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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-QSB
(Mark One)
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended February 29, 1996.
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to .
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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: March 29, 1996.
<TABLE>
<CAPTION>
Class No. Of Shares Outstanding
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<S> <C>
Common Stock. Par Value $.001 10,509,246
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</TABLE>
Transitional Small Business Disclosure Format (Check One): / / Yes /X/ No
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INDEX
WAVETECH, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Page
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets
February 29, 1996 (unaudited) and August 31, 1995 (audited)........ 3
Condensed Consolidated Statements of Operations -
Six-months Ended February 29, 1996 and February 28, 1995
(unaudited)........................................................ 4
Condensed Consolidated Statements of Operations -
Three-months Ended February 29, 1996 and February 28, 1995
(unaudited)........................................................ 5
Condensed Consolidated Statements of Cash Flows -
Six-months Ended February 29, 1996 and February 28, 1995
(unaudited)........................................................ 6
Notes to Condensed Consolidated Financial Statements -
February 29, 1996 and February 28, 1995 (unaudited)................ 7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................ 8
PART II. OTHER INFORMATION
ITEM 5. Other Information.................................................. 9
ITEM 6. Exhibits and Reports on Form 8-K................................... 9
SIGNATURES...................................................................... 10
</TABLE>
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WAVETECH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1995 AND FEBRUARY 29, 1996 (UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
AUGUST 31, FEBRUARY 29,
1995 1996
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<S> <C> <C>
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 285,793 $ 278,633
OTHER CURRENT ASSETS 4,348 4,398
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TOTAL CURRENT ASSETS 290,141 283,031
PROPERTY AND EQUIPMENT, NET 476,465 504,564
OTHER ASSETS:
DEPOSITS 33,125 64,718
OTHER ASSETS 10,400 10,400
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TOTAL OTHER ASSETS 43,525 75,118
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TOTAL ASSETS $ 810,131 $ 862,713
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 235,054 $ 131,743
ACCRUED INTEREST PAYABLE 39,327 -0-
NOTES PAYABLE, CURRENT 378,239 70,300
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TOTAL CURRENT LIABILITIES 652,620 202,043
STOCKHOLDERS' EQUITY:
COMMON STOCK, PAR VALUE $.001 PER SHARE;
50,000,000 SHARES AUTHORIZED, 9,555,078
AND 10,500,852 SHARES ISSUED AND OUTSTANDING 9,455 10,500
ADDITIONAL PAID IN CAPITAL 1,540,223 2,739,792
RETAINED EARNINGS (ACCUMULATED DEFICIT) (1,392,167) (2,089,622)
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TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 157,511 660,670
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 810,131 $ 862,713
=========== ===========
</TABLE>
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WAVETECH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX-MONTH PERIODS ENDED FEBRUARY 29, 1996 (UNAUDITED) AND
FEBRUARY 28, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
Revenue $ 12,532 $ 10,446
Expenses:
Development and Administrative Expenses 709,987 340,249
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Total Expenses 709,987 340,249
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Net Loss $ 697,455 $ 329,803
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Net Loss per Common Share $ .07 $ .30
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Weighted Average Number of Shares Outstanding 10,432,818 1,101,060
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</TABLE>
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WAVETECH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE-MONTH PERIODS ENDED FEBRUARY 29, 1996 (UNAUDITED) AND
FEBRUARY 28, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
Revenues $ 5,173 $ 5,905
Expenses:
Development and administrative expenses 415,262 206,586
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Total Expenses 415,262 206,586
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Net Loss $ 410,089 $ 200,681
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Net Loss per Common Share $ .04 $ .18
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Weighted Average Number of Shares Outstanding 10,500,582 1,128,619
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</TABLE>
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<PAGE> 6
WAVETECH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX-MONTH PERIODS ENDED FEBRUARY 29, 1996 (UNAUDITED) AND
FEBRUARY 28, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
Cash flows from operating activities:
Net loss $ (697,455) $(329,803)
Adjustments to reconcile net loss to net cash
used in operating activities;
Depreciation and amortization 34,684 7,547
Changes in assets and liabilities:
Increase in accounts receivable and other (50) (7,121)
current assets
Increase (decrease) in accounts payable and (103,311) 31,168
accrued expenses
Increase (decrease) in accrued interest payable (39,327) 9,807
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Total adjustments (108,004) 41,401
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Net cash used in operating activities (805,459) (288,402)
Cash flows from investing activities:
Purchases of property and equipment (62,783) (2,745)
Increase in deposits and other assets (31,593) -0-
Net cash used in investing activities (94,376) (2,745)
Cash flows from financing activities:
Proceeds from (reduction of) notes payable, net (307,939) 41,666
Proceeds from common stock issued, net 1,200,614 240,431
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Net cash provided by financing activities 892,675 282,097
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Net decrease in cash and cash equivalents (7,160) (9,050)
Cash and cash equivalents, beginning of period 285,793 3,958
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Cash and cash equivalents, end of period $ 278,633 $ (5,092)
=========== =========
</TABLE>
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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 three-month and
six-month ended February 29, 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 February 29, 1996, and for the previous three years, the
Company had 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, 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 February
29, 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
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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 and
in the first quarter of 1996. The first significant privatized network was
started in late 1995.
REVENUES
The Company commenced limited operations at the end of its second
fiscal quarter. Revenues for fiscal 1995 and the first half of fiscal 1996 were
generated from 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.
Currently, the Company is concentrating on the marketing and sales of its
interactive communications systems.
COST AND EXPENSES
Expenses increased to $709,987 for the six-month period ended February
29, 1996 compared to $340,249 for the six-month period ended February 28, 1995.
This increase was due to additional expenses that were incurred in connection
with the commencement of limited operations, the hiring of additional personnel,
and the expansion of the Company's facilities.
LIQUIDITY AND CAPITAL RESOURCES
As of February 29, 1996, the Company had working capital of $80,988
compared with a working capital deficit of $362,479 at August 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 will 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 and a
shareholder 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 agreement 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.
ITEM 5. OTHER INFORMATION
The Company called a special Board of Directors meeting on February 27,
1996 at which Gerald I. Quinn was elected President and Chief Executive Officer
or the Company. At the same meeting, Terence E. Belsham was appointed to the
position of Chief Financial Officer.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits.
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<CAPTION>
Exhibit No. Description Method of Filing
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<S> <C> <C>
27 Financial Data Schedule Filed herewith.
</TABLE>
b) Reports on Form 8-K.
The Company filed a report on Form 8-K, dated February 5,
1996, in which it reported that certain real property believed to be owned by
its subsidiary and which had been reflected in the Company's financial
statements for the year ended August 31, 1995, had been sold in a delinquent tax
sale in April of 1994. The Company also reported certain changes in its
management.
9
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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: April 12, 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
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<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet dated February 29, 1996 and the Consolidated
Statement of Operations for the period ended February 29, 1996, and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> FEB-29-1996
<CASH> 278,633
<SECURITIES> 0
<RECEIVABLES> 4,398
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 283,031
<PP&E> 574,308
<DEPRECIATION> (69,744)
<TOTAL-ASSETS> 862,713
<CURRENT-LIABILITIES> 202,043
<BONDS> 0
0
0
<COMMON> 10,500
<OTHER-SE> 650,170
<TOTAL-LIABILITY-AND-EQUITY> 862,713
<SALES> 0
<TOTAL-REVENUES> 5,173
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 415,262
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (410,089)
<INCOME-TAX> 0
<INCOME-CONTINUING> (410,089)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (410,089)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> 0
</TABLE>
