-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SXz59tEEt8Gw2Tx75u+8bAwLkEMuMTLfR1EXPkrXmNzVzU1143UG+sED7A/zeKrZ nNlfTWd9XhvVtDL5GFbYZQ== 0000950131-99-001491.txt : 19990316 0000950131-99-001491.hdr.sgml : 19990316 ACCESSION NUMBER: 0000950131-99-001491 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990131 FILED AS OF DATE: 19990315 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WAVE TECHNOLOGIES INTERNATIONAL INC CENTRAL INDEX KEY: 0000925869 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT SERVICES [8741] IRS NUMBER: 431481443 STATE OF INCORPORATION: MO FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-24454 FILM NUMBER: 99565074 BUSINESS ADDRESS: STREET 1: 10845 OLIVE BLVD STREET 2: STE 250 CITY: ST LOUIS STATE: MO ZIP: 63141 BUSINESS PHONE: 3149955767 MAIL ADDRESS: STREET 1: 10845 OLIVE BLVD STREET 2: STE 250 CITY: ST LOUIS STATE: MO ZIP: 63141 10-Q 1 FORM 10-Q 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 ------------------------------ Wave Technologies International, Inc. -------------------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) Missouri 43-1481443 -------------------------------------------------------------------------- (State or other jurisdiction of incorporation or organization) (IRS Employer ID No.) 10845 Olive Boulevard, Suite 250, Saint Louis, Missouri 63141 -------------------------------------------------------------------------- (Address of principal executive offices) (314) 995-5767 -------------------------------------------------------------------------- (Issuer's telephone number) N/A -------------------------------------------------------------------------- (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 WAVE TECHNOLOGIES INTERNATIONAL, INC. Table of Contents Form 10-Q for the Quarterly Period Ended January 31, 1999
PART I FINANCIAL INFORMATION Page - ------ --------------------- ---- 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
WAVE TECHNOLOGIES INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands, unaudited)
April 30 January 31 1998 1999 -------- ---------- ASSETS - ------------------------------------------------------------------- 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 ------- ------- 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 ------- ------- 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 ------- ------- Total liabilities and shareholders' equity $18,296 $22,000 ======= =======
- 3 - WAVE TECHNOLOGIES INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share, unaudited)
Three Months Ended Nine Months Ended January 31 January 31 ------------------ ------------------ 1998 1999 1998 1999 ------- ------ ------- ------- 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 ======= ======= ======== ========
- 4 - WAVE TECHNOLOGIES INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED JANUARY 31 (Dollars in thousands, unaudited)
1998 1999 ------- ------- 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 ------- ------- Net cash from (used) in operating activities (381) (2,032) ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (1,220) (653) ------- ------- Net cash used in investing activities (1,220) (653) ------- ------- 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 ------- ------- 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 ======= =======
- 5 - 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. 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:
Three Months Nine Months Ended Ended January 31, January 31, ------------------------- --------------------------- 1998 1999 1998 1999 (in thousands) (in thousands) Net income (loss) $200 $(137) $547 $(116) Other comprehensive gain (loss) (40) (45) 9 (31) ------ ------- ------ ------- Total comprehensive income (loss) $160 $(182) $556 $(147)
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. 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 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. 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 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 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) EX-10.1 2 PROMISSORY NOTE Exhibit 10.1 PROMISSORY NOTE
- ------------------------------------------------------------------------------------------------------ Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials $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. - ------------------------------------------------------------------------------------------------------
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
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. 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] EX-27 3 FINACIAL DATA SCHEDULE
5 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. 1,000 9-MOS APR-30-1999 MAY-01-1998 JAN-31-1999 555 0 11,526 397 957 13,564 10,947 8,292 22,000 12,997 0 0 0 2,079 6,689 22,000 14,506 27,004 2,341 12,305 12,494 33 66 (193) (77) (116) 0 0 0 (116) (0.03) 0
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