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Form 10-Q
U.S. Securities and Exchange Commission
Washington, D.C. 20549
(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, 2000
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[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-24454
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Wave Technologies International, Inc.
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(Exact name of small business issuer as specified in its charter)
Missouri 43-1481443
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(State or other jurisdiction of (IRS Employer ID
incorporation or organization) 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 ____
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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 4,265,845 shares
of common stock, par value $.50, outstanding as of March 10, 2000.
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WAVE TECHNOLOGIES INTERNATIONAL, INC.
Table of Contents
Form 10-Q for the Quarterly Period
Ended January 31, 2000
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION Page
- ------ --------------------- ----
<S> <C>
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at January 31, 2000
and April 30, 1999 3
Consolidated Statements of Operations for the
three and nine months ended January 31, 2000 and 1999 4
Consolidated Statements of Cash Flows for the
nine months ended January 31, 2000 and 1999 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk 14
PART II OTHER INFORMATION
- ------- -----------------
Item 2. Changes in Securities and Use of Proceeds 14
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 15
EXHIBITS
</TABLE>
<PAGE>
WAVE TECHNOLOGIES INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
April 30 January 31
1999 2000
---------- ------------
<S> <C> <C>
unaudited
ASSETS
Current assets:
Cash and cash equivalents $ 701 $ 685
Accounts receivable (less allowance of $395 and
$448, respectively) 11,642 12,523
Inventory 845 1,185
Prepaid expenses 855 731
---------- ------------
Total current assets 14,043 15,124
Property, plant & equipment - net 2,331 2,027
Prepaid direct mail cost 613 943
Deferred courseware 2,239 2,763
Other assets 2,563 2,593
---------- ------------
Total assets $ 21,789 $ 23,450
========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,369 $ 2,477
Accrued expenses 2,686 3,322
Deferred revenue 6,145 6,114
Bank line-of-credit 1,470 2,000
Current portion of long-term debt and capital lease obligations 38 3
---------- ------------
Total current liabilities 12,708 13,916
Accrued rent liability 224 183
Common shareholders' equity:
Common stock, $.50 par value, authorized 20,000,000 shares;
issued, 4,158,311 shares at April 30, 1999,
4,252,887 shares at January 31, 2000 2,079 2,126
Less treasury stock, at cost (7,357 shares at April 30, 1999,
no shares at January 31, 2000) (15) --
Additional paid-in capital 8,083 8,387
Accumulated deficit (1,318) (1,072)
Cumulative translation adjustment 28 (90)
---------- ------------
Total common shareholders' equity 8,857 9,351
---------- ------------
Total liabilities and shareholders' equity $ 21,789 $ 23,450
========== ============
</TABLE>
3
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WAVE TECHNOLOGIES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data, unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
January 31 January 31
---------- ----------
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Publishing $ 5,147 $ 5,494 $ 14,506 $ 14,709
Instructor-led training 3,987 3,957 11,152 12,826
Custom solutions 93 254 1,346 663
---------- ---------- ---------- ----------
Total revenues 9,227 9,705 27,004 28,198
---------- ---------- ---------- ----------
Cost and expenses:
Cost of services, products and development 5,086 5,390 14,646 15,767
Sales and marketing 2,887 2,815 8,056 7,710
General and administrative 1,447 1,454 4,438 4,269
---------- ---------- ---------- ----------
Total costs and expenses 9,420 9,659 27,140 27,746
---------- ---------- ---------- ----------
Income from operations (193) 46 (136) 452
Other income (expenses) - net (36) (22) (57) (42)
---------- ---------- ---------- ----------
Income (loss) before tax (229) 24 (193) 410
Less provision (benefit) for income taxes (92) 10 (77) 164
---------- ---------- ---------- ----------
Net income (loss) $ (137) $ 14 $ (116) $ 246
========== ========== ========== ==========
Basic net income (loss) per common share $ (0.03) $ 0.00 $ (0.03) $ 0.06
========== ========== ========== ==========
Basic weighted average common shares 4,158,311 4,175,308 4,158,311 4,159,072
========== ========== ========== ==========
Diluted net income (loss) per common share $ (0.03) $ 0.00 $ (0.03) $ 0.06
========== ========== ========== ==========
Diluted weighted average common shares 4,158,311 4,194,279 4,158,311 4,174,211
========== ========== ========== ==========
</TABLE>
4
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WAVE TECHNOLOGIES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
January 31
---------------------------
1999 2000
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (116) $ 246
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,150 3,060
Net changes in other assets and liabilities, net of acquisitions:
Accounts receivable (3,898) (953)
Inventory (52) (313)
Other current assets (243) 139
Prepaid direct mail (284) (330)
Other assets (948) (8)
Deferred tax asset (215) 148
Accounts payable 363 85
Accrued expenses (225) 636
Accrued rent liability (114) (41)
Deferred revenue 2,085 (62)
---------- ----------
Net cash provided by (used in) operating activities (497) 2,607
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (653) (594)
Capitalized development (1,535) (2,061)
Acquisition of Sair, Inc. -- (473)
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Net cash (used in) investing activities (2,188) (3,128)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock - net -- 10
Proceeds from borrowings under line of credit - net 1,950 530
Repayments of notes payable (163) --
Payments of capital lease obligations (45) (35)
---------- ----------
Net cash provided by financing activities 1,742 505
---------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (943) (16)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,498 701
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 555 $ 685
========== ==========
</TABLE>
5
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all dollar amounts, except share data, in thousands)
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 and nine months ended January 31, 2000,
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, 1999, and the notes thereto.
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, 2001 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, in the amount of $3,500, was
renewed on September 1, 1999 for a term of one year. 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. As of January 31, 2000,
outstanding options to purchase approximately 495,000 and 497,000 shares of
common stock were not included in the computation of the diluted earnings per
share computation for the quarter and the year to date, respectively, because
the exercise prices of these options were greater than the corresponding average
market price of the common stock for these two periods.
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NOTE IV. - REPORTING COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) includes all non-shareowner changes in equity and
for Wave consists of net income (loss) and foreign currency translation
adjustments. Total comprehensive income (loss) for the three and nine months
ended January 31, 1999 and 2000 was:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
January 31, January 31,
-------------------- ---------------------
1999 2000 1999 2000
<S> <C> <C> <C> <C>
Net income (loss) $ (137) $ 14 $ (116) 246
Other comprehensive gain (loss) (45) (135) (31) (118)
------- ------- ------- -------
Total comprehensive income (loss) $ (182) $ (121) $ (147) $ 128
======= ======= ======= =======
</TABLE>
NOTE V. - DISCLOSURE ABOUT SEGMENTS
The Company's management does not allocate the resources, assets and expenses
related to courseware development activities, which primarily take place in the
United States, to the other segments. The Company's management also does not
attempt to allocate the resources and assets used in the United States and the
United Kingdom to support the international distribution activity. The Company
does not review segment results below net income before taxes; therefore, income
taxes are not broken out by segment. The Company does not account for or report
to management its assets or capital expenditures by segment, and thus asset
information is not provided on a segment basis.
<TABLE>
<CAPTION>
Three months ended January 31, 1999
--------------------------------------------------------
International
US Operations Operations Consolidated
----------------- ----------------- ----------------
<S> <C> <C> <C>
Revenues $ 5,622 $ 3,605 $ 9,227
Cost of services, products and development 3,856 1,230 5,086
Sales and marketing 2,116 771 2,887
General and administrative 1,102 345 1,447
-------- -------- --------
Total cost and expenses 7,074 2,346 9,420
-------- -------- --------
Income from operations (1,452) 1,259 (193)
Other income (expense) (38) 2 (36)
-------- -------- --------
Net income (loss) before income taxes $ (1,490) $ 1,261 $ (229)
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Three months ended January 31, 2000
--------------------------------------------------------
International
US Operations Operations Consolidated
----------------- ----------------- ----------------
<S> <C> <C> <C>
Revenues $ 7,274 $ 2,431 $ 9,705
</TABLE>
7
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<TABLE>
<S> <C> <C> <C>
Cost of services, products and development 4,394 996 5,390
Sales and marketing 2,089 726 2,815
General and administrative 1,122 332 1,454
-------- -------- --------
Total cost and expenses 7,605 2,054 9,659
-------- -------- --------
Income (loss) from operations (331) 377 46
Other income (expense) (26) 4 (22)
-------- -------- --------
Net income (loss) before income taxes $ (357) $ 381 $ 24
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Nine months ended January 31, 1999
--------------------------------------------------------
International
US Operations Operations Consolidated
----------------- ----------------- ----------------
<S> <C> <C> <C>
Revenues $ 18,672 $ 8,332 $ 27,004
Cost of services, products and development 11,678 2,968 14,646
Sales and marketing 5,909 2,147 8,056
General and administrative 3,374 1,064 4,438
--------- -------- --------
Total cost and expenses 20,961 6,179 27,140
--------- -------- --------
Income (loss) from operations (2,289) 2,153 (136)
Other income (expense) (71) 14 (57)
--------- -------- --------
Net income (loss) before income taxes $ (2,360) $ 2,167 $ (193)
========= ======== ========
</TABLE>
<TABLE>
<CAPTION>
Nine months ended January 31, 2000
--------------------------------------------------------
International
US Operations Operations Consolidated
----------------- ----------------- ----------------
<S> <C> <C> <C>
Revenues $ 20,135 $ 8,063 $ 28,198
Cost of services, products and development 12,608 3,159 15,767
Sales and marketing 5,499 2,211 7,710
General and administrative 3,307 962 4,269
--------- -------- --------
Total cost and expenses 21,414 6,332 27,746
--------- -------- --------
Income (loss) from operations (1,279) 1,731 452
Other income (expense) (57) 15 (42)
--------- -------- -------
Net income (loss) before income taxes $ (1,336) $ 1,746 $ 410
========= ======== ========
</TABLE>
NOTE VI. - SAB 101
On December 3, 1999 the staff of the Securities and Exchange Commission
released Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in
Financial Statements. SAB 101 provides guidance on the recognition,
presentation, and disclosure of revenue in financial statements filed with
the Commission. As a result of this guidance registrants may need to change
their accounting policies to comply with the SAB. Registrants may adopt a
change in accounting policy to comply with SAB 101 no later then the first
quarter of the fiscal year beginning after December 15, 1999. To date the
Company has not yet completed its review of SAB 101 and its revenue
recognition policies to determine if any change in accounting policy is
required.
NOTE VII. - ACQUISITION
On January 10, 2000, the Company acquired substantially all of the assets
and liabilities of Sair, Inc. ("Sair") through the issuance of 100,000
shares of common stock, with a fair market value of approximately $356, and
cash payments, of approximately $475. The acquisition of Sair has been
accounted for as a purchase transaction in accordance with the Accounting
Principles Board Opinion No. 16. The Company also granted options to issue
100,000 shares of common stock in conjunction with employment and
contractor agreements for key relationships. In addition, the Company also
granted options to issue 50,000 shares of common stock, which are held in
escrow. Release of these options to the prior owners of Sair is contingent
on reaching specified revenue levels prior to January 10, 2005; otherwise
the options revert back to the Company on January 10, 2005.
The purchase price was allocated to tangible and intangible assets acquired
based on preliminary estimates of their fair value at January 10, 2000.
Final determination of the purchase price allocation will be made upon
receipt of all applicable information. As of January 10, 2000, the purchase
price has been allocated to current assets ($90), current liabilities
($60), fixed assets ($50) and intangible assets ($750). The portion of the
purchase price allocated to intangible assets, primarily intellectual
property will be amortized on a straight-line basis over three years.
Sair develops comprehensive vendor-neutral Linux training materials and is
the architect of the Sair
8
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Linux & GNU Certification and its associated exams.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Overview
Wave Technologies International, Inc. ("Wave" or the "Company") designs,
develops and delivers integrated training solutions addressing technical
certification, including computer programming, networking and operating systems
certifications. Wave delivers its certification training by integrating
Internet-based assessment, self-study materials, Internet mentoring and
intervention, and live instructor led training ("ILT"), either in-person or over
the Internet. The Company produces and distributes course books, self-study
guides, training videos, CD-ROM and CBT (computer-based training) materials. For
example, Wave's boot camp style Camp Wave(TM) combines self-study material,
assessment, mentoring and drill and practice with live intensive ILT. The
Company's eCamp Wave(TM) provides similar self-study materials, integrated
assessment, mentoring and drill practice but provides the flexibility of remote
web-based ILT. Many of the Company's products are offered in both formats. Wave
believes that its methodology of integrating self-study with instructor-led
training (either live or over the Internet) is crucial to student learning and
success in achieving technical certification.
On March 10, 2000, Wave and Thomson Corporation ("Thomson") signed a
definitive agreement under which Thomson will acquire Wave. Under the agreement,
a newly formed Thomson subsidiary will make a tender offer for the issued and
outstanding shares of Wave, at a price of $9.75 per share in cash, or a total of
approximately $45 million. The offer is conditioned upon the tender of two-
thirds of the eligible shares, the expiration or termination of the customary
regulatory periods and other customary conditions. The closing of the tender
offer is expected to occur in April 2000, to be followed by a merger, in which
each share of Wave not acquired in the tender offer will be converted into the
right to receive $9.75 in cash.
In connection with the approval of the agreement with Thomson, Wave's Board
of Directors amended the provisions of the Wave Technologies International, Inc.
Rights Agreement dated as of September 17, 1998 (the "Rights Agreement") to
provide that Thomson and its acquisition subsidiary are "Exempt Persons" within
the meaning of the Rights Agreement, so long as all acquisitions of Wave common
stock by them are made pursuant to the agreement with Wave. The Wave Board
determined that Thomson's tender offer for Wave stock, and the subsequent
merger, are "Permitted Offers" under the Rights Agreement. The Board's actions
have the effect of allowing the proposed acquisition of Wave by Thomson to
proceed without triggering the "poison pill."
A growing factor in the technology training market is the development of
technical certification standards. A number of manufacturers and associations,
including Microsoft, CompTIA and Novell, have established certification programs
for their hardware or software
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products. Wave currently provides certification training for Microsoft's MCSE
and MCSD programs, Cisco's CCNA, Novell's CNE, and CompTIA's A+, iNET+, and
Network+ certifications. The certification sponsoring organizations set
certification standards that are satisfied by passage of standardized tests, but
do not dictate the methods that students may use to prepare for the tests.
Typically, students prepare by taking courses or undertaking self-study. In
addition to the knowledge gained in studying for certification tests, students
obtaining certification generally have increased credibility in the industry and
enhanced job possibilities. Wave believes that its focus on certification, which
measures outcomes, helps the Company sell against lower cost alternatives as
well as competitors who offer higher entertainment value, without measurable
results.
In addition, in response to significant activity in the Linux marketplace,
Wave has expanded its Linux training initiatives over the past nine months. In
addition to the acquisition of SAIR, Inc., the Company has entered into Linux
courseware licensing and development agreements and offers Linux boot camps.
Linux-related offerings represented approximately 9% of Wave's revenues for the
most recent fiscal quarter, and the Company expects the importance of Linux
training to increase.
The Company offers instructor-led courses and sells integrated training
programs at its ten training centers in the United States and at its two
training centers in the United Kingdom. Wave's UK operations along with
international distributors comprise its international division.
The Company's fiscal year ends on April 30. The most recent quarter, ended
January 31, 2000, is the third quarter of Wave's 2000 fiscal year.
Three Months Ended January 31, 2000 Compared To
Three Months Ended January 31, 1999
Wave recognized record revenues of $9,705 in the third quarter of fiscal
2000, an increase of $478, or 5%, from the same quarter in fiscal 1999. Total
domestic revenues increased $1,652, or 29%, while international revenues
decreased $1,174, or 33%. International revenues accounted for approximately 25%
of Wave's total revenues in the quarter ended January 31, 2000, compared to 39%
in the same quarter in fiscal 1999. The increase in domestic sales related
largely to continued demand for the Company's certification "boot camps." The
decrease in international revenues reflected the impact of decreased demand for
Microsoft training as the result of the delayed release of Windows 2000.
While Wave continued to derive most of its revenue from Microsoft and
Cisco-related offerings as well as training for CompTIA's A+ certification, the
Company completed a number of Linux-related initiatives to expand courseware and
delivery to the fast-growing Linux market. In January of 2000, Wave completed
the acquisition of Sair, Inc., which develops comprehensive vendor-neutral Linux
training materials and also created the Sair Linux and GNU Certification and its
associated exams. The acquisition expands the Company's channels for sales of
training materials, certification exams and boot camp programs and provides
valuable development capabilities and technical leadership. The Company also
entered into an agreement with Compaq Computer Corporation to provide corporate
Linux training to Compaq Solution Alliance (CSA) partners through Sair's
established network of corporate training facilities.
10
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Publishing revenues increased by $347, or 7%, from $5,147 to $5,494 and
increased slightly as a percentage of total revenues to 57% from 56% in the same
quarter in fiscal 1999. Domestic publishing revenues increased by $1,228,
largely as the result of a $993 increase in Wave's "boot camp" program revenues.
Wave also entered into new Linux licensing and distributions agreements. The net
decline of $881 in international publishing revenues was offset by the increase
in domestic publishing revenues.
ILT revenues decreased slightly to $3,957 from $3,987 in the same quarter
in fiscal 1998, and decreased as a percentage of total revenues to 41% from 43%.
Domestic ILT revenues increased $264, or 10%, primarily as the result of the
Camp Wave boot camp programs. International ILT revenues decreased $294 or 24%,
as the result of delays in the release of Windows 2000. The domestic increase
partially offset the decrease in international ILT revenues, and the
approximately $185 of domestic training that was rescheduled from the January
31, 2000, quarter into subsequent quarters. The Company believes the
rescheduling was due to employers keeping IT employees in the office during
December and January.
Custom solutions revenues increased slightly, by $161, or 173%, from the
same period in fiscal 1999, and represented 3% of total revenues, compared to 1%
in the third quarter of fiscal 1999. Because margins from many custom solutions
programs historically were well below those for the rest of the Company in
fiscal 1999, Wave determined that the resources to support custom solutions
services could be more effectively deployed in other areas, and terminated most
remaining custom solutions projects. The increase in custom solutions revenue
for this quarter resulted from a number of development contracts, and does not
reflect a change in the Company's strategy for its custom solutions business.
Wave will continue to take custom solutions work only if it fits with the
Company's overall focus and direction.
Cost of services, products and development increased $304, or 6%, in the
quarter ended January 31, 2000, to $5,390 , and increased slightly as a
percentage of total revenues to 56% from 55% in the same quarter in fiscal 1999.
Domestic cost of services, products and development increased by $538. Material
costs increased by $173, largely due to costs related to the testing vouchers
used in Wave's "boot camps." Domestic payroll costs included in costs of
services, products and development increased by $65. Other categories of
increased expenses included equipment rental, by $26, and professional fees, by
$29. The Company capitalized $62 less of courseware development during the
current quarter compared to the same period in the prior year. Various other
miscellaneous items accounted for the remainder of the increase. International
cost of goods decreased $234, or 19%, largely as the result of a $226 decrease
in royalty fees for reselling a third-party Year 2000 product.
Sales and marketing expenses for the quarter ended January 31, 2000,
decreased by $72, or 2%, to $2,815, from the same quarter in fiscal 1999, and
decreased as a percentage of total revenues, to 29% from 31%. Direct mail
expenses decreased $138 due to the timing of domestic direct mail amortization
and to a reduction in international direct mail. Printing and advertising
expenses also decreased by $24 or 5%, and employee travel decreased by $23 or
31%. These decreases were partially offset by an increase in total payroll
expense of $91, or 7%, compared to the same quarter in fiscal 1999.
General and administrative expenses increased slightly by $7, or less than
1%, to $1,454 for the third quarter of fiscal 2000, and decreased slightly as a
percentage of total revenues, to
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15%, compared to 16% in the same quarter in fiscal 1999. Individual expense
items fluctuated slightly compared to the same quarter last year.
Wave had operating income in the quarter ended January 31, 2000, of $46,
compared to an operating loss in the third quarter of fiscal 1999 of $193.
The Company recognized net income of $14 for the third quarter of fiscal
2000, compared to a net loss of $137, or $0.03 per share, for the quarter ended
January 31, 1999. The fiscal 1999 net loss included an income tax credit of $92,
because of the operating loss, while net income for the quarter ended January
31, 2000 included a $10 income tax provision.
Nine Months Ended January 31, 2000 Compared
To Nine Months Ended January 31, 1999
Total revenues increased $1,194, or 4%, in the nine months ended January
31, 2000, to $28,198 from $27,004 in the same period in fiscal 1999. Publishing
revenues increased $203, or 1%, but decreased as a percentage of revenues to
52%, compared to 54% for the first nine months of fiscal 1999. Instructor-led
training revenues increased $1,674, or 15%, to $12,826, and increased as a
percentage of total revenues to 45% compared to 41% in the first nine months of
fiscal 1999. Custom solutions revenues decreased $683, or 51%, to $663 for the
first nine months of fiscal 2000 and decreased to 2% of total revenues, from 5%
in the 1999 period. International publishing revenues for the nine-month period
were $4,451, or 30% of total publishing revenues, compared to 37% in the same
period in the prior fiscal year. International ILT revenues were $3,611, or 28%
of total ILT revenues, for the first nine months of fiscal 2000, compared to 26%
of total ILT revenues, for the same period in the prior year.
Cost of services, products and development increased $1,121, or 8%, for the
nine months ended January 31, 2000, to $15,767, and increased slightly as a
percentage of total revenues, to 56%, compared to 54% in the fiscal 1999 period.
Domestic cost of services, products and development increased by $930. Domestic
payroll expense increased by $251, while the Company capitalized $63 less of
internal salaries related to courseware development, compared to the same period
in the prior fiscal year. Material costs increased $268, reflecting the increase
in testing vouchers used in the "boot camp" programs. Royalty fees increased
$144 as the Company used materials from third parties to gain accelerated access
to strategic development materials. Amortization of courseware development
increased $183 in the period ended January 31, 2000, compared to the same period
in fiscal 1999. Expense for equipment rental increased by $148, as leased
equipment replaced purchased equipment. Credit card processing fees also
increased $52, and amortization of licensed materials increased $66. These
increases plus smaller increases in various miscellaneous expenses were
partially offset by a decrease of $396 in custom solutions expenses.
Sales and marketing expenses for the nine months ended January 31, 2000,
decreased $346, or 4%, to $7,710, and decreased as a percentage of revenues, to
27% from 30% in the prior year. Total payroll and related expenses for sales and
marketing decreased by $320, or 7%, during the first nine months of fiscal 2000.
Direct mail expenses decreased by $228, or 1%, from the fiscal 1999 nine-month
period, while advertising, printing and promotional expenses increased $126, or
11%, largely for international promotional expenses. Real estate and
depreciation expense increased $28 and $27, respectively. Overall international
sales and marketing expenses increased by $64, or 3%.
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<PAGE>
General and administrative expenses decreased by $169, or 4%, for the first
nine months of fiscal 2000, and decreased slightly as a percentage of total
revenues to 15% from 16% in the same period in fiscal 1999. Payroll-related
expense decreased $96. Depreciation expenses decreased $347, and expense for
leased equipment increased $115, as fully depreciated equipment was replaced by
leased equipment. Real estate expenses increased by $50. Recruiting expenses and
investor relations-related expenses increased by $70 and $51, respectively.
Wave had a provision for income taxes of $164 in fiscal 2000, based on a
40% tax rate, while the Company recognized an income tax credit of $77 in the
period ended January 31, 1999.
The Company recognized net income for the current nine-month period of
$246, compared to a net loss of $116 for the same period in the previous fiscal
year. The Company's net income per share was $0.06 for the nine months ended
January 31, 2000, compared to a net loss of $0.03 per share for the same period
in fiscal 1999.
Liquidity and Capital Resources
The Company's net cash balance at January 31, 2000, was $685, compared to
$701 at April 30, 1999. Total accounts receivable increased by $881, to $12,523.
Inventory increased $340 at January 31, 2000, compared to April 30, 1999, but
decreased $29 from the end of the last fiscal quarter. Prepaid expenses
decreased $124 from $855 at April 30, 1999, while accrued expenses increased by
$636, or 24%, during the same period.
As the Company continued its focused direct mail program, prepaid direct
mail increased by $116, or 14%, at January 31, 2000, compared to October 31,
1999, and by $330 compared to April 30, 1999. Deferred courseware, representing
primarily capitalized third party product development, also increased by $524
compared to April 30, 1999. While these items appear as assets on the balance
sheet, those amounts will be expensed over the expected period of future
benefits.
Total deferred revenue was $6,114 as of the end of the quarter. This
compares to total deferred revenue at April 30, 1999 of $6,145, and to total
deferred revenue at October 31, 1999, the end of the second fiscal quarter, of
$5,940. Deferred revenue reflects completed sales by the Company, where the
Company has recognized much of 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 $2,000 on its $3,500 line of credit at quarter end, in part
for the Sair acquisition, compared to a balance of $325 at the end of the last
quarter, October 31, 1999, and $1,470 at the end of fiscal 1999. The Company`s
average amount borrowed on its credit line during the quarter ended January 31,
2000 was $815, compared to an average balance of $310 for the quarter ended
October 31, 1999 and $1,378 for the third quarter of fiscal 1999.
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 next several months.
13
<PAGE>
Year 2000
Over the past two years, the Company performed an analysis of its systems
to determine the possible impact of Year 2000 issues on its operations. Based
upon discussions with its vendors, Wave completed upgrades for a number of its
programs at minimal costs. To date the program has been successful and the
Company has transitioned all of its systems to the new millennium. No
significant problems were identified, and Wave believes the risk related to
future exposure to Year 2000 issues is minimal. It is possible however, that the
full impact of the date change, which was of concern due to computer programs
that use two digits instead of four digits to define years, has not been fully
recognized. The Company believes that any such problems are likely to be minor
and correctable. In addition, Wave could still be negatively affected if its
customers are adversely affected by the Year 2000 or similar issues. The Company
currently is not aware of any significant Year 2000 or similar problems that
have arisen for its customers. The costs associated with the Year 2000
initiative in 1999 were approximately $306, including the cost of installation
of software upgrades and testing.
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, delays by Microsoft or Novell or other vendors in
implementing certification guidelines for their new products, the speed and
effectiveness of 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.
Item 3. Quantitative and Qualitative Disclosure about Market Risk.
The Company has minimal exposure to market risks as it relates to effects
of changes in interest rates and foreign currency exchange rates. Wave does not
hold or issue derivative financial instruments. There has been no significant
change in these market risks since Wave's fiscal year ended April 30, 1999. For
more information see "Quantitative and Qualitative Disclosures About Market
Risk" in Wave's Annual Report on Form 10-K for the year ended April 30, 1999.
PART II OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
14
<PAGE>
On January 10, 2000, in connection with the Company's acquisition of SAIR,
Inc. ("SAIR"), the Company issued 100,000 shares of common stock to the former
stockholders of SAIR. These shares were issued in reliance upon an exemption
from registration under Section 4(2) of the Securities Act of 1933 and Rule 506
of Regulation D promulgated thereunder.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
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, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Wave Technologies International, Inc.
Dated: March 15, 2000 By: /s/ J. Michael Bowles
-----------------------
J. Michael Bowles, Chief Financial Officer
(Principal Accounting and Financial Officer
and Duly Authorized Officer)
15
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<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANTS FINANCIAL STATEMENTS AS OF AND FOR THE PERIOD ENDED 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-30-2000
<PERIOD-START> MAY-01-1999
<PERIOD-END> JAN-31-2000
<CASH> 685
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<RECEIVABLES> 12,971
<ALLOWANCES> 448
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<CURRENT-ASSETS> 15,124
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<COMMON> 2,126
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<OTHER-EXPENSES> 11,979
<LOSS-PROVISION> 54
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