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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 October 31, 1997
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[X] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT F 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 praticable date: The issuer had 3,976,880 shares of
common stock, par value $.50,
outstanding as of December 9, 1997
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Transitional Small Business Disclosure Format (check one): Yes No X
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WAVE TECHNOLOGIES INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
April 30 October 31
ASSETS 1997 1997
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<S> <C> <C>
Current assets:
Cash and cash equivalents $ 948,280 $ 765,828
Accounts receivable (less allowance of $446,000 and
$424,000, respectively) 7,107,651 6,780,751
Inventory 785,011 988,884
Prepaid expenses 475,949 789,354
Other current assets 169,305 279,826
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Total current assets 9,486,196 9,604,643
Property, plant & equipment - net 3,956,964 4,103,227
Prepaid direct mail cost 558,025 749,383
Deferred courseware 1,653,993 2,169,398
Other assets 839,348 613,042
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Total assets $16,494,526 $17,239,693
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Current liabilities:
Accounts payable $ 2,489,814 $ 2,108,344
Accrued expenses 1,408,946 1,473,662
Deferred revenue 4,098,761 3,572,620
Bank line-of-credit - 1,195,000
Current portion of long-term debt and capital lease obligations:
Related party 280,099 250,033
Other 76,451 67,219
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Total current liabilities 8,354,071 8,666,878
Long-term debt:
Related party 147,020 55,478
Other 94,766 66,677
Accrued rent liability 297,987 300,491
Common shareholders' equity:
Common stock, $.50 par value, authorized 20,000,000 shares;
issued, 3,933,459 and 3,976,880 shares; outstanding, 3,926,102
and 3,969,523 shares 1,966,729 1,988,440
Additional paid-in capital 7,038,285 7,170,233
Accumulated deficit (1,468,461) (1,122,031)
Cumulative translation adjustment 78,827 128,225
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7,615,380 8,164,867
Less treasury stock, at cost (7,357 shares) (14,698) (14,698)
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Total common shareholders' equity 7,600,682 8,150,169
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Total liabilities and shareholders' equity $16,494,526 $17,239,693
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WAVE TECHNOLOGIES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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Three Months Ended Six Months Ended
October 31 October 31
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1996 1997 1996 1997
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<S> <C> <C> <C> <C>
Revenues:
Publishing $3,743,861 $5,005,029 $6,538,036 $8,443,549
Instructor-led training 2,565,865 2,958,442 5,109,158 6,005,524
Custom solutions 1,047,405 1,424,896 2,376,977 2,803,231
---------- --------- --------- ---------
Total revenues 7,357,131 9,388,367 14,024,171 17,252,304
---------- --------- ---------- ----------
Cost and expenses:
Cost of services, products and development 3,570,337 4,223,889 6,853,442 8,691,573
Sales and marketing 1,831,551 2,153,413 3,556,978 4,378,581
General and administrative 1,599,994 1,751,401 3,018,505 3,597,598
---------- --------- --------- ---------
Total costs and expenses 7,001,882 8,128,703 13,428,925 16,667,752
---------- --------- ---------- ----------
Income from operations 355,249 1,259,664 595,246 584,552
Other income/(expenses) - net (19,957) (35,550) (42,308) (49,622)
---------- --------- --------- ---------
Income before tax 335,292 1,224,114 552,938 534,930
Less provision for income taxes - 428,500 - 188,500
---------- --------- --------- ---------
Net Income $ 335,292 $795,614 $552,938 $346,430
========== ======== ========= =========
Net income/(loss) per common shares $0.09 $0.20 $0.14 $0.09
========== ======== ========= =========
Weighted average common shares 3,939,973 4,069,278 3,940,015 4,035,429
=========== ========== ========= =========
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WAVE TECHNOLOGIES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED OCTOBER 31
(UNAUDITED)
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<CAPTION>
1996 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) $ 552,938 $ 346,430
Adjustments to reconcile net income to net cash
used in operating activities
Depreciation and amortization 825,672 1,195,419
Barter activity (548,394) (177,821)
Loss on disposal of capital assets 108 -
Other 56,134 49,398
Net changes in other assets and liabilities:
Accounts receivable (100,119) 360,061
Inventory 81,027 (203,873)
Other current assets (136,103) (423,926)
Prepaid direct mail (328,138) (191,358)
Deferred courseware 60,904 (515,405)
Other assets (4,245) 158,902
Accounts payable 416,054 (381,470)
Accrued expenses 100,546 64,716
Deferred charges (218,105) (523,637)
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Net cash from (used) in operating activities 758,279 (242,564)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (337,219) (1,129,618)
Disposal of capital equipment 1,712 -
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Net cash used in investing activities (335,507) (1,129,618)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock - net 26,631 153,659
Proceeds from borrowings under line of credit - net 22,000 1,195,000
Repayments of notes payable (114,875) (121,608)
Payments of capital lease obligations (16,084) (37,321)
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Net cash (used) provided by financing activities (82,328) 1,189,730
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 340,444 (182,452)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 747,064 948,280
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CASH AND CASH EQUIVALENTS, END OF PERIOD $1,087,508 $ 765,828
========== ==========
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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 six months ended October 31, 1997 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, 1997, and the notes thereto.
The Company has reclassified certain 1997 fiscal year amounts to conform to
current year presentation.
The provision for income taxes was determined using an effective income tax
rate of 35% in fiscal 1998.
In 1997, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 128, EARNINGS PER SHARE (SFAS 128), effective
for periods ending after December 15, 1997. The new standard replaces primary
earnings per share (EPS) with basic EPS, simplifies EPS calculations and
requires restatement of all prior period EPS data. The Company intends to adopt
the provisions of SFAS 128 during the third fiscal quarter of 1998 and expects
no material impact.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION (SFAS
131), which requires disclosure for each segment in which the chief operating
decision maker organizes these segments within a company for making operating
decisions and assessing performance. Reportable segments are based on products
and services, geography, legal structure, management structure and any manner in
which management disaggregates a company. The Company intends to adopt SFAS 131
in the first quarter of fiscal 1999. The Company anticipates that adoption of
SFAS 131 will not be material.
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 is with the same bank,
and was increased from $2,000,000 to $2,500,000 effective September 1, 1997. 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.
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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 calculations included dilutive stock options and warrants
along with the average number of common shares outstanding.
Item 2. Management's Discussion and Analysis or Plan of Operations.
Overview
The Company designs, develops and delivers training programs addressing
data communications, networking and client/server computing technologies. Wave
delivers these products and services through instructor-led courses,
informational seminars and published products and the Internet. The Company
markets its courses and published products to management information
professionals, system integrators, value-added resellers and others with systems
management responsibilities.
The Company delivers its instructor-led training through eleven Company-
owned facilities in the United States and two centers in the United Kingdom. The
Company increasingly sells training solutions utilizing a mix of multi-media
materials and live training. Wave has developed both domestic and international
distribution channels for its products.
Three Months Ended October 31, 1997 Compared To
Three Months Ended October 31, 1996
Total revenues increased $2,031,000, or 28%, in the quarter ended October
31, 1997, to $9,388,000 from $7,357,000 in the same quarter in fiscal 1997, and
increased $1,524,000, or 19%, over total revenues for the first fiscal 1998
quarter. The increase in revenues included $1,000,000 in non-recurring license
fees from Wave's ongoing distribution and licensing agreements with IBM.
International revenues accounted for approximately 18% of Wave's total revenues
in the quarter ended October 31, 1997, compared to 16% of total revenues in the
same quarter in fiscal 1997, and 22% in the first quarter of fiscal 1998. While
the agreement with IBM is a global contract, Wave recorded all initial license
fees in domestic revenues.
Publishing revenues increased $1,261,000, or 34%, from $3,744,000, to
$5,005,000, and increased slightly as a percentage of total revenues, to 53%
from 51% in the second quarter in fiscal 1997. The increase in publishing
revenues during the second quarter of fiscal 1998 included the IBM license fee.
Wave had no sales to its distributors in Australia, Hong Kong and Malaysia in
the quarter, compared to approximately $200,000 in sales to those distributors
in the second quarter of fiscal 1997. International publishing revenues are
likely to continue to be impacted by the downturn in the economy of Pacific Rim
countries. Direct mail sales of the Company's published products also have been
affected by increased competition from low-priced products offered on the
Internet and in retail bookstores. Wave has responded by emphasizing direct
sales to corporate customers. As a result, large corporate licenses now comprise
a significant portion of Wave's publishing revenues, and quarter to quarter
fluctuations in those revenues may occur.
Instructor-led training ("ILT") revenues increased 15% to $2,958,000 from
$2,566,000 in the same quarter in fiscal 1997, but declined slightly as a
percentage of total revenues, to 32%. In the second fiscal quarter, Microsoft
courses accounted for 66% of ILT revenues for the quarter ended October 31, 1997
compared to 51% for the second quarter of fiscal 1997, while Novell-related ILT
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revenues represented 14% of total ILT revenues, compared to 25% of total ILT
revenues in the same quarter of fiscal 1997. International ILT revenues
increased 55% compared to the same quarter in fiscal 1997, as Wave's first
London center continued to operate at capacity and the second London center,
opened in September of 1997, began to recognize initial revenue.
The Company recognized $616,000 in revenues for Club Wave sales and
$505,000 for corporate Club Wave sales in the quarter ended October 31, 1997.
Deferred revenue for Club Wave and corporate Club Wave sales was $1,659,000 as
of the end of the quarter, and total deferred revenue was $3,573,000 as of that
date. This compares to total deferred revenue at April 30, 1997 of $4,099,000
and to total deferred revenue at July 31, 1997, the end of the first fiscal
quarter, of $3,278,000. Deferred revenue reflects completed sales by the
Company, where the Company has recognized the cost of selling and order
execution, so that Wave carries limited ongoing operating expenses to fulfill
these additional sales and recognize the related revenue.
Custom Solutions revenues increased $377,000, or 36%, from the same period
in fiscal 1997, and represented 15% of total revenues, compared to 14% in the
second quarter of fiscal 1997, primarily as the result of a $270,000 increase in
sales related to GTE University and $109,000 in revenues from WaveSource, the
Company's placement division. Custom Solutions revenues will continue to
fluctuate from quarter to quarter as they can be significantly affected by the
timing of such services.
Cost of services, products and development increased $654,000, or 18%, in
the quarter ended October 31, 1997, to $4,224,000, but decreased as a percentage
of total revenues to 45% from 49% in the same quarter in fiscal 1997. The
increase included a $206,000, or 18%, increase in domestic salaries and related
payroll costs, and a $40,000, or 69%, increase in international payroll for
trainers added to support Wave's new London office. Temporary labor expenses
also increased $212,000, or 100%, domestically, and $106,000, or 90%
internationally, compared to the second quarter in fiscal 1997, primarily for
trainers and developers to support increased ILT and Custom Services sales.
Product costs increased $124,000, or 22%, largely offset by an $84,000 decrease
in total shipping and freight costs. Net development expense for the quarter
decreased $113,000, compared to the same quarter in fiscal 1997, as Wave
capitalized more product development costs than it expensed for development of
new Microsoft training products.
Sales and marketing expenses for the quarter ended October 31, 1997,
increased $322,000, or 18%, to $2,153,000, from the same quarter in fiscal 1997,
and decreased as a percentage of total revenues, to 23% compared to 25%.
Domestic sales and marketing payroll increased by $209,000, primarily for
salary, bonuses and commissions for Wave's expanded major accounts sales team.
Printing and advertising costs also increased, by $81,000, primarily as a result
of the Company's efforts to expand its Internet-based advertising on Web sites
of other companies and increased advertising in industry publications. Despite
significantly increased spending on direct mail during the quarter, the
Company's domestic direct mail expenses decreased slightly over the same period
last year, as the Company capitalizes and amortizes its direct mail costs. The
additional outlay for direct mail during the second quarter of fiscal 1998 was
capitalized and will be amortized over the next six months. Total international
sales and marketing expenses increased by $105,000, partially as the result of a
$38,000 increase in international sales and marketing payroll, and a $52,000
increase in international direct mail expense.
General and administrative expenses increased $151,000, or 9%, to
$1,751,000 for the second quarter of fiscal 1998, but decreased as a percentage
of total revenues to 19% from 22% in the same quarter in fiscal 1997.
Depreciation increased $152,000, or 64%, compared to the same quarter in
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fiscal 1997, related to equipment purchases earlier in the year, including items
for Wave's new London Training Center.
Quarterly income before taxes was $1,224,000, compared to $335,000 for the
second quarter of fiscal 1997. Wave expensed $429,000 for income taxes for the
quarter, but had no income taxes in the same period in fiscal 1997, as the
Company utilized operating loss carryforwards. The Company's net income of
$796,000, or $.20 per share, for the second quarter of fiscal 1998, compared to
net income of $335,000, or $.09 per share, in the quarter ended October 31,
1997, and to a net loss of $449,000, or $.11 per share, for the first quarter of
fiscal 1998.
Six Months Ended October 31, 1997 Compared
To Six Months Ended October 31, 1996
Total revenues increased $3,228,000, or 23%, in the six months ended
October 31, 1997, to $17,252,000 from $14,024,000 in the same period in fiscal
1997. Publishing revenues increased $1,906,000 or 29%, to $8,444,000 from
$6,538,000, and increased slightly as a percentage of total revenues, to 49%
from 47% in the first six months of fiscal 1997. Instructor-led training
revenues increased $896,000, or 18%, to $6,006,000, and remained stable as a
percentage of total revenues at 35%. Custom solutions revenues increased
$426,000, or 17%, to $2,803,000 for the first six months of fiscal 1998, and
remained relatively stable as a percentage of total revenues, at 16%, compared
to 17% in the fiscal 1997 period.
International sales increased 46% from the first six months of fiscal 1997,
to $3,425,000, and increased as a percentage of total revenues, to 20% from 17%.
International publishing revenues for the six-month period were $1,682,000, or
20% of total publishing revenues, compared to $1,008,000, or 15%, in the same
period in the prior fiscal year. International ILT revenues were $1,743,000, or
29%, of total ILT revenues, for the first six months of fiscal 1998, compared to
$1,294,000, or 25%, of total ILT revenues for the same period in the prior year.
Cost of services, products and development increased $1,838,000 or 27%, in
the six months ended October 31, 1997, to $8,692,000, but remained relatively
stable as a percentage of total revenues, at 50% in the current period, compared
to 49% in the fiscal 1997 period. Domestic cost of services, products and
development increased $1,179,000, or 19%, as the result of increased payroll and
related expenses of $659,000, and a $496,000 increase in temporary labor
expense, partially offset by a net $279,000 increase in capitalized development
costs. Domestic product costs also increased, by $138,000, compared to the same
period in fiscal 1997, but were partially offset by a $33,000 decrease in
shipping and related expenses. Equipment rental for the domestic training
centers increased $66,000 for the six months ended October 31, 1997. Expenses
for international cost of services increased by $659,000, or 103%, to support
the growth of the Company's London operations. International payroll expenses
increased $111,000, outside contractor expenses increased $186,000, and product
costs increased $189,000.
Sales and marketing expenses for the six months ended October 31, 1997,
increased $822,000, or 23%, to $4,379,000, and remained stable as a percentage
of total revenues, at 25%. Domestic sales and marketing payroll-related expense
increased $303,000, and international payroll expense increased $145,000,
compared to the first six months of fiscal 1997. Direct mail expenses increased
$90,000, or 10%, from the fiscal 1997 six-month period. Printing and advertising
costs also increased, by $164,000, or 63% as the Company increased its
Internet-based and industry publication advertising. Total international sales
and marketing expenses increased by $231,000, or 30%.
General and administrative expenses increased $579,000, or 19%, to
$3,598,000 for the first six months of fiscal 1998, and decreased slightly as
a percentage of total revenues to 21% from 22% in
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the same period in fiscal 1997. Domestic general and administrative payroll
increased by $144,000, or 23%, to staff the Company's continued growth.
Depreciation expense increased $271,000, or 57%, compared to the same period in
fiscal 1997, for equipment purchases for the Company's corporate headquarters
and its new London training center.
Pre-tax income was $535,000 for the six months ended October 31, 1997,
compared to $553,000 for the same period in fiscal 1997. Net income for the
current six-month period was $346,000, compared to net income of $553,000 for
the same period in the previous fiscal year, as the result of income tax
expense. Wave had no income tax expense in the prior year period because the
Company utilized net operating loss carryforwards. Net income per share was $.09
for the six months ended October 31, 1997 compared to net income per share of
$0.14 for the same period in fiscal 1997.
Liquidity and Capital Resources
The Company's net cash balance at October 31, 1997, was $766,000 compared
to $948,000 at April 30, 1997. Total accounts receivable decreased by $512,000,
to $6,781,000, as the Company collected amounts billed earlier in the year and
in fiscal 1997. Wave also reduced accounts payable, by $382,000, from $2,490,000
at April 30, 1997 to $2,108,000 at October 31, 1997. Prepaid expenses increased
significantly, by $313,000, or 66%, at October 31, 1997, compared to the end of
fiscal 1997, as Waive paid federal alternative minimum tax with its fiscal 1997
tax return extension.
Prepaid direct mail increased by $191,000, to $749,000 at October 31, 1997.
Inventory increased approximately 26%, or $204,000 to $989,000 at October 31,
1997, to support anticipated demand under Wave's agreements with IBM. Deferred
courseware also increased, by $515,000, to $2,169,000, compared to the end of
fiscal 1997. While prepaid advertising and deferred courseware appear as assets
on the balance sheet, those amounts will be expensed over the following six to
24 months.
In September 1997, the Company increased its existing line of credit by
$500,000, to $2,500,000. See Note II of Notes to Consolidated Financial
Statements. Wave had drawn $1,195,000 on the line of credit at quarter end,
compared to no balance at the end of fiscal 1997. The Company had overnight
borrowing balances on the line 78 times during the second quarter of fiscal
1998, compared to 7 times during the same quarter in fiscal 1997. Cash flow for
the second fiscal quarter was affected by the loss in the first fiscal quarter.
Wave believes that cash generated from operations, together with existing
cash balances, additional planned equipment leases and its available credit
line, should be sufficient to satisfy the Company's cash requirements for the
next several months.
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PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
At the Company's annual meeting of shareholders held on September 10, 1997,
the following matters were voted upon:
1. Election of David W. Kemper, Kenneth W. Kousky and Walter N. Torous to
serve as directors of the Company until the annual meeting of shareholders
in 2000 and until their successors are qualified. The votes were as
follows:
Mr. Kemper - 3,462,350 shares in favor, and 82,350 shares withheld
authority
Mr. Kousky - 3,464,650 shares in favor, and 80,050 shares withheld
authority
Mr. Torous - 3,464,350 shares in favor, and 80,350 shares withheld
authority
2. The adoption of the Company's 1997 Stock Option Plan was approved by
the following vote: 2,143,457 shares in favor, 522,261 shares against and
4,000 shares abstained or broker non-votes.
3. The appointment of Deloitte & Touche, L.L.P. as independent auditors
for the Company for the fiscal year ending April 30, 1998 was approved by
the following vote: 3,538,370 shares in favor, 4,080 shares against and
2,250 shares abstained or broker non-votes.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit No. Title
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, as
amended)
3.2 Restated Bylaws (filed as Exhibit 3.2 to Registrant's Annual
Report on Form 10-KSB for the fiscal year ended April 30, 1997,
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 June 25, 1997, between the Company and
J. Michael Bowles (filed as Exhibit 10.1 to Registrant's Annual
Report on Form 10-KSB for the fiscal year ended April 30, 1997,
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)
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Exhibit No. Title
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<C> <S>
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 10-KSB 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 10-KSB 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)
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 $2,000,000 Line of Credit Note to Commerce Bank, National
Association, dated September 1, 1996 (filed as Exhibit 10.9 to
Registrant's Quarterly Report on Form 10-QSB for the quarter
ended October 31, 1996 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 10-QSB 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 10-QSB 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 10-QSB for the quarter ended January 31, 1996 and
incorporated herein by reference)
10.13 Second Amendment to General Loan and Security Agreement between
the Company and Commerce Bank, National Association, dated as of
September 1, 1996 (filed as Exhibit 10.13 to Registrant's
Quarterly Report on Form 10-QSB for the quarter ended October 31,
1996, and incorporated herein by reference)
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Exhibit No. Title
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<S> <C>
10.14 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)
10.16 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 10-QSB for the quarter ended
January 31, 1996 and incorporated herein by reference)
10.17 Courseware License Agreement effective as of July 31, 1997,
between the Company and International Business Machines
Corporation (filed as Exhibit 10.17 to Registrant's Quarterly
Report on Form 10-QSB for the quarter ended October 31, 1997 and
incorporated herein by reference)
10.18 Wave Technologies International, Inc. 1997 Stock Option Plan
27 Financial Data Schedule
(b) Reports on Form 8-K - The registrant did not file any reports on
Form 8-K during the quarter ended October 31, 1997.
</TABLE>
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: December 11, 1997 By: /s/ J. Michael Bowles
-----------------------------------
J. Michael Bowles, Chief Financial Officer
(Principal Accounting and
Financial Officer and Duly Authorized
Officer)
12
<PAGE>
Exhibit 10.18
WAVE TECHNOLOGIES INTERNATIONAL, INC. 1997 STOCK OPTION PLAN
---------------------------
Section I. Purpose
Wave Technologies International, Inc., a corporation organized and
existing under the laws of the State of Missouri, establishes this 1997 Stock
Option Plan to offer selected officers, employees and consultants of the Company
the opportunity to acquire capital stock of the Company pursuant to stock
options, certain of which are intended to qualify as incentive stock options
(ISOs) under Section 422 of the Internal Revenue Code of 1986, as amended, and
certain of which are intended to be nonqualifed stock options (NQSOs). The
purpose of the Plan is to induce such persons to contribute materially to the
Company's prosperity, to offer them incentives and rewards in recognition of
their contribution to the Company's progress, and to encourage them to continue
to promote the best interests of the Company. This Plan will also aid the
Company in competing with other enterprises for the services of new key
personnel.
Section II. Definitions
A. "Administrators" means as to all non-Officers, the Chairman of the
Company's Board of Directors or the President of the Company, or substitute or
additional persons appointed by the Board, and, as to Officers, the Committee or
the Board.
B. "Board" or "Board of Directors" means the board of directors of the
Company.
C. "Cause" means:
(i) Conduct or activity of the Participant materially detrimental
to the Company's reputation or business (including financial)
operations;
(ii) Gross or habitual neglect or breach of duty or misconduct of
the Participant in discharging the duties of his/her position;
or
(iii) Prolonged absence by the Participant from his/her duties (other
than on account of illness or disability) without the consent
of the Company.
D. "Code" means the Internal Revenue Code of 1986, as amended.
E. "Common Stock" means shares of the common stock (including treasury
stock), par value $.50 per share, of the Company.
<PAGE>
F. "Committee" or "Compensation Committee" means the compensation
committee established by the Board of Directors of the Company.
G. "Company" means Wave Technologies International, Inc., or any
successor thereto.
H. "Competition" means engaging, directly or indirectly, in any activity
which is in competition with any activity of the Company or any
Subsidiary, or in any action or conduct which is in any manner adverse
or in any way contrary to the interests of the Company or any
Subsidiary.
I. "Disability" means a physical or mental impairment which can be
expected to result in death or which has lasted or can be expected to
last for a continuous period of not less than 12 months, which causes
a person to be unable, in the opinion of the Company and two
independent physicians, to perform his or her duties for the Company
and to be engaged in any substantial gainful activity. Disability
shall be deemed to have occurred on the first day after the Company
and the two independent physicians have furnished their opinion of
such Disability to the Administrators.
J. "Exchange Act" means the Securities Exchange Act of 1934, as amended.
K. "Fair Market Value" as of a given date, means: the closing or last
sale price of a share of the Common Stock as reported on the principal
exchange or automated quotation system on which the Common Stock
trades on the day immediately preceding such date (or, if there is no
reported sale on such day, on the last preceding date on which any
reported sale occurred).
L. "Officers" means an employee of the Company who is an officer within
the meaning of Regulation (S) 240.16a promulgated under Section 16 of
the Exchange Act (or any successor regulation). An Officer may be a
director of the Company.
M. "Parent" means any parent corporation of the Company within the
meaning of Section 424 (or any successor provision) of the Code.
N. "Participant" means an Employee or consultant who is granted a stock
option hereunder.
O. "Plan" means the Wave Technologies International, Inc. 1997 Stock
Option Plan.
P. "Subsidiary" means any subsidiary corporation of the Company within
the meaning of Section 424 (or any successor provision) of the Code.
-2-
<PAGE>
Q. "Ten Percent Shareholder" means a person who owns, on the date of
grant of an option, more than 10% of the total combined voting power
of all classes of stock of the Company, or its Parent or Subsidiary.
Section III. Administration
This Plan shall be administered as to non-Officers by the Chairman of the
Company's Board of Directors or the President of the Company or any substitute
or additional persons appointed by the Board, and as to all Officers, by the
Committee or by the full Board. Except for the terms and conditions explicitly
set forth in this Plan, the Administrator shall have the authority, in its
discretion, to determine all matters relating to the options to be granted under
this Plan, including selection of the persons to be granted options, the number
of shares to be subject to each such option, the exercise price, and all other
terms and conditions of such options, including any conditions relating to
vesting or acceleration of voting. Grants under this Plan need not be identical
in any respect, even when made simultaneously.
The interpretation and construction by the Administrators of any terms or
provisions of this Plan or any option issued hereunder, or of any rule or
regulation promulgated in connection herewith, shall be conclusive and binding
on all interested parties, so long as such interpretation and construction with
respect to ISOs correspond to the requirements of Section 422 of the Code, the
regulations thereunder and any amendments thereto.
In the event the Company or any Subsidiary enters into a transaction
described in Section 424(a) of the Code with any other corporation, the
Administrator may grant options to employees or former employees of such
corporation in substitution of options previously granted to them upon such
terms and conditions as shall be necessary to qualify such grant as a
substitution described in Section 424(a) of the Code.
With respect to grants made under this Plan to individuals who are subject
to Section 16 of the Exchange Act, the Committee shall be constituted at all
times so as to meet the requirements of Rule 16b-3 promulgated under Section
16(b) of the Exchange Act if any of the Company's equity securities are
registered pursuant to Section 12(b) or 12(g) of the Exchange Act.
Section IV. Shares Subject to Plan
Subject to adjustment as set forth below in this Section IV, the number of
shares of Common Stock as to which options may be granted under the Plan shall
not exceed, in the aggregate, ________ shares. The maximum number of shares
with respect to which options may be granted under the Plan during any calendar
year to any eligible person shall not exceed ______. Such shares may be, in
whole or in part, as the Board of Directors shall from time to time determine,
authorized but unissued shares, or issued shares which shall have been
-3-
<PAGE>
reacquired by the Company. If an option expires or is terminated or surrendered
without having been fully exercised, the unpurchased shares subject to the
option shall again be available for purposes of this Plan, including for
replacement options which may be granted in exchange for such expired,
surrendered, exchanged, canceled or terminated options granted under this Plan.
The aggregate number and class of shares for which options may be granted
under this Plan, the maximum number and class of shares that may be granted to
any eligible person in a given year, the number and class of shares covered by
each outstanding option and the exercise price per share thereof (but not the
total price), and each such option, shall all be proportionately adjusted for
any increase or decrease in the number of issued shares of Common Stock of the
Company resulting from a split-up or consolidation of shares or any like capital
adjustment, or the payment of any stock dividend.
Section V. Eligibility
Employees of, and consultants performing services for, the Company or its
Subsidiaries shall be eligible to participate in this Plan. ISOs may be granted
only to Officers and key employees of the Company or its Subsidiaries who
perform, or are expected to perform, services of importance to the management,
operation and development of the business of the Company.
Section VI. Stock Options
A. Option Price. Except as provided below, the purchase price of the
Common Stock under each ISO granted hereunder shall not be less than one hundred
percent (100%) of the Fair Market Value of the Common Stock at the time of the
grant of the option. The purchase price of Common Stock under each ISO issued to
a Ten Percent Shareholder shall be no less than 110% of the Fair Market Value of
the Common Stock at the time of the grant of the option.
B. Term and Exercise of Options. Except as provided below, the term of
each option shall be not more than ten (10) years from the date of grant. The
term of each ISO granted to a Ten Percent Shareholder shall not be more than
five (5) years from the date of grant. Options will be exercisable at such time
or times, and subject to such restrictions and conditions, as the Administrator
shall in each instance approve, which need not be uniform for all Participants.
C. Termination of Employment. Subject to the restrictions described in
Subsection B of this Section on the Participant's exercise of an option and to
the provisions of Subsection E of this Section, options may contain such
provisions as the Administrators shall determine regarding the extent (if any)
to which options may be exercised after termination of employment or consulting
services; provided, however, that ISOs shall be subject to the following
restrictions:
-4-
<PAGE>
(a) If a Participant terminates employment for any reason other than
death or disability, the Participant may not in any event exercise any ISO
held by such Participant after the date which is three (3) months after the
date of such termination.
(b) If a Participant's employment is terminated by reason of
Disability, the Participant or the personal representative of the
Participant may not in any event exercise an ISO after the date which is
twelve (12) months after the date of the Participant's employment
termination.
In the event the Administrators fail to establish provisions regarding
exercise of options after termination of employment or consulting services, the
following provisions shall apply.
(a) Any outstanding vested options held at the time of termination of
employment or consulting services shall be exercisable only during the
period ending on the earlier of (A) ninety (90) days following termination
of employment, or (B) the expiration of the period during which the
Participant would otherwise have been entitled to exercise the option;
provided, however, that if the employment or consulting services are
terminated for Cause or if the Participant engages in Competition, then any
option (regardless of whether it is otherwise vested), to the extent not
exercised, shall terminate and be forfeited; and
(b) If a Participant terminates employment or consulting services
with the Company due to death or Disability, any vested options held by the
Participant shall be exercisable by the Participant or his/her estate or
beneficiary only during the period commencing on the date of such
termination and ending on the earlier of (A) one year after such
termination or (B) the expiration of the period during which the
Participant would otherwise have been entitled to exercise the option.
D. Leaves of Absence. The option agreements issued pursuant to this Plan
may contain such provisions as the Administrator shall determine with respect to
approved leaves of absence.
E. Limitation on Exercise of Options. The maximum aggregate Fair Market
Value (determined at the time an option is granted) of the Common Stock with
respect to which ISOs are exercisable for the first time by any Participant
during any calendar year (under all plans of the Company and its Subsidiaries)
shall not exceed $100,000. If the provisions of this Section limit the
exercisability of certain ISOs which would otherwise become exercisable, the
Administrators, in their sole discretion, shall determine the times at which
such ISOs becomes exercisable so that the provisions of this Subsection E are
not violated; provided that in no event shall any ISO be exercisable more than
(10) years from the date of granting thereof (five (5) years in the case of ISOs
granted to Ten Percent Shareholders).
-5-
<PAGE>
Section VII. Payment of Option Price
Payment of the option exercise price shall be made in full at the time the
notice of exercise of the option is delivered to the Company and shall be in
cash, bank certified or cashier's check, or personal check (unless at the time
of exercise the Administrator in a particular case determines not to accept a
personal check) for the shares being purchased.
To the extent permitted by applicable laws and regulations (including, but
not limited to, federal tax and securities laws and regulations and state
corporate law), payment of an option exercise price also may be made, in whole
or in part, by:
(a) delivery of shares of Common Stock of the Company held by the
Participant; or
(b) delivery of a properly executed exercise notice, together with
irrevocable instructions to a broker, all in accordance with the
regulations of the Federal Reserve Board, to promptly deliver to the
Company the amount of sale or loan proceeds to pay the exercise price and
any federal, state or local withholding tax obligations that may arise in
connection with the exercise.
Section VIII. Non-Transferability of Options
Each option granted under the Plan shall by its terms be non-transferable
otherwise than by will or by the laws of descent and distribution, and an option
may be exercised, during the lifetime of the Participant, only by such person.
Notwithstanding the foregoing, to the extent permitted by Rule 16b-3 under the
Exchange Act and other applicable laws and regulations a Participant may
transfer an NQO to the extent permitted by the Administrators, either in the
option agreement, or otherwise in writing.
Subsequent transfers of transferred options shall be prohibited except
those made in accordance with the Plan by will or the laws of descent and
distribution. Following transfer, any option transferred shall continue to be
subject to the terms and conditions applicable to the option immediately prior
to the transfer. The provisions regarding termination of employment or
consulting services shall continue to be applied with respect to the original
holder of an option, and after such termination, the options transferred shall
be exercisable by the transferee only to the extent, and for the periods
permitted by the Plan and the option agreement.
Section IX. Amendment and Termination.
Unless this Plan shall have terminated earlier as provided herein, this
Plan shall terminate, and no options shall be granted hereunder, after ten (10)
years from the date of its
-6-
<PAGE>
adoption by the Board of Directors. Any stock options outstanding at the
termination of this Plan shall continue in full force and effect and shall not
be affected by termination of this Plan.
The Board of Directors may, at any time prior to that date, terminate this
Plan or make such modifications to the Plan as it may deem advisable; provided
that, to the extent required for compliance with the rules promulgated under
Section 16 of the Exchange Act, Section 422 of the Code or any applicable law or
regulation, the Company's stockholders must approve any amendment which will:
(a) increase the number of shares that may be issued under this Plan;
(b) with respect to NQOs, materially modify the requirements as to
eligibility for participation in this Plan or, with respect to ISOs, change
the designation of the persons or class of persons eligible for
participation in this Plan;
(c) materially increase the benefits accruing to the option holders
under this Plan; or
(d) otherwise require stockholder approval under any applicable law
or regulation.
Such stockholder approval must be obtained (i) within 12 months of the
adoption by the Board of such amendment; (ii) if earlier, at the next annual
meeting of stockholders after such adoption by the Board; or (iii) at such
earlier date as may be required for compliance with Rule 16b-3 promulgated under
the Exchange Act.
Any amendment made to this Plan which would constitute a "modification" to
ISOs outstanding on the date of such amendment shall not be applicable to such
outstanding ISOs but shall have prospective effect only, unless the Participant
agrees otherwise.
Section X. Withholding
The Company or any related corporation shall have the right to retain and
withhold from any payment of cash or shares of Common Stock under this Plan the
amount of taxes required by any government to be withheld or otherwise deducted
and paid with respect to such payment. At its discretion, the Company may
require an option holder receiving shares of Common Stock to reimburse the
Company for any such taxes required to be withheld by the Company and withhold
any distribution in whole or in part until the Company is so reimbursed. In lieu
thereof, the Company shall have the right to withhold from any other cash
amounts due or to become due from the Company to the option holder an amount
equal to such taxes. The Company may also retain and withhold or the option
holder may elect, subject to approval by the Company at its sole discretion, to
have the Company retain and withhold a number of shares
-7-
<PAGE>
having a market value not less than the amount of such taxes required to be
withheld by the Company to reimburse the Company for any such taxes and cancel
(in whole or in part) any such shares so withheld.
Section XII. Effect of Change in Control
A. A "Change of Control" means a change in control of a nature that would
be required to be reported in response to Item 1(a) of the Current Report on
Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of
the Exchange Act or would have been required to be so reported but for the fact
that such event had been "previously reported" as that term is defined in Rule
12b-2 of Regulation 12B of the Exchange Act; provided that, without limitation,
notwithstanding anything herein to the contrary, a change in control shall be
deemed to have occurred if (i) any person or entity (other than the Company, a
Subsidiary of the Company, or any employee benefit plan(s) sponsored or
maintained by the Company or a Subsidiary) is or becomes the beneficial owner
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 25% or more of the combined voting power
of the Company's then outstanding securities ordinarily (apart from rights
accruing under special circumstances) having the right to vote at elections of
directors, (ii) the stockholders of the Company approve (a) a reorganization,
merger or consolidation with respect to which persons who were the stockholders
of the Company immediately prior to such reorganization, merger or consolidation
will not, immediately thereafter, own, directly or indirectly, more than 50% of
the combined voting power entitled to vote generally in the election of
directors of the reorganized, merger or consolidation company's then outstanding
voting securities, (b) a liquidation or dissolution of the Company, or (c) the
sale of all or substantially all of the assets of the Company.
B. Effect of Change of Control. Notwithstanding any limitations on the
right of exercise, in the event of a Change of Control, any options held by a
Participant shall immediately be exercisable in full.
Section XII. Miscellaneous
A. No Rights to Continued Employment. Nothing in this Plan or in any
option granted pursuant to this Plan shall confer on any individual any right to
continue in the employ of, or to continue to provide consulting services to, the
Company or a Subsidiary or interfere with the right of the Company or a
Subsidiary to terminate the individual's employment or services at any time.
B. Retirement Plan Rights. Benefits received under this Plan by a
Participant shall not affect or be used in the calculation of the Participant's
pension or other retirement benefits under any other plan maintained by the
Company.
-8-
<PAGE>
C. Investment Undertakings. Until and unless the issuance of shares of
Common Stock pursuant to this Plan shall have been registered pursuant to the
Securities Act of 1933 and applicable state securities laws, each person
acquiring shares of Common Stock under this Plan may be required, as a condition
precedent to such issuance, to execute and deliver to the Company a letter or
certificate containing such investment representations, agreements restricting
sale (including, without limitation, provision for stop transfer orders and
restrictive legend on stock certificates) and confirmation of other relevant
facts to support any exemption from the registration requirements under the
Securities Act of 1933 and such state securities laws on which the Company
intends to rely, all as shall be deemed reasonably necessary by counsel for the
Company and in such form as such counsel shall determine.
D. Rule 16b-3 Compliance and Bifurcation of Plan. It is the intention of
the Company that, so long as the Common Stock is registered pursuant to Section
12(b) or 12(g) of the Exchange Act, this Plan shall comply in all respects with
Rule 16b-3 under the Exchange Act. If any Plan provision is later found not to
be in compliance with such Section, the provision shall be deemed null and void,
and in all events this Plan shall be construed in favor of its meeting the
requirements of Rule 16b-3. Notwithstanding anything in this Plan to the
contrary, the Board, in its absolute discretion, may bifurcate this Plan so as
to restrict, limit or condition the application of any provision of this Plan to
Participants who are subject to Section 16 of the Exchange Act without so
restricting, limiting or conditioning this Plan with respect to other
Participants.
E. Other Restrictions. The Administrators, in their absolute discretion,
may impose such other restrictions on the transferability of the shares
purchasable pursuant to the exercise of an option hereunder as they deem
appropriate. Any such restrictions shall be set forth in a stock option
agreement.
F. Notice upon Disqualifying Dispositions of ISOs. The Administrators
may require Participant to give the Company prompt notice of any disposition of
shares of stock acquired by exercise of an ISO if the disposition occurs within
two (2) years from the date of granting such ISO or within one (1) year after
the transfer of such shares to the Participant. The Administrators may direct
that the certificates evidencing shares acquired by exercise of an ISO refer to
this requirement to give prompt notice of a disqualifying disposition.
Section XIII. Effectiveness of the Plan
This Plan will be effective upon adoption by the Board of Directors of the
Company, so long as it is approved by the stockholders of the Company within 12
months after such adoption.
-9-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the registrant's financial statements as of and for the period ended October 31,
1997 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> OCT-31-1997
<CASH> 765,828
<SECURITIES> 0
<RECEIVABLES> 7,204,751
<ALLOWANCES> 424,000
<INVENTORY> 988,884
<CURRENT-ASSETS> 9,604,643
<PP&E> 10,110,749
<DEPRECIATION> 6,007,522
<TOTAL-ASSETS> 17,239,693
<CURRENT-LIABILITIES> 8,666,878
<BONDS> 0
0
0
<COMMON> 1,988,440
<OTHER-SE> 6,161,729
<TOTAL-LIABILITY-AND-EQUITY> 17,239,693
<SALES> 8,443,549
<TOTAL-REVENUES> 17,252,304
<CGS> 1,353,923
<TOTAL-COSTS> 7,337,650
<OTHER-EXPENSES> 7,976,179
<LOSS-PROVISION> 16,059
<INTEREST-EXPENSE> 56,445
<INCOME-PRETAX> 534,930
<INCOME-TAX> 188,500
<INCOME-CONTINUING> 346,430
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 346,430
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
