<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended May 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ________________ to _______________.
Commission File Number 0-15482
WAVETECH INC.
(Exact name of small business issuer as specified in its charter)
NEW JERSEY 22-2726569
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5210 E. WILLIAMS CIRCLE, SUITE 200
TUCSON, ARIZONA 85711
(Address of principal executive offices)
(520) 750-9093
(Issuer's telephone number)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports,
and (2) has been subject to such filing requirements for the past 90 days.
[X] Yes [ ] No
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: June 30, 1996.
Class No. Of Shares Outstanding
Common Stock. Par Value $.001 12,570,331
- ----------------------------- ----------
Transitional Small Business Disclosure Format (Check One): [ ] Yes [X] No
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INDEX
WAVETECH INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION Page
----
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets
May 31, 1996 (unaudited) and August 31, 1995
(audited).................................................. 3
Condensed Consolidated Statements of Operations -
Nine Months Ended May 31, 1996 and May 31, 1995
(unaudited)................................................ 4
Condensed Consolidated Statements of Operations -
Three Months Ended May 31, 1996 and May 31, 1995
(unaudited)................................................ 5
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended May 31, 1996 and May 31, 1995
(unaudited)................................................ 6
Notes to Condensed Consolidated Financial Statements -
May 31, 1996 and May 31, 1995
(unaudited)................................................ 7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 8
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.......................................... 9
ITEMS 2-4. Not Applicable............................................. 9
ITEM 5. Other Information.......................................... 9
ITEM 6. Exhibits and Reports on Form 8-K........................... 9
SIGNATURES................................................................ 10
2
<PAGE> 3
WAVETECH INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
August 31, 1995 (Audited) and May 31, 1996 (Unaudited)
<TABLE>
<CAPTION>
___________
ASSETS
August 31, May 31,
1995 1996
---------- ----------
<S> <C> <C>
Current Assets:
Cash and Cash equivalents $ 285,793 $ 1,301,533
License Fee Receivable 200,000
Other Current Assets 4,348 11,608
----------- -----------
Total Current Assets 290,141 1,513,141
Property and Equipment, net 476,465 561,919
Other Assets:
Deposits 33,125 66,140
Non-current Portion of License Fee Receivable - 300,000
Other Assets 10,400 45,940
----------- -----------
Total Other Assets 43,525 412,080
----------- -----------
Total Assets $ 810,131 $ 2,487,140
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable and Accrued Expenses $ 235,054 $ 177,988
Capital Leases 39,327 20,724
Unearned Revenue - 200,000
Notes Payable, current 378,239 53,639
----------- -----------
Total Current Liabilities 652,620 452,351
Non-current Liabilities:
Capital Leases - 64,982
Unearned Revenue - 300,000
----------
Total Non-current Liabilities 364,982
Total Liabilities 652,620 817,333
Stockholders' Equity:
Common stock, par value $.001 per share;
50,000,000 shares authorized, 9,455,078
and 12,570,331 shares issued and
outstanding as of August 31, 1995 and
May 31, 1996, respsectively 9,455 10,500
Additional paid in capital 1,540,223 4,232,292
Retained Earnings (accumulated deficit) (1,392,167) (2,572,985)
----------- -----------
Total Stockholders' Equity 157,511 1,669,807
----------- -----------
Total Liabilities and Stockholders' Equity $ 810,131 $ 2,487,140
=========== ===========
</TABLE>
3
<PAGE> 4
WAVETECH INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE-MONTH PERIODS ENDED MAY 31, 1996 (UNAUDITED) AND
MAY 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Revenues $ 2,837 $ 5,391
Cost of Sales
Direct Costs 141,775 22,646
----------- ----------
Gross Profit (loss) (138,938) (17,255)
Other Costs
Development and Administrative Expenses 1,059,826 532,580
----------- ----------
Loss before other income (expenses) $(1,198,764) $ (549,835)
Other income (expense)
Interest income 19,051 11
Interest expense (1,104) (7,488)
----------- ----------
Total other income (expense) 17,947 (7,477)
----------- ----------
Net loss $(1,180,817) $ (557,312)
=========== ==========
Per share data
Net loss per share (0.1094) (0.0265)
Weighted average number of shares outstanding 10,789,422 2,103,558
=========== ==========
</TABLE>
4
<PAGE> 5
WAVETECH INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIODS ENDED MAY 31, 1996 (UNAUDITED) AND
MAY 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
_________________________
1996 1995
----------- ----------
<S> <C> <C>
Revenues $ 854 $ 5,391
Cost of Sales
Direct Costs 33,993 22,646
----------- ----------
Gross Profit (loss) (33,140) (17,255)
Other Costs
Development and Administrative Expenses 487,781 240,540
----------- ----------
Loss before other income (expenses) (520,921) (257,795)
Other income (expense)
Interest income 8,502 11
Interest expense (272) (7,488)
----------- ----------
Total other expense (8,230) (7,477)
----------- ----------
Net loss $ (512,691) $ (265,272)
Per share data =========== ==========
Net loss per share $ (0.0443) $ (0.0739)
Weighted average number of shares outstanding 11,570,331 3,590,975
=========== ==========
</TABLE>
5
<PAGE> 6
WAVETECH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED MAY 31, 1996 (UNAUDITED) AND
MAY 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
_________________________
1996 1995
------------ ----------
<S> <C> <C>
Cash flows from operating activities: $(1,180,818) $(557,312)
Net loss
Adjustments to reconcile net loss to net
cash used in operating activities;
Depreciation and amortization 64,013 6,304
Cash used due to changes in working capital 413,775
amounts other than cash and debt
Changes in assets and liabilities:
(Increase) decrease in accounts receivable and
other current assets (7,260) 7,931
Increase in license fee receivable (500,000)
Decrease in accounts payable and accrued expenses (57,066) (44,270)
Increase in accrued interest payable 7,146
Increase in unearned revenue 500,000
Increase deposits and other assets (68,555)
----------- ---------
Total adjustments (68,868) 390,886
----------- ---------
Net cash used in operating activities (1,249,686) (166,426)
Cash flows from investing activities:
Purchase of property and equipment (149,467) (33,842)
--------- ---------
Net cash used in investing activities (149,467) (33,842)
Cash flows from financing activities
Reduction of notes payable, net (324,600) (21,211)
Borrowing of capital lease payable 72,362
Repayment of capital lease payable (25,983)
Proceeds from common stock issued, net 2,693,114 244,942
----------- ---------
Net cash provided by financing activities 2,414,893 223,731
----------- ---------
Net increase in cash and cash equivalents 1,015,740 23,463
Cash and cash equivalents, beginning of period 285,793 10,315
----------- ---------
Cash and cash equivalents, end of period $ 1,301,533 $ 33,778
=========== =========
</TABLE>
6
<PAGE> 7
WAVETECH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included. Operation results for the nine month
period ended May 31, 1996 are not necessarily indicative of the results that may
be expected for the fiscal year ending August 31, 1996. For further information,
refer to the Company's financial statements for the year ended August 31, 1995
included in its Form 10-KSB.
The consolidated financial statements include the accounts of Wavetech,
Inc. (the Company) and its wholly owned subsidiary, Interpretel, Inc.
(Interpretel). All material intercompany balances and transactions have been
eliminated. As of May 31, 1996, and for the previous three years, the Company
had little or no operations other than its investment in Interpretel which was
made on March 8, 1995.
On March 8, 1995, the Company entered into a Plan and Agreement of
Reorganization for the Exchange of Stock ("Acquisition") with the shareholders
of Interpretel. Interpretel was incorporated April 15, 1993 ("Inception"),
under the laws of the State of Arizona to develop, market, and provide
interactive telecommunication systems and services to business and individual
customers. The systems incorporate interactive call processing,
computer-telephony integration, card production/fulfillment, billing services,
marketing, sales support, and customer service to provide features and services,
including but not limited to long distance dialing, voice/fax messaging,
voice/fax broadcast, language interpretation /translation, information
retrieval, interface to existing databases, and product promotion services. Each
Interpretel system is developed to reflect or target the needs of an identified
(target) market, with services provided to individual customers via a calling
card product incorporating the use of certain trade secrets, trade marks,
service marks, and materials related thereto.
In accordance with Accounting Principles Board Opinion No. 16 "Business
Combinations," the Acquisition has been accounted for as a reverse acquisition
with Interpretel deemed to be the acquiring entity. Accordingly, the
consolidated financial statements include the accounts of Interpretel, Inc. from
the earliest period presented. The accounts of the Company are included in the
financial statements from the date of the Acquisition, March 8, 1995 to May 31,
1996.
NOTE 2 - PER SHARE DATA
Per share data is based on the weighted average number of shares
outstanding throughout the periods. The assumed exercise of stock options
outstanding would not have a dilutive effect on the computation.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
OPERATIONS OVERVIEW
The Company specializes in creating interactive communication systems
through the application of "intelligent" call processing technology and
proprietary software to reflect or target the needs of an identified audience.
These systems are often used as privatized networks for organizations and their
members, companies and their suppliers and/or customers and special purpose
groups. During 1994, 1995, and 1996, the Company has remained focused on the
development of the software infrastructure for its call processing and data
management systems. Beta sites and limited operations commenced in late 1995.
The first significant privatized network was started in late 1995.
REVENUES
Revenues for fiscal 1995 and the first three quarters of fiscal 1996
are the results of a limited number of focus and beta groups and interest
income. The Company believes that revenues will increase in future periods as
privatized interactive communication systems are developed and placed in
service. The Company is concentrating on the marketing and sales of the
interactive communications systems.
COST AND EXPENSES
Expenses increased to $1,198,764 for the nine-month period ended May 31,
1996 compared to $549,835 for the nine-month period ended May 31,1995. This
increase was due to additional expenses that were incurred in connection with
the development and implementation of the Interpretel system, the hiring of
additional personnel, the expansion of the Company's facilities, and the
start-up of a call center operation.
LIQUIDITY AND CAPITAL RESOURCES
As of May 31, 1996, the Company had working capital of $1,301,533 compared
with working capital of $33,778 at May 31, 1995. Recently, the Company has
financed its operations through the sale of common stock pursuant to Regulation
S of the Securities Act of 1933. Since August 31, 1995, the Company has raised
approximately $2,500,000 through the sale of common stock, including
approximately $1,500,000 that was sold on April 9, 1996. Although the Company
believes that it has sufficient working capital to fund its operations for the
foreseeable future, additional financing may be necessary to expand the
Company's operations.
INFLATION
Although the Company's operations are influenced by general economic trends
and technology advances in the telecommunications industry, the Company does not
believe that inflation has a material effect on its operations.
8
<PAGE> 9
PART II
ITEM 1. LEGAL PROCEEDINGS
On March 14, 1996, Steven A. Ezell ("Ezell"), a former officer of the
Company, sued the Company and two of its current officers and directors in the
Superior Court of the State of Arizona in an action titled Ezell v. Wavetech,
Inc., Gerald I. Quinn and Terence E. Belsham. The Complaint alleges that the
Company breached its employment contract with Ezell and that Messrs. Quinn and
Belsham tortiously interfered with Ezell's employment contract with the Company.
The complaint seeks unspecified compensatory damages, including costs and
attorney's fees. The Company believes Ezell's claims have no merit and intends
to vigorously defend this action.
ITEMS 2-4. NOT APPLICABLE
ITEM 5. OTHER INFORMATION
On May 21, 1996, the Company entered into an agreement with Switch
Telecommunications Australia Pty Ltd ("Switch"), a wholly owned subsidiary of
Tech Pacific Holdings Limited. Tech Pacific Holdings Limited is a wholly
owned subsidiary of First Pacific, a public company traded on the Hong Kong
stock exchange which had revenues of more than seven billion dollars in fiscal
1995. Under the agreement, Switch will operate the Interpretel system in
South-East Asia and the sub-Indian Continent. Interpretel will receive both
licensing fees and a royalty fee based on sales of the Interpretel system.
Switch and the Company also signed a Memorandum of Understanding pursuant to
which the Company will acquire an equity interest in Switch in exchange for an
equity interest of the Company of equal value. This transaction is subject to
the negotiation and execution of a definitive agreement.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
a) Exhibits.
27. Financial Data Schedule
b) Reports on Form 8-K.
The Company filed a report on Form 8-K/A1, dated April 19, 1996, in which it
reported the sale of 2,000,000 shares of its common stock.
9
<PAGE> 10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
undersigned has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: July 15, 1996 WAVETECH, INC.
By: /s/Gerald I. Quinn
-------------------------------------
Gerald I. Quinn
President and Chief Executive Officer
By: /s/Terence E. Belsham
-------------------------------------
Terence E. Belsham
Chief Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENTS OF OPERATIONS, ENDED MAY
31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> MAR-01-1996
<PERIOD-END> MAY-31-1996
<CASH> 1,301,553
<SECURITIES> 0
<RECEIVABLES> 211,608
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,513,141
<PP&E> 660,992
<DEPRECIATION> (99,073)
<TOTAL-ASSETS> 2,487,140
<CURRENT-LIABILITIES> 452,351
<BONDS> 0
0
0
<COMMON> 10,500
<OTHER-SE> 1,659,307
<TOTAL-LIABILITY-AND-EQUITY> 2,487,140
<SALES> 0
<TOTAL-REVENUES> 9,335
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 522,046
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (512,691)
<INCOME-TAX> 0
<INCOME-CONTINUING> (512,691)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (512,691)
<EPS-PRIMARY> (.044)
<EPS-DILUTED> 0
</TABLE>
