<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1999
----------------------------------------------
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-24454
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Wave Technologies International, Inc.
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(Exact name of small business issuer as specified in its charter)
Missouri 43-1481443
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(State or other jurisdiction of incorporation or organization) (IRS Employer
ID No.)
10845 Olive Boulevard, Suite 250, Saint Louis, Missouri 63141
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(Address of principal executive offices)
(314) 995-5767
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(Issuer's telephone number)
N/A
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
------------ ------------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes _____ No ______
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: The issuer had 4,158,311
shares of common stock, par value $.50, outstanding as of March 9, 1999
<PAGE>
WAVE TECHNOLOGIES INTERNATIONAL, INC.
Table of Contents
Form 10-Q for the Quarterly Period
Ended January 31, 1999
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION Page
- ------ --------------------- ----
<S> <C> <C>
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at January 31, 1999
and April 30, 1998 3
Consolidated Statements of Operations for the
three and nine months ended January 31, 1999 and 1998 4
Consolidated Statements of Cash Flows for the
nine months ended January 31, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures about Market Risk 12
PART II OTHER INFORMATION
- ------- -----------------
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES
</TABLE>
<PAGE>
WAVE TECHNOLOGIES INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, unaudited)
<TABLE>
<CAPTION>
April 30 January 31
1998 1999
-------- ----------
ASSETS
- -------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,498 $ 555
Accounts receivable (less allowance of $397 and
$397, respectively) 7,262 11,129
Inventory 905 957
Prepaid expenses 680 923
------- -------
Total current assets 10,345 13,564
Property, plant & equipment - net 3,366 2,655
Prepaid direct mail cost 408 692
Deferred courseware 2,124 2,266
Other assets 2,053 2,823
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Total assets $18,296 $22,000
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------
Current liabilities:
Accounts payable $ 2,480 $ 2,843
Accrued expenses 2,347 2,122
Deferred revenue 3,947 6,032
Bank line-of-credit - 1,950
Current portion of long-term debt and capital lease obligations:
Related party 163 -
Other 56 50
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Total current liabilities 8,993 12,997
Long-term debt:
Other 41 2
Accrued rent liability 347 233
Common shareholders' equity:
Common stock, $.50 par value, authorized 20,000,000 shares;
issued, 4,158,311 and 4,158,311 shares; outstanding, 4,150,954
and 4,150,954 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) (1,471)
Cumulative translation adjustment 123 92
------- -------
Total common shareholders' equity 8,915 8,768
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Total liabilities and shareholders' equity $18,296 $22,000
======= =======
</TABLE>
- 3 -
<PAGE>
WAVE TECHNOLOGIES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share, unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
January 31 January 31
------------------ ------------------
1998 1999 1998 1999
------- ------ ------- -------
<S> <C> <C> <C> <C>
Revenues:
Publishing $ 4,702 $ 5,147 $ 13,146 $ 14,506
Instructor-led training 2,442 3,987 8,448 11,152
Custom solutions 2,404 93 5,207 1,346
------- ------- -------- --------
Total revenues 9,548 9,227 26,801 27,004
------- ------- -------- -------
Cost and expenses:
Cost of services, products and development 5,340 5,086 14,420 14,646
Sales and marketing 2,251 2,887 6,522 8,056
General and administrative 1,651 1,447 4,968 4,438
------ ------- -------- --------
Total costs and expenses 9,242 9,420 25,910 27,140
------- ------- -------- --------
Income (loss) from operations 306 (193) 891 (136)
Other income (expenses) - net (38) (36) (88) (57)
------- ------- -------- --------
Income (loss) before tax 268 (229) 803 (193)
Less provision (benefit) for income taxes 68 (92) 256 (77)
------- ------- -------- --------
Net income (loss) $ 200 $ (137) $ 547 $ (116)
======= ======= ======== ========
Basic net income (loss) per common shares $ 0.05 $ (0.03) $ 0.14 $ (0.03)
======= ======= ======== ========
Basic weighted average common shares 3,995 4,158 3,969 4,158
======= ======= ======== ========
Diluted net income per common shares $ 0.05 N/A $ 0.14 N/A
======= ======= ========= ========
Diluted weighted average common shares 4,064 4,161 4,045 4,161
======= ======= ======== ========
</TABLE>
- 4 -
<PAGE>
WAVE TECHNOLOGIES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JANUARY 31
(Dollars in thousands, unaudited)
<TABLE>
<CAPTION>
1998 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 547 $ (116)
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 1,760 1,757
Barter activity (184) --
Other 9 (31)
Net changes in other assets and liabilities, net of acquisitions:
Accounts receivable (1,293) (3,867)
Inventory (334) (52)
Other current assets (443) (243)
Prepaid direct mail (70) (284)
Deferred courseware (505) (142)
Other assets 225 (1,163)
Accounts payable 209 363
Accrued expenses 188 (225)
Deferred revenue (490) 1,971
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Net cash from (used) in operating activities (381) (2,032)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,220) (653)
------- -------
Net cash used in investing activities (1,220) (653)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock - net 182 --
Proceeds from borrowings under line of credit - net 1,424 1,950
Repayments of notes payable (199) (163)
Payments of capital lease obligations (57) (45)
------- -------
Net cash provided by financing activities 1,350 1,742
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (251) (943)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 948 1,498
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 697 $ 555
======= =======
</TABLE>
- 5 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE I. - GENERAL
The financial information herein is unaudited. However, in the opinion of
management, such information reflects all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation of the results of
operation for the period being reported. Additionally, it should be noted that
the accompanying condensed consolidated financial statements do not purport to
contain complete disclosures in conformity with generally accepted accounting
principles.
The results of operations for the nine months ended January 31, 1999, 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 amounts to conform to
current year presentation.
In October 1998 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133). SFAS 133 establishes a definition for
derivative instruments and requires that all such items be recognized as
assets and liabilities on the balance sheet and measured at fair value.
Changes in the fair value of the derivative instruments are recognized as a
component of either income or comprehensive income, depending on the
designated purpose of the derivative. SFAS 133 will be adopted by Wave during
the first quarter of the fiscal year beginning on May 1, 2000 and, based on
current circumstances, management does not believe the effect of adoption will
be material.
NOTE II. - DEBT
The Company's operating bank line of credit was renewed on September 1, 1998.
In January of 1999, the line was increased from $2,500,000 to $3,500,000. It
bears interest at the bank's prime rate and is secured by the Company's
accounts receivables, 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
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.
<PAGE>
NOTE IV. REPORTING COMPREHENSIVE INCOME
Effective May 1, 1998, Wave adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130
establishes standards for reporting and display of comprehensive income and
its components in financial statements. 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 and
nine months ended January 31, 1998 and 1999 was:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
January 31, January 31,
------------------------- ---------------------------
1998 1999 1998 1999
(in thousands) (in thousands)
<S> <C> <C>
Net income (loss) $200 $(137) $547 $(116)
Other comprehensive gain (loss) (40) (45) 9 (31)
------ ------- ------ -------
Total comprehensive income (loss) $160 $(182) $556 $(147)
</TABLE>
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" ("SFAS 131"). SFAS 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. SFAS 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 of Financial Condition and
Results 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, 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.
<PAGE>
Three Months Ended January 31, 1999 Compared To
Three Months Ended January 31, 1998
Total revenues decreased $321,000, or 3%, in the quarter ended January 31,
1999, to $9,227,000 from $9,548,000 in the same quarter in fiscal 1998. Total
domestic revenues declined $1,711,000, or 23%, while international revenues
increased $1,390,000, or 63%. The domestic decrease related primarily to the
discontinuation of the GTE University program, and to a lesser extent, to
weather-related issues that reduced the number of training days in the
quarter. International revenues accounted for approximately 39% of Wave's
total revenues in the quarter ended January 31, 1999, compared to 23% in the
same quarter in fiscal 1998.
Publishing revenues increased by $445,000, or 9%, from $4,702,000 to
$5,147,000 and increased as a percentage of total revenues to 56% from 49% in
the same quarter in fiscal 1998. Domestic publishing revenues actually
decreased, by $544,000 largely as the result of the continued influx of low-
cost competitive products in the Microsoft NT area, offered through bookstores
and the Internet. The Company added several licensing agreements and
distributorships during the quarter, extending the channels for its products.
These included new distributors in Canada and the United Kingdom for eCamp
Wave (the Company's new Internet instructional program) and other products.
Wave anticipates significant revenues from orders placed under these
agreements in future periods. The amount of these contracted orders have not
been reflected in Wave's revenues or deferred revenues. The net decline in
domestic publishing revenues was offset by a $989,000 increase in
international publishing revenues, primarily from sales of Wave's "boot camps"
and Year 2000 programs.
ILT revenues increased to $3,987,000 from $2,442,000 in the same quarter in
fiscal 1998, and increased as a percentage of total revenues to 43% from 26%.
Domestic ILT revenues increased $1,145,000, or 72%, primarily as the result of
the Camp Wave boot camp programs. In the quarter ended January 31, 1999,
approximately $300,000 of domestic training was rescheduled into subsequent
quarters. The Company believes much of this was due to weather-related factors
connected with the major snow storms that hit the country in January.
International ILT revenues increased $400,000, or 47%, also largely from sales
of Wave's "boot camps" and Year 2000 programs
Custom solutions revenues decreased dramatically, by $2,312,000 or 96% from
the same period in fiscal 1998, and represented 1% of total revenues, compared
to 25% in the third quarter of fiscal 1998. In early summer of 1998, the
Company determined not to continue its participation in the GTE University
program. While this program made a significant contribution to Wave's custom
solutions revenues, GTE University was not consistent with the Company's
overall business plan. Wave determined that the resources to support the GTE
program, as well as certain other custom solutions services, including the
Technical Solutions Workshops program and WaveSource, could be more
effectively deployed in other areas.
Cost of services, products and development decreased $254,000, or 5%, in
the quarter ended January 31, 1999, to $5,086,000, and decreased as a
percentage of total revenues to 55% from 56% in the same quarter in fiscal
1998. Cost of services, products and development for the quarter were impacted
primarily by a $968,000 decrease in direct
<PAGE>
out-of-pocket costs related to delivery of custom solutions programs.
International costs of goods increased $226,000, or 23%, including a $115,000
increase in royalty fees for reselling a third-party product and a $94,000
increase in payroll-related costs, to support increased sales. Decreases in
domestic salaries and related payroll costs were offset by a $239,000 increase
in temporary labor costs, for contract trainers used during the quarter,
particularly in November of 1998. Expenses in other areas also increased, but
were more than offset by the decreases discussed above.
Sales and marketing expenses for the quarter ended January 31, 1999,
increased by $636,000, or 28%, to $2,887,000, from the same quarter in fiscal
1998, and increased as a percentage of total revenues, to 31% from 24%. Direct
mail expenses increased $388,000 in connection with Wave's refocussed efforts
on direct mail advertising. Printing and advertising expenses also increased
by $295,000 or 155%, primarily for a trade show and increases in expenses
related to international sales. These increases were partially offset by a
decrease in total payroll expense of $75,000, or 5%, compared to the same
quarter in fiscal 1998.
General and administrative expenses decreased $205,000, or 12%, to
$1,447,000 for the third quarter of fiscal 1999, and decreased slightly as a
percentage of total revenues, to 16%, compared to 17% in the same quarter in
fiscal 1998. Individual expense items fluctuated slightly compared to the same
quarter last year, with the largest decreases in depreciation, of $82,000, and
payroll related expenses, of $76,000.
Wave's operating loss in the quarter ended January 31, 1999, was $193,000,
compared to income from operators in the third quarter of fiscal 1998 of
$306,000.
The Company recognized a net loss of $137,000, or $0.03 per share, for the
third quarter of fiscal 1999, compared to net income of $200,000, or $0.05 per
share, for the quarter ended January 31, 1998. Fiscal 1999 net loss included
an income tax credit of $92,000, because of the operating loss, while net
income for the quarter ended January 31, 1998 included a $68,000 income tax
provision.
Nine Months Ended January 31, 1999 Compared
To Nine Months Ended January 31, 1998
Total revenues increased $203,000 or 1%, in the nine months ended January
31, 1999, to $27,004,000 from $26,801,000 in the same period in fiscal 1998.
Publishing revenues increased $1,360,000, or 10%, and increased as a
percentage of revenues to 54%, compared to 49% for the first nine months of
fiscal 1998. Instructor-led training revenues increased $2,705,000, or 32%, to
$11,152,000, and increased as a percentage of total revenues to 41% compared
to 32% in the first nine months of fiscal 1998. Custom solutions revenues
decreased $3,861,000, or 74%, to $1,346,000 for the first nine months of
fiscal 1999 and decreased to 5% of total revenues, from 19% in the 1998
period. International sales represented a substantial component of both ILT
and publishing revenues. International publishing revenues for the nine-month
period were $5,356,000, or 37% of total publishing revenues, compared to 24%
in the same period in the prior fiscal year. International ILT revenues were
$2,936,000, or 26%, of total ILT revenues, for the first nine months of fiscal
1999, compared to 31% of total ILT revenues, for the same period in the prior
year.
<PAGE>
Cost of services, products and development increased $227,000, or 2%, for
the nine months ended January 31, 1999, to $14,646,000, and remained stable as
a percentage of total revenues, at 54%, compared to the fiscal 1998 period.
Increases in rent expenses, facilities and equipment rentals, material costs,
royalties for third-party products used in international sales and development
expenses were partially offset by decreased costs for custom solutions and
decreases in domestic personnel related expenses.
Sales and marketing expenses for the nine months ended January 31, 1999,
increased $1,534,000, or 24%, to $8,056,000, and increased as a percentage of
revenues, to 30% from 24% in the prior year. Total payroll and related
expenses for sales and marketing increased by $430,000, or 11%, during the
first nine months of fiscal 1999. Direct mail expenses increased by $442,000,
or 26%, from the fiscal 1998 nine-month period, while advertising, printing
and promotional expenses increased $490,000, or 75%, for trade show and
international expenses. International sales and marketing expenses increased
by $514,000, or 31%. While the Company has had a strong corresponding growth
in ILT and published products billings, many orders remain as deferred
revenues.
General and administrative expenses decreased by $530,000, or 11%, for the
first nine months of fiscal 1999, and decreased as a percentage of total
revenues to 16% from 19% in the same period in fiscal 1998. Depreciation
expense decreased $324,000, or 27%, as older equipment was fully depreciated
and the Company shifted to leased rather than purchased equipment. General and
administrative payroll related expenses decreased $215,000 or 13%. These
decreases were partially offset by increases in professional fees, real estate
and equipment rental and investor relations expenses.
Wave had a provision for income taxes of $256,000 in fiscal 1998, while the
Company recognized an income tax credit of $77,000 in the period ended January
31, 1999.
The Company recognized a net loss for the current nine-month period of
$116,000, compared to net income of $547,000 for the same period in the
previous fiscal year. The Company's loss per share was $0.03 for the nine
months ended January 31, 1999 compared to net income of $0.14 per share for
the same period in fiscal 1998.
Liquidity and Capital Resources
The Company's net cash balance at January 31, 1999, was $555,000, compared
to $1,498,000 at April 30, 1998. Total accounts receivable increased by
$3,867,000, to $11,129,000, primarily as the result of payment terms on large
licensing agreements and the disproportionate amount of quarterly revenues
recognized in January. Prepaid expenses increased $923,000 from $680,000 at
April 30, 1998, largely for agreements to lease classroom facilities in
various United States cities to perform Wave's MCSE "boot camps." Accounts
payable and accrued expenses increased slightly, by $138,000, or 3%, to a
total of $4,965,000.
Total deferred revenue was $6,032,000 as of the end of the quarter. This
compares to total deferred revenue at April 30, 1998 of $3,947,000, and to
total deferred revenue at
<PAGE>
October 31, 1998, the end of the second fiscal quarter, of $5,106,000.
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.
Wave had drawn $1,950,000 on the 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 continuously during the third quarter of fiscal 1999 and
on most days during the same quarter in fiscal 1998.
In January, 1999, Wave increased its credit line by $1,000,000 to
$3,500,000. The Company 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 next several
months.
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. Based upon preliminary discussions with its vendors, management
believes that Year 2000-compliant upgrades are available for all of its
programs at minimal costs, aggregating approximately $160,000 for materials,
installation nd testing, including $140,000 of estimated internal labor 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. This
would involve additional employee time and effort, and might delay completion
of certain internal reports, and would be estimated to cost an additional
$25,000 to $50,000 for short-term employee overtime and temporary labor costs.
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.
The most likely risk for Wave as the result of Year 2000 issues is the
potential delay by companies in sending their technology employees to training
programs. This could result in a significant decline in revenues for the last
calendar quarter of 1999 and the first calendar quarter of 2000, as
information technology professionals stay "on call" to deal with their
employers' potential Year 2000 problems.
Forward Looking Statements
Certain forward-looking statements are included in this Form 10-Q. 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
NetWare 5 and Windows 2000, delay by Microsoft or
<PAGE>
Novell or other vendors in implementing certification guidelines for their new
products, the speed and effectiveness 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. As Wave has
focussed its core business and Camp Wave boot camps on training for
Microsoft's MCSE, the Company's dependence on continued demand for the MCSE
certification has increased significantly. In addition, as an increasing
proportion of Wave's revenues are attributable to large licensing agreements,
significant quarterly fluctuations in revenues and earnings may occur. Wave's
fiscal 2000 results also will be adversely affected if companies reduce
training for their IT staffs to keep these employees on site to address
potential Year 2000 problems.
Item 3. Quantitative and Qualitative Disclosure about Market Risk.
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
10.1 Promissory Note Dated as of January 1, 1999.
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 January 31, 1999
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: March 12, 1999 By: /s/ J. Michael Bowles
----------------------------------------------
J. Michael Bowles, Chief Financial Officer
(Principal Accounting and Financial Officer
and Duly Authorized Officer)
<PAGE>
Exhibit 10.1
PROMISSORY NOTE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$3,500,000.00 01-01-1999 09-01-1999 9003 4A0 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.
- ------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Borrower: Wave Technologies International, Inc. (TIN: Lender: COMMERCE BANK, N.A.
43-1481443) 8000 Forsyth
10845 Olive Blvd PO Box 11573
St. Louis, MO 63141 St. Louis, MO 63105-0373
======================================================================================================
Principal Amount: $3,500,000.00 Initial Rate: 7.750% Date of Note: January 1, 1999
</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 Three Million Five Hundred Thousand &
00/100 Dollars ($3,500,000.00) 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 February
1, 1999, 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 7.750% per annum. The interest
rate to be applied to the unpaid principal balance of the Note will be at a rate
equal to the Index, resulting in an initial rate of 7.750% per annum. NOTICE:
Under no circumstances will the interest rate on the 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 the 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 receiver 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 or 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 coruts 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.
RIGHT 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 borrowers note dated September 1, 1998.
GENERAL PROVISIONS. Lender may delay or forgo 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>
01-01-1999 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: /s/ J. M. Bowles
---------------------------------
J. M. Bowles, CFO
================================================================================
Variable Rate. Line of Credit. LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.26a
(c) 1999 CFI ProServices, Inc. (All rights reserved.) [MO-D20 F3.26 80001920.LN]
<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 January 31,
1999 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-START> MAY-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 555
<SECURITIES> 0
<RECEIVABLES> 11,526
<ALLOWANCES> 397
<INVENTORY> 957
<CURRENT-ASSETS> 13,564
<PP&E> 10,947
<DEPRECIATION> 8,292
<TOTAL-ASSETS> 22,000
<CURRENT-LIABILITIES> 12,997
<BONDS> 0
0
0
<COMMON> 2,079
<OTHER-SE> 6,689
<TOTAL-LIABILITY-AND-EQUITY> 22,000
<SALES> 14,506
<TOTAL-REVENUES> 27,004
<CGS> 2,341
<TOTAL-COSTS> 12,305
<OTHER-EXPENSES> 12,494
<LOSS-PROVISION> 33
<INTEREST-EXPENSE> 66
<INCOME-PRETAX> (193)
<INCOME-TAX> (77)
<INCOME-CONTINUING> (116)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (116)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> 0
</TABLE>
