-2 (File No. 33-80556) and
incorporated herein by reference)
10.7 Agreement between the Company and Radnor Venture Partners, L.P.,
dated April 30, 1994 (filed as Exhibit 10.10 to Registrant's
Registration Statement on Form SB-2 (File No. 33-80556) and
incorporated herein by reference)
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10.8 Amendment Agreement between the Company and Radnor Venture
Partners, L.P., dated May 31, 1994 (filed as Exhibit 10.11 to
Registrant's Registration Statement on Form SB-2 (File No. 33-
80556) and incorporated herein by reference)
10.9 $1,500,000 Line of Credit Note to Commerce Bank, National
Association, dated August 30, 1995 (filed as Exhibit 10.14 to
Registrant's Quarterly Report on Form 10Q-SB for the quarter
ended October 31, 1995 and incorporated herein by reference)
10.10 General Loan and Security Agreement between Commerce Bank,
National Association, and the Company, dated as of August 31,
1995 (filed as Exhibit 10.15 to Registrant's Quarterly Report on
Form 10Q-SB for the quarter ended October 31, 1995, and
incorporated herein by reference)
10.11 First Amendment to General Loan and Security Agreement, dated as
of January 5, 1996, between the Company and Commerce Bank,
National Association (filed as Exhibit 10.13 to Registrant's
Quarterly Report on Form 10Q-SB for the quarter ended January 31,
1996, and incorporated herein by reference)
10.12 $600,000 Note dated January 5, 1996, to Commerce Bank, National
Association (filed as Exhibit 10.14 to Registrant's Quarterly
Report on Form 10Q-SB for the quarter ended January 31, 1996 and
incorporated herein by reference)
10.13 Wave Technologies International, Inc. 1995 Stock Option Plan
(filed as Exhibit 4.3 to Registrant's Registration Statement on
Form S-8 (File No. 33-98462) and incorporated herein by
reference)
10.14 International Distributor/Reseller Agreement - Published Products
& Instructor-Led Training between the Company and Oogjen
Consultancy B.V. i.o., dated as of November 1, 1995 (filed as
Exhibit 10.17 to Registrant's Quarterly Report on Form 10Q-SB for
the quarter ended May 31, 1996 and incorporated herein by
reference)
10.15 Products Order Agreement between the Company and Hitechniaga IT
Academy dated as of October 20, 1995, as amended by letter dated
October 24, 1995 (filed as Exhibit 10.18 to Registrant's
Quarterly Report on Form 10Q-SB for the quarter ended January 31,
1996 and incorporated herein by reference)
10.16 Waveware License Agreement between the Company and SHL
Systemhouse Corp., dated as of January 30, 1996 (filed as Exhibit
10.19 to Registrant's Quarterly Report on Form 10Q-SB for the
quarter ended January 31, 1996 and incorporated herein by
reference)
10.17 Employment Agreement dated May 15, 1995, between the Company and
David C. Forman (filed as Exhibit 10.20 to Registrant's Quarterly
Report on Form 10Q-SB for the quarter ended January 31, 1996 and
incorporated herein by reference)
27.0 Financial Data Schedule
(b) Reports on Form 8-K - The registrant did not file any reports on Form 8-K
during the fiscal quarter ended July 31, 1996.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
Wave Technologies International, Inc.
Dated: July 12, 1996 By: /s/ J. Michael Bowles
-----------------------------------
J. Michael Bowles, Chief Financial Officer
(Principal Accounting and
Financial Officer and Duly Authorized
Officer)
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EXHIBIT INDEX
SEQUENTIAL
EXHIBIT PAGE
NUMBER DOCUMENT DESCRIPTION NUMBER
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27.0 Financial Data Schedule 13
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<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
Financial statements included in Quarterly Report Form 10-QSB for the quarter
ended July 31, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-01-1996
<PERIOD-END> JUL-31-1996
<CASH> 833,907
<SECURITIES> 0
<RECEIVABLES> 5,252,283
<ALLOWANCES> 436,000
<INVENTORY> 699,945
<CURRENT-ASSETS> 6,714,592
<PP&E> 7,310,780
<DEPRECIATION> 3,589,492
<TOTAL-ASSETS> 13,344,041
<CURRENT-LIABILITIES> 6,383,745
<BONDS> 0
<COMMON> 1,960,497
0
0
<OTHER-SE> 4,258,314
<TOTAL-LIABILITY-AND-EQUITY> 13,344,041
<SALES> 2,794,175
<TOTAL-REVENUES> 6,667,040
<CGS> 522,085
<TOTAL-COSTS> 3,283,105
<OTHER-EXPENSES> 3,143,939
<LOSS-PROVISION> 22,537
<INTEREST-EXPENSE> 19,248
<INCOME-PRETAX> 217,645
<INCOME-TAX> 0
<INCOME-CONTINUING> 217,645
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 217,645
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
