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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, 1998
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-24454
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 (IRS Employer ID No.)
incorporation or organization)
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 4,158,311 shares of
common stock, par value $.50, outstanding as of September 9, 1998
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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, 1998
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PART I FINANCIAL INFORMATION Page
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Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at July 31, 1998, and 3
April 30, 1998
Consolidated Statements of Operations for the 4
three months ended July 31, 1998 and 1997
Consolidated Statements of Cash Flows for the 5
three months ended July 31, 1998 and 1997
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 9
SIGNATURES 11
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WAVE TECHNOLOGIES INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, unaudited)
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April 30 July 31
1998 1998
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ASSETS
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Current assets:
Cash and cash equivalents $ 1,498 $ 677
Accounts receivable (less allowance of $397 and
$398, respectively) 7,262 7,379
Inventory 905 954
Prepaid expenses 680 633
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Total current assets 10,345 9,643
Property, plant & equipment - net 3,366 3,167
Prepaid direct mail cost 408 750
Deferred courseware 2,124 2,270
Other assets 2,053 2,498
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Total assets $18,296 $18,328
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Current liabilities:
Accounts payable $ 2,480 $ 2,396
Accrued expenses 2,347 1,448
Deferred revenue 3,947 4,396
Bank line-of-credit - 975
Current portion of long-term debt and capital lease obligations:
Related party 163 97
Other 56 56
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Total current liabilities 8,993 9,368
Long-term debt:
Related party - -
Other 41 24
Accrued rent liability 347 279
Common shareholders' equity:
Common stock, $.50 par value, authorized 20,000,000 shares;
issued, 3,933,459 and 4,158,311 shares; outstanding, 3,933,459
and 4,158,311 shares 2,079 2,079
Less treasury stock, at cost (7,357 shares) (15) (15)
Additional paid-in capital 8,083 8,083
Accumulated deficit (1,355) (1,582)
Cumulative translation adjustment 123 92
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Total common shareholders' equity 8,915 8,657
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Total liabilities and shareholders' equity $18,296 $18,328
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3
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WAVE TECHNOLOGIES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share, unaudited)
Three Months Ended
July 31
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1997 1998
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Revenues:
Publishing $ 3,439 $ 4,133
Instructor-led training 3,047 2,800
Custom solutions 1,378 933
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Total revenues 7,864 7,866
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Cost and expenses:
Cost of services, products and development 4,655 4,304
Sales and marketing 2,157 2,493
General and administrative 1,727 1,456
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Total costs and expenses 8,539 8,253
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Income (loss) from operations (675) (387)
Other income (expenses) - net (14) 7
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Income (loss) before tax (689) (380)
Less provision (benefit) for income taxes (240) (153)
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Net income (loss) $ (449) $ (227)
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Basic net income (loss) per common share ($0.11) ($0.05)
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Basic weighted average common shares 3,947 4,158
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Diluted net income per common share N/A N/A
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Diluted weighted average common shares N/A N/A
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</TABLE>
4
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WAVE TECHNOLOGIES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED JULY 31
(Dollars in thousands, unaudited)
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1997 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (449) $ (227)
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 584 524
Barter activity (68) -
Deferred tax credit - (153)
Other 31 (31)
Net changes in other assets and liabilities, net of acquisitions:
Accounts receivable 1,786 (117)
Inventory (82) (49)
Other current assets (190) 47
Prepaid direct mail 84 (342)
Deferred courseware (268) (146)
Other assets (271) (391)
Accounts payable (127) (84)
Accrued expenses 52 (899)
Deferred revenue (886) 381
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Net cash from (used) in operating activities 196 (1,487)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (598) (225)
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Net cash used in investing activities (598) (225)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock - net 81 -
Proceeds from borrowings under line of credit - net 445 975
Repayments of notes payable (60) (67)
Payments of capital lease obligations (19) (17)
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Net cash provided by financing activities 447 891
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 45 (821)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 948 1,498
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 993 $ 677
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5
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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 three months ended July 31, 1998, 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, 1998, and the notes thereto.
The Company has reclassified certain 1998 fiscal year accounts to conform to
current year presentation.
NOTE II. - DEBT
On January 5, 1997, 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,
in the amount of $2,500,000, and was renewed on September 1, 1998. 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
In the quarter ended January 31, 1998, the Company adopted Statement of
Financial Accounting Standards No. 128 "Earnings Per Share" (FAS 128).
In accordance with FAS 128, basic earnings per share are computed by dividing
net income by the weighted average number of common shares outstanding during
the period. Diluted earnings per share are computed similar to basic except the
denominator is increased to include the number of additional common shares that
would have been outstanding if dilutive potential common shares had been issued.
NOTE IV.-REPORTING COMPREHENSIVE INCOME
Effective May 1, 1998, Wave adopted Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("FAS 130"). FAS 130 establishes
standards for reporting and display of comprehensive income and its components
in financial statement. Comprehensive income includes all non-shareowner changes
in equity and for Wave consists of net income and foreign currency translation
adjustments. Total comprehensive income for the three months ended July 31, 1997
and 1998 was:
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Three Months Ended
July 31,
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1997 1998
Net loss $(449) $(227)
Other comprehensive gain (loss) 31 (35)
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Total comprehensive loss $(418) $(262)
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NOTE V.-DISCLOSURE ABOUT SEGMENTS
Effective May 1, 1998, Wave adopted Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("FAS 131"). FAS 131 establishes standards for defining operating segments and
reporting information about operating segments in financial statements. It also
establishes standards for related disclosure about products, geographic areas
and major customers. FAS 131 is not required to be applied to interim financial
statements in the year of adoption, but will be applied to Wave's annual
financial statements for the fiscal year ending April 30, 1999.
Item 2. Management's Discussion and Analysis or Plan of Operations.
Overview
The Company designs, develops and delivers technical training programs
addressing the Internet, 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, systems 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
published materials and live training. Wave has developed both domestic and
international distribution channels for its products.
Three Months Ended July 31, 1998 Compared To
Three Months Ended July 31, 1997
Total revenues increased slightly, by $2,000 in the quarter ended July 31,
1998, to $7,866,000 from $7,864,000 in the same quarter in fiscal 1998.
International revenues accounted for approximately 30% of Wave's total revenues
in the quarter ended July 31, 1998, compared to 23% in the same quarter in
fiscal 1998. While revenues remained relatively flat from the same period last
year, Wave did see an increase in sales, reflected in higher deferred revenues
to be recognized over the next several months.
Publishing revenues increased $694,000, or 20%, from $3,439,000 for the fiscal
1998 quarter to $4,133,000, and increased as a percentage of total revenues to
53% from 44% in the same quarter in fiscal 1998. Most of this growth related to
increased sales by Wave's international distributors.
Instructor-led training ("ILT") revenues decreased $247,000, or 8%, from the
same quarter in fiscal 1998, and decreased as a percentage of total revenues to
36%, compared to 39% in the same quarter of the prior year. Domestic ILT
revenues decreased $102,000, or 5%, and international ILT revenues decreased
$145,000, or 16% partially as the result of the Company's transition to its new
"boot camp" format, which was implemented in the current quarter. Typically,
when Wave announces a new program, many ILT customers delay attendance until the
new courses become available. In addition, in prior quarters the Company shifted
its emphasis from direct mail to corporate sales which took longer to consummate
than anticipated, and negatively impacted ILT sales.
Custom solutions revenues decreased $446,000, or 32%, from the same period in
fiscal 1998, and decreased as a percentage of total revenues to 12%, compared to
18% in the first quarter of fiscal 1998. Custom solutions revenues were impacted
by the Company's decision to discontinue its participation in the GTE University
program, as well as a decline in other programs during the quarter. Custom
solutions revenues in any particular quarter can be significantly affected by
the timing of such services.
Cost of services, products and development decreased $351,000, or 8%, in the
quarter ended July 31, 1998, to $4,304,000, and decreased as a percentage of
total revenues to 55% from 59% in the same quarter in fiscal 1998.
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Domestic cost of services, products and development decreased by $405,000, or
10%, International cost of services, products and development increased $54,000
for expenditures related to the second London training center, which opened
during fiscal 1998. Salaries, commissions, and related payroll costs represented
the most significant decrease, $582,000, or 27%, as cost-cutting measures
implemented by the Company late in fiscal 1998 took effect. Wave also reduced
employee-related travel expenses in the quarter, by $118,000, or 49%. These
decreases were partially offset by a $96,000 increase in amortization of
development costs, a $47,000 increase in license amortization expense for
materials licensed from QA Ltd. and a $116,000 increase in rental expense
related to the opening of the new training center in London, the renewal of two
domestic training center leases and the expansion of two domestic training
centers.
Total sales and marketing expenses for the quarter ended July 31, 1998,
increased $336,000, or 16%, to $2,493,000, from the same quarter in fiscal 1998,
and increased as a percentage of total revenues, to 32% from 27%. International
sales and marketing expenses increased by $234,000, or 46%, while domestic sales
and marketing expenses increased slightly, by $102,000, or 6%. Total sales and
marketing payroll expenses increased by $456,000, including a $224,000 increase
in international sales and marketing payroll costs representing increased
bonuses and commissions related to the increased international distribution
revenues. Direct mail expenses, which are capitalized and amortized over six
months, decreased $120,000 over the same period last year, as Wave scaled back
its direct marketing initiatives during fiscal 1998, while the Company refocused
its direct mail program. As discussed below, Wave revised and significantly
expanded its direct mail campaign and expects these expenses to increase over
the next several quarters. Advertising and promotional expenses also decreased,
by $55,000, or 22%, as the Company shifted its focus during the quarter back to
the direct mail program.
General and administrative expenses for the quarter ended July 31, 1998,
decreased $271,000 or 16% to $1,456,000, from the same quarter in fiscal 1998,
and decreased as a percentage of revenues, to 16% from 22%. Payroll-related
expenses decreased $142,000 or 23%, from the same period in fiscal 1998 as the
Company implemented plans to reduce administrative cost. Depreciation expense
decreased by $102,000, or 25%, as computer equipment purchased in fiscal 1995,
when the Company moved into its new headquarters and completed its initial
public offering, became fully depreciated in fiscal 1998.
The Company recognized a net loss of $227,000, or $0.05 per share, for the
first quarter of fiscal 1998, compared to a net loss of $449,000, or $0.11per
share for the quarter ended July 31, 1997.
Liquidity and Capital Resources
The Company's net cash balance at July 31, 1998, was $677,000, compared to
$1,498,000 at April 30, 1998. Total accounts receivable increased slightly, by
$117,000, or 2% at July 31, 1998. Wave reduced accounts payable, by $84,000,
from $2,480,000 at April 30, 1998 to $2,396,000 at July 31, 1998. Net property,
plant and equipment decreased by $199,000. Gross property, plant and equipment
increased by $214,000 while accumulated depreciation increased $413,000. Other
assets increased by $445,000, primarily to reflect a license agreement valued at
$375,000. Accrued expenses decreased $899,000, or 38%, at July 31, 1998,
compared to April 30, 1998, due to the payment of $498,000 of alternative
minimum taxes and income taxes accrued and the payment of $366,000 of accrued
expenses related to the GTE contract.
As Wave invested in revitalizing its direct mail program, prepaid direct mail
increased by $342,000, or 84% at July 31, 1998, compared to April 30, 1998. As
noted above, the Company anticipates that this will continue to grow over the
next two quarters as Wave continues to increase spending in this area. 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 $4,396,000 in deferred revenue at July 31, 1998, will be
recognized as revenues over the next twelve months. This amount represents an
$449,000 increase in deferred revenue from the 1998 fiscal year end and a
$1,118,000 increase from July 31, 1997, as the result of Wave's intensified
direct mail campaign begun during the quarter.
Wave had drawn $975,000 on its line of credit at quarter end, compared to no
balance at the end of fiscal 1998. The Company had overnight borrowing balances
on the line 15 times during the first quarter of fiscal 1999, compared to 37
times during the same quarter in fiscal 1998.
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Wave believes that cash generated from operations, together with existing cash
balances, and its available credit line, should be sufficient to satisfy the
Company's cash requirements for the foreseeable future. The Company also plans
to consider additional equipment leasing alternatives to fund acquisition of
updated hardware and software.
Year 2000
The Company is performing an analysis of its systems and continuing to work
with its software vendors to determine the impact of Year 2000 issues on its
operations. Management believes that Year 2000-compliant upgrades are available
for all of its programs at minimal costs. Although the Company's vendors have
indicated that Year 2000-compliant upgrades are available, in the event that
such upgrades are not compatible with existing hardware or software, or are not
fully compliant, Wave believes that it can complete all internal functions
manually, including order entry, class registration and scheduling, accounting
and financial reporting, although this would involve additional employee time
and effort, and might delay completion of certain internal reports. If broad
interruption of telephone, banking, air travel or similar services or utilities
were to occur, however, this would have a material adverse effect on the
Company's operations, as it would interfere with customers' abilities to place
and pay for orders, and the Company's ability to ship publishing materials to
its customers, and to fulfill customers' training requirements.
Forward - Looking Statements
Certain forward-looking statements are included in this Form 10-QSB. They use
such words as "may," "will," "expect," "anticipate," "believe," "plan," and
other similar terminology. These statements reflect management's current
expectations and involve a number of risks and uncertainties. Actual results
could differ materially due to changes in the market acceptance of Wave's
integrated program, market delays related to anticipated or new releases of
NetWare5 and NT5, the speed and success of new direct mail initiatives, global
and local business and economic conditions, legislation and governmental
regulations, competition, the Company's ability to effectively maintain and
update its product portfolio, shifts in technology, political or economic
instability in local markets, weather-related issues significantly affecting
attendance at training centers, and currency and exchange rates.
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, as amended (filed as Exhibit 3.2 to Registrant's
Annual Report on Form 10-KSB for the fiscal year ended April 30, 1998,
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)
10.1 Employment Agreement dated June 25, 1998, between Registrant 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, 1998, and incorporated
herein by reference)
10.2 Service Agreement dated June 1, 1994, by and between Registrant 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)
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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 Registrant and Ingram Micro, Inc.,
dated April 19, 1997 (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 $2,500,000 Promissory Note to Commerce Bank, National Association,
dated September 1, 1998
10.7 General Loan and Security Agreement between Commerce Bank, National
Association, and Registrant, 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)
10.8 First Amendment to General Loan and Security Agreement, dated as of
January 5, 1997, between The Registrant 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, 1997, and
incorporated herein by reference)
10.9 $600,000 Note dated January 5, 1997, 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, 1997 and incorporated
herein by reference)
10.10 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)
10.11 Second Amendment to General Loan and Security Agreement between
Registrant and Commerce Bank, National Association, dated as of
September 1, 1997 (filed as Exhibit 10.13 to Registrant's Quarterly
Report on Form 10-QSB for the quarter ended October 31, 1997, and
incorporated herein by reference)
10.12 Waveware License Agreement between Registrant and SHL Systemhouse
Corp., dated as of January 30, 1997 (filed as Exhibit 10.19 to
Registrant's Quarterly Report on Form 10Q-SB for the quarter ended
January 31, 1997 and incorporated herein by reference)
10.13 Courseware License Agreement effective as of July 31, 1998, between
Registrant 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)
10.14 Wave Technologies International, Inc. 1997 Stock Option Plan (filed as
Exhibit 10.14 to Registrant's Quarterly Report on Form 10-QSB for the
quarter ended October 31, 1997 and incorporated herein by reference)
10.15 Asset Purchase and License Agreement by and among QA Training, Inc.,
QA Training, Ltd. and Registrant dated as of January 22, 1998 (filed
as Exhibit 10.15 to Registrant's Quarterly Report on Form 10-QSB for
the quarter ended January 31, 1998 and incorporated herein by
reference)
10.16 Wave Distribution Agreement between Registrant and QA Training, Ltd.,
dated as of January 22, 1998. (filed as Exhibit 10.16 to Registrant's
Quarterly Report on Form 10-QSB for the quarter ended January 31,
1998, and incorporated herein by reference)
10.17 Third Amendment to General Loan and Security Agreement, dated as of
August 8, 1998, between Registrant and Commerce Bank, National
Association
27 Financial Data Schedule
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(b) Reports on Form 8-K - The registrant did not file any reports on Form 8-K
during the fiscal quarter ended July 31, 1998.
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: September 11, 1998 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 10.6
PROMISSORY NOTE
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Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
$2,500,000.00 09-01-1998 09-01-1999 9003 4AO 9093 9240904 60683
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan
or item.
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Borrower: Wave Technologies International, Inc. Lender: COMMERCE BANK, N.A.
(TIN: 43-1481443) 8000 Forsyth
10845 Olive Blvd PO Box 11573
St. Louis, MO 63141 St. Louis, MO 63105-0373
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Principal Amount: $2,500,000.00 Initial Rate: 8.500% Date of Note: September 1, 1998
</TABLE>
PROMISE TO PAY. Wave Technologies International, Inc. ("Borrower") promises to
pay to COMMERCE BANK, N.A. ("LENDER"), or order, in lawful money of the United
States of America, the principal amount of Two Million Five Hundred Thousand &
00/100 Dollars ($2,500,000.00) or so much as may be outstanding, together with
interest on the unpaid outstanding principal balance of each advance. Interest
shall be calculated from the date of each advance until repayment of each
advance.
PAYMENT. Borrower will pay this loan in one payment of all outstanding principal
plus all accrued unpaid interest on September 1, 1999. In addition, Borrower
will pay regular monthly payments of accrued unpaid interest beginning October
1, 1998, and all subsequent interest payments are due on the same day of each
month after that. The annual interest rate for this Note is computed on a
365/360 basis; that is, by applying the ratio of the annual interest rate over a
year of 360 days, multiplied by the outstanding principal balance, multiplied by
the actual number of days the principal balance is outstanding. Borrower will
pay Lender at Lender's address shown above or at such other place as Lender may
designate in writing. Unless otherwise agreed or required by applicable law,
payments will be applied first to accrued unpaid interest, then to principal,
and any remaining amount to any unpaid collection costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an index which is the per annum rate from time
to time announced by Lender at its main office as the prime rate, or as the case
may be, the base, reference or other rate then in use for commercial loan
reference purposes, not necessarily the lowest or even favored rate, which
serves as the basis upon which effective rates of interest are calculated for
those loans making reference thereto (the "Index"). The initial rate and current
index described above are based on information available as of the date of
preparation of this note and is subject to change if there is any change in the
Index between the note preparation date and the Loan Date and Date of Note
recited above. Lender will tell Borrower the current index rate upon Borrower's
request. Borrower understands that Lender may make loans based on other rates as
well. The interest rate change will not occur more often than each Day. Rates of
interest tied to the Index shall change with and be effective on the date of
each change in the Index. The Index currently is 8.500% per annum. The Interest
rate to be applied to the unpaid principal balance of this Note will be at a
rate equal to the Index, resulting in an initial rate of 8.500% per annum.
NOTICE: Under no circumstances will the Interest rate on this Note be more than
the maximum rate allowed by applicable law.
PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance charges
are earned fully as of the date of the loan and will not be subject to refund
upon early payment (whether voluntary or as a result of default), except as
otherwise required by law. Except for the foregoing, Borrower may pay without
penalty all or a portion of the amount owed earlier than it is due. Early
payments will not, unless agreed to by Lender in writing, relieve Borrower of
Borrower's obligation to continue to make payments of accrued unpaid interest.
Rather, they will reduce the principal balance due.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Any representation or statement made or furnished to Lender
by Borrower or on Borrower's behalf is false or misleading in any material
respect either now or at the time made or furnished. (d) Borrower becomes
insolvent, a receive is appointed for any part of Borrower's property, Borrower
makes an assignment for the benefit of creditors, or any proceeding is commenced
either by Borrower or against Borrower under any bankruptcy or insolvency laws.
(e) Any creditor tries to take any of Borrower's property on or in which Lender
has a lien or security interest. This includes a garnishment of any of
Borrower's accounts with Lender. (f) Any guarantor dies or any of the other
events described in this default section occurs with respect to any guarantor of
this Note or any guarantor seeks, claims or otherwise attempts to limit, modify
or revoke such guarantor's guarantee of this Note. (g) A material adverse change
occurs in Borrower's financial condition, or Lender believes the prospect of
payment or performance of the Indebtedness is impaired. (h) Lender in good faith
deems itself insecure.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon default, including failure
to pay upon final maturity, Lender, at its option, may also, if permitted under
applicable law, do one or both of the following: (a) increase the variable
interest rate on this Note to 3.000 percentage points over the index, and (b)
add any unpaid accrued interest to principal and such sum will bear interest
therefrom until paid at the rate provided in this Note (including any increased
rate). The interest rate will not exceed the maximum rate permitted by
applicable law. Lender may hire or pay someone else to help collect this Note if
Borrower does not pay. Borrower also will pay Lender that amount. This includes,
subject to any limits under applicable law, Lender's attorneys' fees and
Lender's legal expenses whether or not there is a lawsuit, including attorneys'
fees and legal expenses for bankruptcy proceedings (including efforts to modify
or vacate any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. If not prohibited by applicable law, Borrower
also will pay any court costs, in addition to all other sums provided by law.
This Note has been delivered to Lender and accepted by Lender in the State of
Missouri. If there is a lawsuit, Borrower agrees upon Lender's request to submit
to the jurisdiction of the courts of St. Louis County, the State of Missouri.
This Note shall be governed by and construed in accordance with the laws of the
State of Missouri.
RIGHTS OF SETOFF. Borrower grants to Lender a contractual security interest in,
and hereby assigns, conveys, delivers, pledges, and transfers to Lender all
Borrower's right, title and interest in and to, Borrower's accounts with Lender
(whether checking, savings, or some other account), including without limitation
all accounts held jointly with someone else and all accounts Borrower may
open in the future, excluding however all IRA and Keogh accounts, and all trust
accounts for which the grant of a security interest would be prohibited by law.
Borrower authorizes Lender, to the extent permitted by applicable law, to charge
or setoff all sums owing on this Note against any and all such accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note may be requested orally by Borrower or by an authorized person. Lender
may, but need not, require that all oral requests be confirmed in writing. All
communications, instructions, or directions by telephone or otherwise to Lender
are to be directed to Lender's office shown above. The following party or
parties are authorized to request advances under the line of credit until Lender
receives from Borrower at Lender's address shown above written notice of
revocation of their authority; Kenneth W. Kousky, President and J. M. Bowles,
CFO. Borrower agrees to be liable for all sums either: (a) advanced in
accordance with the instructions of an authorized person or (b) credited to any
of Borrower's accounts with Lender. The unpaid principal balance owing on this
Note at any time may be evidenced by endorsements on this Note or by Lender's
internal records, including daily computer print-outs. Lender will have no
obligation to advance funds under this Note if: (a) Borrower or any guarantor is
in default under the terms of this Note or any agreement that Borrower or any
guarantor has with Lender, including any agreement made in connection with the
signing of this Note; (b) Borrower or any guarantor ceases doing business or is
insolvent; (c) any guarantor seeks, claims or otherwise attempts to limit,
modify or revoke such guarantor's guarantee of this Note or any other loan with
Lender; (d) Borrower has applied funds provided pursuant to this Note for
purposes other than those authorized by Lender; or (e) Lender in good faith
deems itself insecure under this Note or any other agreement between Lender and
Borrower.
PRIOR NOTE: "This is a renewal of Borrower's note dated September 1, 1997."
ALSO: This note is subject to the terms and conditions of the General Loan and
Security Agreement dated August 31, 1995, and amended January 5, 1996 and
September 1, 1996, and amended August 9, 1998.
GENERAL PROVISIONS: Lender may delay or forego enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest and notice of dishonor. Upon any change
in the terms of this Note, and unless otherwise expressly stated in writing, no
party who signs this Note, whether as maker, guarantor, accommodation maker or
endorser, shall be released from liability. All such parties agree that Lender
may renew or extend (repeatedly and for any length of time) this loan, or
release any party or guarantor or collateral; or impair, fail to realize upon
or perfect Lender's security interest in the collateral; and take any other
action deemed necessary by Lender without the consent of or notice to anyone.
all such parties also agree that Lender may modify this loan without the consent
of or notice to anyone other than the party with whom the modification is made.
<PAGE>
09-01-1998 PROMISSORY NOTE Page 2
(Continued)
================================================================================
Jury Waiver. Lender and Borrower hereby waive the right to any jury trial in any
action, proceeding, or counterclaim brought by either Lender or Borrower against
the other.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FOREBEAR FROM
ENFORCING REPAYMENT OF A DEBT INCLUDING PROMISES TO EXTEND OR RENEW SUCH DEBT
ARE NOT ENFORCEABLE. TO PROTECT YOU (BORROWER(S)) AND US (CREDITOR) FROM
MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS WE REACH COVERING SUCH
MATTERS ARE CONTAINED IN THIS WRITING, WHICH IS THE COMPLETE AND EXCLUSIVE
STATEMENT OF THE AGREEMENT BETWEEN US, EXCEPT AS WE MAY LATER AGREE IN WRITING
TO MODIFY IT.
BORROWER:
Wave Technologies International, Inc.
By: J.M. Bowles
-----------------------------
J.M. Bowles, CFO
================================================================================
Variable Rate. Line of Credit. LASER PRO. Reg. U.S. Pat. & T.M. Off., Ver.
S.26(c) 1998 CFI ProServices, Inc. All
rights reserved. (MO-D20 80001920.LN)
<PAGE>
Exhibit 10.17
THIRD AMENDMENT TO GENERAL LOAN AND SECURITY AGREEMENT
This Third Amendment to General Loan and Security Agreement made and
entered into as of the 9th day of August, 1998, (the "Third Amendment
Agreement") by and between WAVE TECHNOLOGIES INTERNATIONAL, INC. (hereinafter
referred to as "Borrower") and COMMERCE BANK, NATIONAL ASSOCIATION (hereinafter
referred to as "Bank").
WHEREAS, the Borrower and Bank are parties to a General Loan and Security
Agreement dated as of August 31, 1995, as amended on January 5, 1996 and
September 1, 1996, (said agreement, as amended, hereinafter referred to as the
"Agreement"); and
WHEREAS, Borrower has requested the Bank to amend certain terms of the
Agreement upon the terms and conditions herein contained.
NOW, THEREFORE, in consideration of the mutual promises and agreements
hereafter made by and between the parties hereto, the parties hereto do mutually
agree as follows:
1. Words and phrases having defined meanings in the Agreement will have the
same meanings when used herein.
2. Section 6.19 of the Agreement is hereby deleted in its entirety and the
following is substituted in lieu thereof:
6.19 Tangible Net Worth. Borrower shall maintain at all times a Combined
Tangible Net Worth of not less than Four Million Two Hundred Fifty Thousand
Dollars ($4,250,000).
3. It is expressly understood that except as specifically modified hereby,
all of the terms, covenants, conditions, representations, warranties, and
provisions contained in the Agreement shall remain in full force and effect.
Oral agreements or commitments to loan money, extend credit or to forbear
from enforcing repayment of a debt, including promises to extend or renew such
debt, are not enforceable. To protect you (borrower(s)) and us (creditor) from
misunderstanding or disappointment, any agreements we reach covering such
matters are contained in this writing, which is the complete and exclusive
statement of the agreement between us except
<PAGE>
as we may later agree in writing to modify it.
IN WITNESS WHEREOF, the parties hereto have executed this instrument the
day and year first above written.
WAVE TECHNOLOGIES INTERNATIONAL, INC.
By: /s/ J. Michael Bowles
--------------------------------
Title: CFO
COMMERCE BANK, NATIONAL ASSOCIATION
By: /s/ Scott Larson
--------------------------------
Title: VP
<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 July 31,
1998 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-START> MAY-01-1998
<PERIOD-END> JUL-31-1998
<CASH> 677
<SECURITIES> 0
<RECEIVABLES> 7,777
<ALLOWANCES> 398
<INVENTORY> 954
<CURRENT-ASSETS> 9,643
<PP&E> 10,634
<DEPRECIATION> 7,467
<TOTAL-ASSETS> 18,328
<CURRENT-LIABILITIES> 9,368
<BONDS> 0
0
0
<COMMON> 2,079
<OTHER-SE> 6,578
<TOTAL-LIABILITY-AND-EQUITY> 18,328
<SALES> 4,133
<TOTAL-REVENUES> 7,866
<CGS> 664
<TOTAL-COSTS> 3,640
<OTHER-EXPENSES> 3,949
<LOSS-PROVISION> 21
<INTEREST-EXPENSE> 10
<INCOME-PRETAX> (380)
<INCOME-TAX> (153)
<INCOME-CONTINUING> (227)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (227)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> 0
</TABLE>
