<PAGE> 1
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(MARK ONE)
__X__ Annual report under section 13 or 15(d) of the Securities Exchange Act
of 1934 (Fee Required) for the fiscal year ended August 31, 1996.
_____ Transition report under section 13 or 15(d) of the Securities Exchange
Act of 1934 (No Fee Required) for the transition period from
__________________ to __________________ .
COMMISSION FILE NUMBER: 0-15482
WAVETECH, INC.
__________________________________________________________
(Name of small business issuer in its Charter)
New Jersey 22-2726569
(State or other jurisdiction (IRS Employer
of incorporation) Identification Number)
5210 E. Williams Circle, Suite 200
Tucson, Arizona 85711-4410
(Address of Principal Executive Offices)
Registrant's Telephone Number: (602) 750-9093
Securities registered under Section 12(g) of the Act:
Title of Each Class Name of each exchange on which registered
None None
________________________________________________________________________________
Securities registered under Section 12(g) of the Act:
Common Stock $.001 par value
________________________________________________________________________________
(Title of Class)
Class A and Class B Redeemable Common Stock Purchase Warrants
________________________________________________________________________________
(Title of Class)
Check whether the issuer (1) 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.
Yes X No
--- ---
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form, 10-KSB or any
amendment to this Form 10-KSB. X .
---
State issuer's revenues for its most recent fiscal year: $19,895
The aggregate market value of the voting stock of the registrant held by
non-affiliates as of November 14, 1996 was approximately $10,585,831 based on
the average high and low bid prices for such common stock as reported on the
Nasdaq Stock Market.
The number of shares of common stock outstanding as of November 14, 1996 was
14,114,441. The aggregate number of Redeemable Common Stock Purchase Warrants
outstanding as of November 15, 1996 was 844,630.
Documents Incorporated by Reference - Various like numbered exhibits from the
Company's 1987 Registration Statement File No. 33- 8353; Post-Effective
Amendment No. 1 to Form S-18 Registration Statement, SEC File No. 33-8353 filed
September 2, 1988; Form 10-K for the fiscal year ending August 31, 1991.
Transitional Small Business Disclosure Format (Check One):
Yes ___ No _X_
<PAGE> 2
PART I
ITEM 1. DESCRIPTION OF BUSINESS
(A) BUSINESS DEVELOPMENT
COMPANY PROFILE
Wavetech, Inc. (hereinafter referred to as "Wavetech") was incorporated in the
State of New Jersey on July 10, 1986. The Company became a public company by
filing and registering with the Securities and Exchange Commission on Form
S-18 400,000 units consisting of three shares of common stock and one Class A
and one Class B redeemable common stock purchase warrant. Its registration
statement became effective on February 11, 1987. A total of 400,000 units were
sold at the offering price of $6.75 per unit for gross total proceeds of
$2,700,000.
INTERNATIONAL ENVIRONMENTAL SERVICES CORPORATION
On June 6, 1991, Wavetech acquired all of the outstanding stock of International
Environmental Services Corporation (hereinafter referred to as "IES"), a
privately held Delaware corporation, in exchange for 8,000,000 shares (400,000
shares after the 1-20 split) of the Company and a $5 per cubic yard royalty
payment on IES's future operations, if any. IES has not derived any revenue from
its operations.
IES was incorporated in 1987 and, at the time of the acquisition by Wavetech,
had as its sole asset approximately 1,000 acres of real property located in
Carroll County, Ohio. The property was acquired by IES for the purpose of
converting all, or a portion thereof, to a non-hazardous sanitary landfill
facility.
In November of 1995, Wavetech was advised that the land of approximately 1,000
acres was sold to satisfy real estate taxes in arrears by Caroll County in Ohio.
This tax sale was consummated in April 1994. The Company intends to pursue legal
recourse to recover the value of the land from responsible parties.
WAVETECH, INC.
Following the acquisition of IES, Wavetech was comprised of two divisions: An
Environmental Laboratory Testing and Engineering Division through a wholly-owned
subsidiary, Applied Environmental Technology, Inc. ("Applied") and a Landfill
Development & Management Division ("IES"). During the year ended August 31,
1995, Wavetech, divested its Applied stock. This divestiture occurred during the
year ended August 31, 1995 and before March 8, 1995, resulting in Wavetech
having no further liabilities nor assets on its balance sheet associated with
Applied.
INTERPRETEL, INC.
On March 8, 1995, Wavetech entered into an agreement with Interpretel, Inc.
("Interpretel") pursuant to which Wavetech agreed to issue 6,000,000 shares of
its common stock in exchange for 100% of the outstanding 1,532,140 shares of
common stock of Interpretel. The transaction resulted in the former shareholders
of Interpretel owning approximately 80% of the outstanding shares of Wavetech.
The acquisition agreement also provides that during the three year period
following the March 8, 1995 closing, former shareholders of Interpretel can
receive an additional 7,500,000 common shares of Wavetech through an "earn-out"
based upon before tax net profit. During the two year period following closing,
former shareholders of Interpretel are entitled to earn up to 3,7500,000 common
shares of Wavetech for every $0.50 net profit before taxes, and an additional
3,750,000 common shares of Wavetech for every $1.00 of cumulative total net
profit before taxes. During the third year following closing, any shares not
previously issued pursuant to this agreement can be earned at $1.50 net profit
before taxes per share.
Interpretel's business is the creation and development of customized telephonic
networks linking large groups or organizations with their customer or membership
base using an interactive marketing platform. The system allows information and
services to be delivered in a highly selective and timely manner. Since its
inception, Interpretel has developed advanced call-processing applications and
created the infrastructure for administrative, sales, marketing, and customer
service requirements.
Interpretel was incorporated in Arizona became operational in September 1993.
Corporate offices and the data processing center are located in Tucson, Arizona.
When Interpretel was acquired by Wavetech on March 8, 1995, the principals of
Interpretel, Inc. continued to serve as management for the newly-structured
corporation. Wavetech, the parent company, is listed on the Nasdaq Small-Cap
Market under the trading symbol ITEL.
On March 10, 1995, Interpretel (Canada) Inc., was incorporated under the laws of
the Province of Ontario as a wholly owned subsidiary of Interpretel.
2
<PAGE> 3
(B) BUSINESS OF ISSUER AND SUBSIDIARIES
As a wholly-owned subsidiary of Wavetech, Interpretel has developed a
call-processing and data management network to provide unique telecommunication
services, such as language interpretation and translation, combined with long
distance and messaging services to create feature rich, and cost-effective
products.
The Company's products may be tailored to a wide-range of industries and
applications, to provide a high-tech vehicle for targeting the needs of the
intended audience. Systems are created to provide information distribution, and
customer interaction for marketing and promotion purposes, combined with what
Interpretel believes to be cost-competitive telecommunication services.
The network supports expansion through satellite operations and the development
of customized systems for selected foreign markets.
Since its inception, Interpretel has focused primarily on the development of
product specifications, proprietary application software (including
call-processing, billing, membership and customer service database software),
execution of vendor contracts, development of corporate infrastructure
(including customer service, sales and marketing divisions, regional sales
staff), design and printing of product and marketing brochures, and strategic
planning for international business development. The Company's software packages
are tightly integrated into a state-of-the-art communications system creating a
platform network that can be duplicated throughout the world as the Company
proceeds with its expansion plans.
The Company has issued a tariff, bearing F.C.C. Tariff No. 2, filed in
compliance with the requirements of the Communication Act of 1934, as amended,
with the Federal Communications Commission.
Interpretel has grown to a staff of 16 employees: 14 of whom are full-time.
The Company currently has operations underway in the United States and Canada,
and Australia through a licensing agreement with Switch Telecommunications Pty
Limited.
FEATURES AND CAPABILITIES OF THE COMPANY'S INTERACTIVE SYSTEM
The Company's interactive system is provided through a call-processing platform
system, which combines Interactive Voice Response (IVR) software and computer
hardware networked with digital telephone lines.
The call-processing platform system is a UNIX-based multi-tasking
call-processing system integrated with a Tandem database server, which provides
the ability to offer and manage a wide range of information, service features,
and data bases. The system is built with computer telephony integration
technology in a single system and offers direct T-1 connectivity and integration
with the public network. The system is modularly designed for growth and
supports fully customized applications.
The Company's proprietary call-processing system is managed and administrated
from the corporate offices in Tucson, Arizona, with the hardware located in
Lincoln, Nebraska. A development platform is also located in Tucson. A platform
for the Canadian operations will be located in Calgary, Alberta in the near
future, and a platform for the Australian and New Zealand business is located in
Sydney, Australia.
During 1994 and 1995, the Company remained focused on the development of the
infrastructure for its call-processing and data management systems.
The Company commenced its principal operations in mid-1996, having completed
development of the necessary technical infrastructure and business organization.
Revenues are expected to increase as interactive communication systems are
developed and launched, resulting in expected additional customers who will
utilize the services offered by these systems. The Company has entered into
contracts with third parties to provide its services to such third parties and
expects to begin generating revenue from these contracts in 1997.
The Company currently offers three programs from which customers may choose:
1. THE INTERPRETEL TRAVELER CARD. An advanced communication traveler card
created for worldwide business and travel. Using a calling card
platform, this program integrates voice and fax mail, language
interpretation and translation, call conferencing, and additional
services with worldwide access.
2. THE AFFINITY CARD PROGRAM. Building on the Interpretel Card, this
program allows a company to add its own identity, and integrate
communication features and services unique to its own database of
customers and/or members.
3. THE INTERACTIVE MARKETING PROGRAM. Taking the Affinity Card Program one
step further, the Company's advanced call-processing system is used to
create a two-way communication and distribution link to the cardholder.
Using voice and fax broadcast, audiotext messages and fax, the
cardholder defines his/her interest and method of message delivery,
allowing the affinity company to deliver highly targeted messages
timely and cost effectively.
Interpretel now offers additional features including: Voice Activation, Stock
Quotes; Low-cost Legal Services; Dun & Bradstreet Business Services; Full Travel
Services; Message Notification via pager; and Integration of Services via the
Internet.
3
<PAGE> 4
STRATEGIES FOR THE FUTURE
Interpretel has expanded its customer base and is penetrating new markets with
the development of call-processing offshore. In addition, the Company intends to
develop a network of telecommunication platforms that will service the demand in
other countries. This strategy is intended to promote the development of
worldwide services, and at the same time contribute on a monthly basis to the
cash flow of the Company. The Company's proprietary interactive call-processing
software and related hardware allow for the creation of systems to address the
needs of people from many cultures. The Company intends to develop more
licensing agreements similar to the agreement for Southeast Asia, signed with
Switch Telecommunications Pty Limited.
As mass marketing of products continues to shift to one-on-one marketing, the
Company believes it is uniquely and strategically positioned to capitalize on
this trend by enabling businesses to customize and personalize their marketing
using the Company's interactive telecommunication broadcast system.
From time to time, the Company seeks acquisition and/or merger candidates that
would be complimentary to the Company's existing operations and augment the
products now offered to the Company's customer base.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases its office and administrative space at 5210 E. Williams
Circle, Suite 200, Tucson, Arizona 85711. The lease payments average
approximately $8,400 per month over the term of the lease.
ITEM 3. LEGAL PROCEEDINGS
Applied Environmental Technology, Inc. ("Applied") was named as a defendant in a
lawsuit filed by Long Beach Memorial Hospital (the "Hospital") on July 30, 1992.
Wavetech was added as a party defendant in December 1994 by the filing of an
Amended Complaint. The Hospital alleges to have sustained damages as a result of
certain errors and emissions by Applied in performing the engineering of
asbestos removal for the Hospital. Litigation counsel for Applied believes that
there are adequate defenses to the action.
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 vs. 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 itself believes Ezell's claims have no merit and intends to
vigorously defend this action.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
4
<PAGE> 5
PART II
ITEM 5. MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company is quoted on the Nasdaq-Small Cap Market. The high and low bid
prices of the Company's Common Stock, as reported on Nasdaq from September 1,
1994 through August 31, 1996 by fiscal quarters (i.e. 1st Quarter = September 1
through November 30) were as follows (the quotations provided reflect
inter-dealer prices, without retail market-up, mark-down or commission and may
not represent actual transactions.):
<TABLE>
<CAPTION>
1ST QTR 2ND QTR 3RD QTR 4TH QTR
------------------ ------------------ ----------------- -----------------
HIGH Low High Low High Low High Low
---- --- ---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1994
Common Stock 1/8 3/32 9/32 1/8 6 1/2(1) 1 1/4(1) 1 7/16(1) 1/4(1)
1995
Common Stock 1 1/8(1) 1(1) 2 3/32(1) 1 1/32(1) 3 1/8(1) 1 25/32(1) 2 21/32(1) 1 11/16(1)
1996
Common Stock 2 1/16(1) 3/4(1) 1 3/8(1) 11/16(1) 2 1/8(1) 3/4(1) 2(1) 3/4(1)
</TABLE>
(1) - Reflects 1-for-20 reverse stock split that occurred on March 21, 1994.
The bid and the asked prices of the Company's common stock on November 14, 1996
were 3/4 and 7/8, respectively.
As of November 14, 1996, the Company had 347 shareholders of record of its
Common Stock. The Company believes that it has over 500 shareholders that
beneficially own the stock in the name of various brokers.
The Company has never declared a dividend and does not plan to declare a
dividend of cash or common stock in the near future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company's business is 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 special purpose groups.
During 1995 and 1994, the Company remained focused on the development of the
infrastructure for its call processing and data management systems. Operations
in the USA and Canada commenced on a limited basis in 1996. In May 1996, the
Company signed a licensing agreement with Switch Telecommunications Pty Limited
of Australia.
OPERATIONS OVERVIEW
The Company commenced limited operations in mid-1996 having completed
development of the necessary technical infrastructure and business organization.
Revenues for 1995 and 1994 are from a limited number of focus group customers
utilizing the Company's communication system and from interest income. The
Company believes that revenues will increase in future periods as expected
interactive communication systems are developed and placed in service.
COSTS AND EXPENSES
Expenses increased to $ 1,912,876 in 1996 from $1,079,567 in 1995 due to
increased personnel, equipment purchases, software development costs and
marketing initiative costs such as printing, plastic cards, instructional
manuals, mailing lists and creative design.
LIQUIDITY AND CAPITAL RESOURCES
At August 31, 1996, the Company had working capital of $665,483 compared with a
working capital deficit of $362,479 at August 31, 1995. The Company has utilized
proceeds from equity financings to generate positive working capital balances.
The Company expects that working capital will increase as the Company generates
cash from operations and external funding. Cash balances increased from
5
<PAGE> 6
$285,793 to $857,488 at August 31, 1996. The increase is primarily the result of
$1,492,500 of proceeds from the sale of common stock. Capital expenditures for
the year ended August 31, 1996 were $89,352 and $446,599 for the prior year. As
the Company expands the infrastructure for supplying interactive communication
systems capital expenditures will increase.
INFLATION
Although the Company's operations are influenced by general economic trends and,
specifically, technology advances in the telecommunications industry, the
Company does not believe that inflation has had a material impact on its limited
operations.
ITEM 7. FINANCIAL STATEMENTS
INDEPENDENT AUDITOR'S REPORT
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS
WAVETECH, INC.
WE HAVE AUDITED THE ACCOMPANYING CONSOLIDATED BALANCE SHEETS OF WAVETECH, INC.
AND SUBSIDIARIES AS OF AUGUST 31, 1996 AND 1995 AND THE RELATED CONSOLIDATED
STATEMENTS OF OPERATIONS, CHANGES IN STOCKHOLDERS' EQUITY AND CASH FLOWS FOR THE
YEARS ENDED AUGUST 31, 1996, 1995 AND 1994. THESE FINANCIAL STATEMENTS ARE THE
RESPONSIBILITY OF THE COMPANY'S MANAGEMENT. OUR RESPONSIBILITY IS TO EXPRESS AN
OPINION ON THESE FINANCIAL STATEMENTS BASED ON OUR AUDITS.
WE CONDUCTED OUR AUDITS IN ACCORDANCE WITH GENERALLY ACCEPTED AUDITING
STANDARDS. THOSE STANDARDS REQUIRE THAT WE PLAN AND PERFORM THE AUDITS TO OBTAIN
REASONABLE ASSURANCE ABOUT WHETHER THE FINANCIAL STATEMENTS ARE FREE FROM
MATERIAL MISSTATEMENT. AN AUDIT INCLUDES EXAMINING, ON A TEST BASIS, EVIDENCE
SUPPORTING THE AMOUNTS AND DISCLOSURES IN THE FINANCIAL STATEMENTS. AN AUDIT
ALSO INCLUDES ASSESSING THE ACCOUNTING PRINCIPLES USED AND SIGNIFICANT ESTIMATES
MADE BY MANAGEMENT, AS WELL AS EVALUATING THE OVERALL FINANCIAL STATEMENT
PRESENTATION. WE BELIEVE THAT OUR AUDITS PROVIDE A REASONABLE BASIS FOR OUR
OPINION.
IN OUR OPINION, THE CONSOLIDATED FINANCIAL STATEMENTS REFERRED TO ABOVE PRESENT
FAIRLY, IN ALL MATERIAL RESPECTS, THE CONSOLIDATED FINANCIAL POSITION OF
WAVETECH, INC. AND SUBSIDIARIES AS OF AUGUST 31, 1996 AND 1995 AND THE RESULTS
OF ITS OPERATIONS AND ITS CASH FLOWS FOR THE YEARS ENDED AUGUST 31, 1996, 1995
AND 1994, IN CONFORMITY WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.
ADDISON ROBERTS & LUDWIG, P.C.
NOVEMBER 1, 1996
Tucson, Arizona
6
<PAGE> 7
WAVETECH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1996 AND 1995
-----------
ASSETS
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 857,488 $ 285,793
ACCOUNTS RECEIVABLE, NET OF ALLOWANCE OF $527 35,585
LICENSE FEE RECEIVABLE (NOTE 6) 200,000
NOTES RECEIVABLE 45,282
PREPAID EXPENSES AND OTHER ASSETS 1,521 4,348
INVENTORY DEPOSIT (NOTE 6) 241,037
----------- -----------
TOTAL CURRENT ASSETS 1,380,913 290,141
PROPERTY AND EQUIPMENT, NET (NOTE 7) 539,528 476,465
OTHER ASSETS:
INVESTMENT IN SWITCH TELECOMMUNICATIONS
PTY LIMITED (NOTE 5) 2,316,165
LICENSE FEE RECEIVABLE (NOTE 6) 300,000
INTANGIBLES, NET OF AMORTIZATION OF $4,000 AND $1,600 8,000 10,400
DEPOSITS AND OTHER ASSETS 35,633 33,125
----------- -----------
TOTAL OTHER ASSETS 2,659,798 43,525
----------- -----------
TOTAL ASSETS $ 4,580,239 $ 810,131
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 130,715 $ 235,054
ACCRUED INTEREST PAYABLE 39,327
UNEARNED REVENUE (NOTE 6) 499,985
NOTES PAYABLE, CURRENT PORTION (NOTES 8 AND 11) 53,639 378,239
CAPITAL LEASES PAYABLE, CURRENT PORTION 31,091
----------- -----------
TOTAL CURRENT LIABILITIES 715,430 652,620
OTHER LIABILITIES:
CAPITAL LEASES PAYABLE 55,099
UNEARNED REVENUE-LICENSE FEE (NOTE 6) 300,000
----------- -----------
TOTAL LIABILITIES 1,070,529 652,620
COMMITMENTS (NOTE 10)
STOCKHOLDERS' EQUITY (NOTES 4, 8, 11 AND 15)
COMMON STOCK, PAR VALUE $ .001 PER SHARE;
50,000,000 SHARES AUTHORIZED, 9,455,078 AND
14,114,441 SHARES ISSUED AND OUTSTANDING 14,114 9,455
ADDITIONAL PAID-IN CAPITAL 6,747,967 1,540,223
ACCUMULATED DEFICIT (3,252,371) (1,392,167)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 3,509,710 157,511
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,580,239 $ 810,131
=========== ===========
</TABLE>
SEE INDEPENDENT AUDITOR'S REPORT.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
7
<PAGE> 8
WAVETECH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED AUGUST 31, 1996, 1995 AND 1994
-----------
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
REVENUE $ 19,895 $ 24,468 $ 1,151
------------ ----------- -----------
EXPENSES:
DEVELOPMENT 297,935 201,224
GENERAL AND ADMINISTRATIVE 1,603,356 855,756 307,762
------------ ----------- -----------
TOTAL EXPENSES 1,901,291 1,056,980 307,762
------------ ----------- -----------
NET LOSS FROM OPERATIONS (1,881,396) (1,032,512) (306,611)
OTHER INCOME AND EXPENSE:
INTEREST INCOME 32,777
INTEREST EXPENSE (11,585) (22,587) (18,637)
------------ ----------- -----------
TOTAL OTHER INCOME AND EXPENSE 21,192 (22,587) (18,637)
------------ ----------- -----------
NET LOSS $ (1,860,204) $(1,055,099) $ (325,248)
============ =========== ===========
NET LOSS PER COMMON SHARE $ (.17) $ (.22) $ (.31)
============ =========== ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 11,200,401 4,830,803 1,051,000
============ =========== ===========
</TABLE>
SEE INDEPENDENT AUDITOR'S REPORT.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
8
<PAGE> 9
WAVETECH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED AUGUST 31, 1996, 1995 AND 1994
-----------
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
SHARES STOCK CAPITAL DEFICIT TOTAL
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCES AUGUST 31, 1993 1,051,000 $ 1,051 $ $ (11,820) $ (10,769)
NET LOSS (325,248) (325,248)
----------- ----------- ----------- ----------- -----------
BALANCES AUGUST 31, 1994 1,051,000 1,051 (337,068) (336,017)
ADJUSTMENT TO EFFECT REVERSE
ACQUISITION (NOTE 4) 6,433,958 6,434 (6,434)
COMMON STOCK ISSUED
(NOTE 11) 1,970,120 1,970 1,546,657 1,548,627
NET LOSS (1,055,099) (1,055,099)
----------- ----------- ----------- ----------- -----------
BALANCES AUGUST 31, 1995 9,455,078 9,455 1,540,223 (1,392,167) 157,511
COMMON STOCK ISSUED
(NOTE 11) 4,659,363 4,659 5,207,744 5,212,403
NET LOSS (1,860,204) (1,860,204)
----------- ----------- ----------- ----------- -----------
BALANCES AUGUST 31, 1996 14,114,441 $ 14,114 $ 6,747,967 $(3,252,371) $ 3,509,710
=========== =========== =========== =========== ===========
</TABLE>
SEE INDEPENDENT AUDITOR'S REPORT.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
9
<PAGE> 10
WAVETECH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31, 1996, 1995 AND 1994
------------
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS $(1,860,204) $(1,055,099) $ (325,248)
ADJUSTMENTS TO RECONCILE NET LOSS TO
NET CASH USED IN OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 136,902 23,434 13,226
COMMON STOCK ISSUED FOR SERVICES 203,125 100,539
CHANGES IN ASSETS AND LIABILITIES:
(INCREASE) IN ACCOUNTS RECEIVABLE
AND OTHER CURRENT ASSETS (32,758) (3,583) (764)
(INCREASE) IN LICENSE FEE RECEIVABLE (500,000)
(INCREASE) IN INVENTORY DEPOSIT (241,037)
INCREASE (DECREASE) IN ACCOUNTS PAYABLE
AND ACCRUED EXPENSES (104,339) 197,220 37,833
INCREASE (DECREASE) IN ACCRUED INTEREST
PAYABLE (39,327) 20,646 18,497
INCREASE IN UNEARNED REVENUE 799,985
----------- ----------- -----------
TOTAL ADJUSTMENTS 222,551 338,256 68,792
----------- ----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (1,637,653) (716,843) (256,456)
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASE OF PROPERTY AND EQUIPMENT (89,352) (446,599) (64,926)
INCREASE IN DEPOSITS AND OTHER ASSETS (2,508) (31,450) (7,675)
ADVANCE ON NOTES RECEIVABLE (45,282)
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (137,142) (478,049) (72,601)
CASH FLOWS FROM FINANCING ACTIVITIES:
PROCEEDS FROM (PAYMENT OF) NOTES
PAYABLE, NET (324,600) 28,639 244,700
PAYMENTS ON CAPITAL LEASE PAYABLE (22,023)
PROCEEDS FROM COMMON STOCK ISSUED 2,693,113 1,448,088
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 2,346,490 1,476,727 244,700
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 571,695 281,835 (84,357)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 285,793 3,958 88,315
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 857,488 $ 285,793 $ 3,958
=========== =========== ===========
</TABLE>
SEE INDEPENDENT AUDITOR'S REPORT.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
10
<PAGE> 11
WAVETECH, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
--------------
1. ORGANIZATION
THE CONSOLIDATED FINANCIAL STATEMENTS INCLUDE THE ACCOUNTS OF WAVETECH,
INC. (THE COMPANY) AND ITS WHOLLY OWNED SUBSIDIARIES, INTERPRETEL, INC.
(INTERPRETEL), INTERPRETEL (CANADA) INC. AND INTERNATIONAL ENVIRONMENTAL
SERVICES CORPORATION (AN INACTIVE CORPORATION). ALL MATERIAL INTERCOMPANY
BALANCES AND TRANSACTIONS HAVE BEEN ELIMINATED. AS OF AUGUST 31, 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 10,
1995, INTERPRETEL (CANADA) INC. WAS INCORPORATED IN ONTARIO CANADA AS A
WHOLLY OWNED SUBSIDIARY OF INTERPRETEL. INTERPRETEL (CANADA) INC. HAD NOT
YET HAD ANY ACTIVITIES AS OF AUGUST 31, 1996.
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, BILL 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,
TRADEMARKS, SERVICE MARKS, AND MATERIALS RELATED THERETO. IN PRIOR YEARS,
INTERPRETEL WAS DEEMED TO BE A DEVELOPMENT STAGE ENTERPRISE. FOR THE YEAR
ENDED AUGUST 31, 1996, INTERPRETEL IS CONSIDERED TO BE AN OPERATING
COMPANY.
AS FURTHER DESCRIBED IN NOTE 4, 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. 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 TO AUGUST 31, 1996. THE ACCOUNTS OF THE
COMPANY ARE INCLUDED IN THE FINANCIAL STATEMENTS FROM THE DATE OF THE
ACQUISITION TRANSACTION, MARCH 8, 1995 TO AUGUST 31, 1995 AND FOR ALL
PERIODS FORWARD.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
FOR PURPOSES OF THE CONSOLIDATED STATEMENTS OF CASH FLOWS, THE COMPANY
CONSIDERS ALL HIGHLY LIQUID DEBT INSTRUMENTS WITH A MATURITY OF THREE
MONTHS OR LESS (MONEY MARKET ACCOUNTS AND CERTIFICATES OF DEPOSIT) TO BE
CASH EQUIVALENTS.
PROPERTY AND EQUIPMENT
ALL PROPERTY AND EQUIPMENT IS RECORDED AT COST AND DEPRECIATED OVER THE
ESTIMATED USEFUL LIVES OF THE ASSETS, AS FOLLOWS:
FURNITURE AND FIXTURES 7 YEARS
COMPUTER EQUIPMENT 5 YEARS
SOFTWARE 5 YEARS
THE COSTS OF MAINTENANCE, REPAIRS AND MINOR RENEWALS ARE CHARGED TO EXPENSE
IN THE YEAR INCURRED. EXPENDITURES WHICH INCREASE THE USEFUL LIVES OF THE
ASSET ARE CAPITALIZED. WHEN ITEMS ARE RETIRED OR DISPOSED OF, THE COST AND
ACCUMULATED DEPRECIATION ARE REMOVED FROM THE ACCOUNTS AND ANY GAIN OR LOSS
IS INCLUDED IN INCOME.
11
<PAGE> 12
WAVETECH, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
--------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
INTANGIBLE ASSETS
INTANGIBLE ASSETS CONSIST OF START-UP COSTS. THESE COSTS ARE PRIMARILY
CONSULTING FEES AND OTHER COSTS INCURRED IN CONNECTION WITH THE DEVELOPMENT
OF THE COMPANY. MANAGEMENT BELIEVES THAT THESE COSTS WILL BE RECOVERED WITH
FUTURE OPERATIONS. START-UP COSTS ARE AMORTIZED OVER FIVE YEARS USING THE
STRAIGHT-LINE METHOD.
INCOME TAXES
THE COMPANY ADOPTED STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 109,
"ACCOUNTING FOR INCOME TAXES" (SFAS 109). SFAS 109 REQUIRES A LIABILITY
APPROACH TO ACCOUNTING FOR DEFERRED INCOME TAXES IN THAT THE DEFERRED
INCOME TAX LIABILITY OR BENEFIT AT THE END OF AN ACCOUNTING PERIOD SHOULD
REFLECT THE ESTIMATED DEFERRED TAX LIABILITY OR TAX BENEFIT ON THE
TEMPORARY BOOK-TAX DIFFERENCES AT ANTICIPATED FEDERAL AND STATE INCOME TAX
RATES.
CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS
AT AUGUST 31, 1996, THE COMPANY MAINTAINED A CASH BALANCE IN A BANK ACCOUNT
IN EXCESS OF THE FDIC INSURABLE AMOUNT. THE CASH BALANCE WAS $840,417 WHICH
EXCEEDS THE FDIC INSURABLE AMOUNT BY $740,417.
THE COMPANY EXTENDS CREDIT TO CUSTOMERS ON AN UNSECURED BASIS IN THE
ORDINARY COURSE OF BUSINESS. THE COMPANY BILLS ITS SERVICES DIRECTLY TO
AUTHORIZED CUSTOMER CREDIT CARDS AS USAGE IS INCURRED.
SFAS 107 REQUIRES DISCLOSING FAIR VALUE TO THE EXTENT PRACTICABLE FOR
FINANCIAL INSTRUMENTS WHICH ARE RECOGNIZED OR UNRECOGNIZED IN THE BALANCE
SHEET. THE FAIR VALUE OF THE FINANCIAL INSTRUMENTS DISCLOSED HEREIN IS NOT
NECESSARILY REPRESENTATIVE OF THE AMOUNT THAT COULD BE REALIZED OR SETTLED,
NOR DOES THE FAIR VALUE AMOUNT CONSIDER THE TAX CONSEQUENCES OF REALIZATION
OR SETTLEMENT.
THE CARRYING AMOUNTS FOR CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLE,
LICENSE FEE RECEIVABLE, ACCOUNTS PAYABLE AND NOTES PAYABLE APPROXIMATE FAIR
VALUE BECAUSE OF THE SHORT MATURITY OF THESE INSTRUMENTS. THE FAIR VALUE OF
THE COMMON STOCK OF SWITCH TELECOMMUNICATIONS PTY LIMITED IS ESTIMATED AT
CARRYING VALUE AS SUCH STOCK IS NOT TRADED ON THE OPEN MARKET AND MARKET
PRICE IS NOT READILY AVAILABLE. THE COMPANY DOES NOT HOLD OR ISSUE
FINANCIAL INSTRUMENTS FOR TRADING PURPOSES.
ADVERTISING COSTS
THE COST OF ADVERTISING IS EXPENSED WHEN INCURRED OR WHEN THE FIRST
ADVERTISING TAKES PLACE. WAVETECH AND INTERPRETEL DO NOT PARTICIPATE IN
DIRECT-RESPONSE ADVERTISING WHICH REQUIRES THE CAPITALIZATION AND
AMORTIZATION OF RELATED COSTS.
INVESTMENTS
INVESTMENTS IN COMPANIES IN WHICH THE COMPANY HAS LESS THAN A 20% INTEREST
ARE CARRIED AT COST. DIVIDENDS RECEIVED FROM THOSE COMPANIES ARE INCLUDED
IN OTHER INCOME. DIVIDENDS RECEIVED IN EXCESS OF THE COMPANY'S
PROPORTIONATE SHARE OF ACCUMULATED EARNINGS ARE APPLIED AS A REDUCTION OF
THE COST OF THE INVESTMENT.
12
<PAGE> 13
WAVETECH, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
--------------
3. USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
THE PREPARATION OF FINANCIAL STATEMENTS IN CONFORMITY WITH GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES REQUIRES MANAGEMENT TO MAKE ESTIMATES AND
ASSUMPTIONS THAT AFFECT THE REPORTED AMOUNT OF ASSETS AND LIABILITIES AND
DISCLOSURE OF CONTINGENT ASSETS AND LIABILITIES AT THE DATE OF THE
FINANCIAL STATEMENTS AND THE REPORTED AMOUNTS OF REVENUES AND EXPENSES
DURING THE REPORTING PERIOD. ACTUAL RESULTS COULD DIFFER FROM THOSE
ESTIMATES.
MANAGEMENT UTILIZED CERTAIN ESTIMATES IN CONNECTION WITH ESTABLISHING THE
VALUE OF THE COMMON STOCK OF SWITCH (NOTE 5). IT IS AT LEAST REASONABLY
POSSIBLE THAT THESE ESTIMATES WILL CHANGE IN THE NEAR TERM DUE TO ONE OR
MORE FUTURE EVENTS. SUCH A CHANGE WOULD CHANGE THE VALUE OF THE COMMON
STOCK OF SWITCH. THE EFFECT OF THE CHANGE COULD BE MATERIAL TO THE
FINANCIAL STATEMENTS.
MANAGEMENT HAS NOT RECORDED A DEFERRED TAX ASSET OF $2,531,000 TO REFLECT
THE POTENTIAL BENEFIT OF $6,040,000 IN LOSS CARRYFORWARDS, WHICH EXPIRE IN
VARYING AMOUNTS BETWEEN 1997 AND 2001. REALIZATION DEPENDS ON GENERATING
SUFFICIENT TAXABLE INCOME BEFORE EXPIRATION OF THE LOSS CARRYFORWARD. THE
COMPANY HAS A NUMBER OF PROMISING STRATEGIES UNDER DEVELOPMENT, BUT IS
AWARE THAT FAILURE OF THE COMPANY'S DEVELOPMENT EFFORTS COULD REDUCE
ESTIMATES OF THE COMPANY'S PROFITABILITY WHICH COULD AFFECT THE COMPANY'S
ABILITY TO USE ITS LOSS CARRYFORWARDS (NOTE 12).
4. BUSINESS COMBINATION
ON MARCH 8, 1995, THE COMPANY ENTERED INTO AN AGREEMENT WITH INTERPRETEL
PURSUANT TO WHICH THE COMPANY AGREED TO ISSUE 6,000,000 SHARES OF ITS
COMMON STOCK IN EXCHANGE FOR 100% OF THE OUTSTANDING 1,532,140 SHARES OF
COMMON STOCK OF INTERPRETEL. THE TRANSACTION RESULTED IN THE FORMER
SHAREHOLDERS OF INTERPRETEL OWNING APPROXIMATELY 80% OF THE OUTSTANDING
SHARES OF THE COMPANY. 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 OF THE COMPANY. THE COMMON SHARES ISSUED IN CONNECTION WITH THE
ACQUISITION WERE ASSIGNED NO VALUE BECAUSE THE COMPANY HAD NO ASSETS OR
LIABILITIES AT THE DATE OF THE ACQUISITION.
THE ACQUISITION AGREEMENT ALSO PROVIDES THAT DURING THE THREE YEAR PERIOD
FOLLOWING THE MARCH 8, 1995 CLOSING, FORMER SHAREHOLDERS OF INTERPRETEL CAN
RECEIVE AN ADDITIONAL 7,500,000 COMMON SHARES OF THE COMPANY THROUGH AN
"EARN-OUT" BASED UPON BEFORE TAX NET PROFIT. DURING THE TWO YEAR PERIOD
FOLLOWING CLOSING, FORMER SHAREHOLDERS OF INTERPRETEL SHALL EARN UP TO
3,750,000 COMMON SHARES OF THE COMPANY FOR EVERY $0.50 NET PROFIT BEFORE
TAXES, AND AN ADDITIONAL 3,750,000 COMMON SHARES OF THE COMPANY FOR EVERY
$1.00 OF CUMULATIVE TOTAL NET PROFIT BEFORE TAXES. DURING THE THIRD YEAR
FOLLOWING CLOSING, ANY SHARES NOT PREVIOUSLY ISSUED PURSUANT TO THIS
AGREEMENT CAN BE EARNED AT $1.50 NET PROFIT BEFORE TAXES PER SHARE. THESE
ADDITIONAL SHARES WILL NOT BE CONSIDERED IN RECORDING THE ACQUISITION
TRANSACTION UNTIL SUCH TIME AS THE EARNINGS TARGETS HAVE BEEN MET.
13
<PAGE> 14
WAVETECH, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
--------------
4. BUSINESS COMBINATION, CONTINUED
THE CONSOLIDATED FINANCIAL STATEMENTS INCLUDE THE ACCOUNTS OF INTERPRETEL,
CONSIDERED TO BE THE ACQUIRING ENTITY, FROM THE EARLIEST PERIOD PRESENTED.
THE ACCOUNTS OF THE COMPANY ARE INCLUDED IN THE CONSOLIDATED FINANCIAL
STATEMENTS FROM THE DATE OF THE ACQUISITION, MARCH 8, 1995. PRO-FORMA
RESULTS OF OPERATIONS AS THOUGH THE COMPANIES HAD BEEN COMBINED AS OF
SEPTEMBER 1, 1993 ARE APPROXIMATELY AS FOLLOWS:
<TABLE>
<CAPTION>
PERIOD ENDED PERIOD ENDED
AUGUST 31, 1995 AUGUST 31, 1994
--------------- ---------------
<S> <C> <C>
REVENUES $ 24,468 $ 1,151
=============== ===========
NET LOSS $ (1,347,139) $(1,062,866)
=============== ===========
NET LOSS PER COMMON SHARE $ (.17) $ (.14)
=============== ===========
</TABLE>
5. INVESTMENT IN SWITCH TELECOMMUNICATIONS PTY LIMITED
ON MAY 21, 1996, THE COMPANY ENTERED INTO AN AGREEMENT WITHIN A MEMORANDUM
OF UNDERSTANDING WITH SWITCH TELECOMMUNICATIONS PTY LIMITED (SWITCH) TO
EXCHANGE AN EQUITY INTEREST IN THE COMPANY FOR AN EQUITY INTEREST IN
SWITCH. THE EQUITY INTERESTS CONSIST OF OUTSTANDING COMMON STOCK OF THE
RESPECTIVE COMPANIES. THE EXCHANGE AGREEMENT PROVIDED FOR AN EXCHANGE OF UP
TO FIVE PERCENT OF THE VALUE OF THE OUTSTANDING COMMON EQUITY OF SWITCH IN
EXCHANGE FOR A FIXED NUMBER OF SHARES OF THE COMPANY AT THE PRICE AT WHICH
THE STOCK WAS TRADING ON THE DATE THE AGREEMENT, MAY 21, 1996. ON AUGUST
28, 1996 THE DEFINITIVE AGREEMENT WAS SIGNED AND THE SHARES WERE ISSUED.
THE COMPANY RECEIVED FIVE SHARES OF SWITCH COMMON STOCK IN EXCHANGE FOR
1,544,110 SHARES OF THE COMPANY'S STOCK.
SWITCH IS A WHOLLY OWNED SUBSIDIARY OF TECH PACIFIC HOLDINGS LIMITED (TECH
PACIFIC). TECH PACIFIC IS AN AUSTRALIAN CORPORATION WHOSE STOCK IS NOT
PUBLICLY TRADED. TECH PACIFIC IS A WHOLLY OWNED SUBSIDIARY OF FIRST
PACIFIC, A PUBLICLY TRADED COMPANY ON THE HONG KONG STOCK EXCHANGE. SWITCH
CONDUCTS BUSINESS AS A TELECOMMUNICATIONS FIXED NETWORK SERVICE PROVIDER
AND ALSO VALIDATES MOBILE TELEPHONE CONNECTIONS FOR TELESTRA MOBILENET IN
AUSTRALIA. THE COMPANY HAS ENTERED INTO A CONTRACT APPOINTING SWITCH AS THE
EXCLUSIVE PROVIDER OF INTERPRETEL'S TELECOMMUNICATIONS SERVICES IN
AUSTRALIA, NEW ZEALAND, THE SUBCONTINENT OF INDIA AND ASIA (EXCLUDING KOREA
AND JAPAN) (NOTE 6).
THE VALUE ASSIGNED TO THE SWITCH SHARES RECEIVED WAS DETERMINED BY
MANAGEMENT VALUING THE WHOLE OF THE ISSUED CAPITAL OF SWITCH ON THE BASIS
OF DISCOUNTING THE ANTICIPATED FUTURE CASH FLOW. THIS METHOD DETERMINES THE
NET PRESENT VALUE OF THE UNDERLYING CASH FLOW OF A BUSINESS. IT RECOGNIZES
THAT MONEY HAS A TIME VALUE BY DISCOUNTING FUTURE CASH FLOWS AT AN
APPROPRIATE DISCOUNT RATE. A VALUATION USING DISCOUNTED CASH FLOW
PROCEDURES REQUIRES THE DETERMINATION OF THE NATURE AND TIMING OF FUTURE
CASH INFLOWS AND OUTFLOWS AND THE DISCOUNT FACTOR TO BE APPLIED TO THE CASH
FLOWS. FUTURE CASH FLOWS MAY NOT BE ACHIEVED AND CONSEQUENTLY ANY FUTURE
VARIATION BETWEEN THE ACTUAL CASH FLOW AND THOSE UTILIZED BY MANAGEMENT
WILL AFFECT THE VALUATION. SINCE SWITCH IS A PRIVATELY HELD COMPANY, THE
MARKET VALUE OF THE SHARES IS NOT READILY ASCERTAINABLE AND IS SUBJECT TO
UNCERTAINTY.
14
<PAGE> 15
WAVETECH, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
--------------
5. INVESTMENT IN SWITCH TELECOMMUNICATIONS AUSTRALIA PTY LTD., CONTINUED
THE AGREEMENT PROVIDES THAT WHEN TECH PACIFIC COMPLETES AN INITIAL PUBLIC
OFFERING OF ITS EQUITY SECURITIES, THE COMPANY WILL HAVE THE RIGHT UPON
WRITTEN NOTICE TO TECH PACIFIC TO CONVERT ITS SWITCH COMMON STOCK INTO
EQUITY SECURITIES OF AN EQUIVALENT VALUE PROPOSED TO BE OFFERED BY TECH
PACIFIC. THE VALUE OF SWITCH COMMON STOCK HELD BY THE COMPANY FOR THIS
PURPOSE WILL BE ITS THEN CURRENT FAIR MARKET VALUE AS DETERMINED BY AN
INDEPENDENT THIRD PARTY. IF TECH PACIFIC HAS NOT COMPLETED AN INITIAL
PUBLIC OFFERING WITHIN TWO YEARS FROM THE DATE OF THE AGREEMENT, THEN TECH
PACIFIC SHALL, UPON THIRTY DAYS WRITTEN NOTICE FROM THE COMPANY, REPURCHASE
THE SWITCH COMMON STOCK HELD BY THE COMPANY AT ITS THEN MARKET VALUE AS
DETERMINED BY AN INDEPENDENT THIRD PARTY.
AS SOON AS PRACTICABLE AFTER THE ISSUANCE OF THE COMPANY'S COMMON STOCK TO
SWITCH AND FOR AS LONG AS SWITCH HOLDS AT LEAST 750,000 SHARES OF THE
COMPANY'S COMMON STOCK, THE COMPANY WILL RESERVE TWO SEATS ON ITS BOARD OF
DIRECTORS FOR DESIGNEES OF SWITCH.
CONCURRENT WITH THE EXCHANGE OF THE COMPANY'S COMMON STOCK FOR SWITCH
COMMON STOCK, THE COMPANY WILL ISSUE TO SWITCH A THREE-YEAR WARRANT TO
PURCHASE UP TO 2,000,000 SHARES OF THE COMPANY'S COMMON STOCK AT A PRICE OF
$1.50 PER SHARE. IN CONSIDERATION OF AND AT THE TIME OF SUCH ISSUANCE,
SWITCH WILL PAY TO THE COMPANY A FEE OF $20,000.
6. LICENSING AGREEMENT
THE COMPANY ENTERED INTO AN EQUIPMENT AND SOFTWARE TURNKEY AGREEMENT WITH
SWITCH PURSUANT TO A MEMORANDUM OF UNDERSTANDING AMONG THE CUSTOMER AND THE
SUPPLIER DATED MAY 21, 1996. THIS AGREEMENT SETS FORTH THE TERMS OF FEES
AND SERVICES BETWEEN INTERPRETEL AND SWITCH. THE AGREEMENT PROVIDES FOR THE
PURCHASE OF THE INTERPRETEL SYSTEM AND LICENSING FOR ITS USE IN AUSTRALIA,
NEW ZEALAND, THE SUBCONTINENT OF INDIA AND ASIA (EXCLUDING KOREA AND
JAPAN). THE INITIAL TERM OF THE LICENSE IS SEVEN YEARS.
IN THE AGREEMENT, SWITCH CONTRACTED TO PURCHASE AN INTERPRETEL SYSTEM
CONSISTING OF A COMPUTER PLATFORM AND RELATED SOFTWARE. THE PURCHASE PRICE
IS APPROXIMATELY $500,000. SWITCH AGREED TO AND PAID A DEPOSIT EQUAL TO 60%
OF THE PURCHASE PRICE WHICH IS REFLECTED IN THE FINANCIAL STATEMENTS AS
INVENTORY DEPOSIT AND UNEARNED REVENUE. SWITCH WILL PAY THE REMAINING
BALANCE UPON ACCEPTANCE OF THE COMPLETE INSTALLATION OF THE SYSTEM.
THE AGREEMENT ALSO PROVIDES FOR A LICENSING FEE IN THE AMOUNT OF $500,000
TO BE PAID TO INTERPRETEL OVER A THREE-YEAR PERIOD. $200,000 OF THE FEE IS
PAYABLE ON THE FIRST ANNIVERSARY OF THE DATE OF DELIVERY OF AN ACCEPTABLE
WORKING PLATFORM IN AUSTRALIA AND $150,000 PAYABLE ON EACH OF THE NEXT TWO
ANNIVERSARIES OF THE DATE OF DELIVERY AS SPECIFIED FOR THE FIRST PAYMENT.
SWITCH SHALL NOT HAVE AN OBLIGATION TO PAY ANY FEES PURSUANT TO TERMINATION
PROVISIONS IN THE AGREEMENT. THE LICENSING FEES ARE REFLECTED IN THE
FINANCIAL STATEMENTS AS LICENSING FEES RECEIVABLE AND UNEARNED REVENUE.
SWITCH WILL PAY AN ADDITIONAL FEE TO INTERPRETEL OF 2% OF THE GROSS
REVENUES ON ALL SALES OF PRODUCTS BY SWITCH USING THE INTERPRETEL SYSTEM,
INCLUDING WITHOUT LIMITATION ON GROSS REVENUES DERIVED FROM PREPAID
APPLICATIONS, POST-PAID APPLICATIONS AND INTERACTIVE VOICE RESPONSE
SYSTEMS. THE FEE OF 2% OF GROSS REVENUES SHALL BE REVIEWED BY THE PARTIES
AND INCREASED OR DECREASED BY MUTUAL AGREEMENT OF THE PARTIES AT LEAST
ANNUALLY, REVIEWED AFTER THE FIRST 15,000 CARDS ARE ON THE INTERPRETEL
SYSTEM IN AUSTRALIA, AND REVIEWED IF NET REVENUES FOR SWITCH ARE ALTERED BY
A CHANGE IN CARRIER DISCOUNTS AND/OR RATES. NET REVENUES ARE DEFINED AS
GROSS REVENUES MINUS CARRIER COSTS ONLY.
15
<PAGE> 16
WAVETECH, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
--------------
7. PROPERTY AND EQUIPMENT
PROPERTY AND EQUIPMENT IS COMPOSED OF THE FOLLOWING AT DECEMBER 31, 1996
AND 1995:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
FURNITURE AND FIXTURES $ 116,634 $ 8,421
COMPUTER EQUIPMENT 485,600 477,676
SOFTWARE 106,856 25,428
--------- ---------
TOTAL PROPERTY AND EQUIPMENT, AT COST 709,090 511,525
LESS: ACCUMULATED DEPRECIATION (169,562) (35,060)
--------- ---------
NET PROPERTY AND EQUIPMENT $ 539,528 $ 476,465
========= =========
</TABLE>
8. NOTES PAYABLE
DURING THE YEAR ENDED AUGUST 31, 1994, INTERPRETEL BORROWED $324,600
THROUGH A PRIVATE PLACEMENT OF UNCOLLATERALIZED 8% NOTES. THE NOTES
INCLUDED WARRANTS TO PURCHASE 216,400 SHARES OF INTERPRETEL COMMON STOCK.
AT THE DATE OF THE ACQUISITION (NOTE 4), THE WARRANTS TO PURCHASE
INTERPRETEL COMMON STOCK WERE CONVERTED TO WARRANTS TO PURCHASE 847,437
SHARES OF COMMON STOCK OF THE COMPANY. THE NOTES ACCRUED INTEREST THROUGH
JULY 31, 1995, AT WHICH TIME ALL PRINCIPAL AND ACCRUED INTEREST ON THE
NOTES WAS DUE. AT AUGUST 31, 1995, THE PRINCIPAL AMOUNT OF THE NOTES AND
ACCRUED INTEREST OF $39,327 WAS UNPAID. THE NOTES AND ACCRUED INTEREST WERE
REPAID DURING THE PERIOD ENDED AUGUST 31, 1996.
DURING THE YEAR ENDED AUGUST 31, 1995, INTERPRETEL RECEIVED A SHORT-TERM
ADVANCE OF $100,000 FROM AN UNAFFILIATED ENTITY. THE TERMS OF THE ADVANCE
REQUIRED A PAYMENT OF $46,361 AND ISSUANCE OF 100,000 SHARES OF THE
COMPANY'S COMMON STOCK. AT AUGUST 31, 1995, THE COMPANY HAD MADE THE
REQUIRED PAYMENT OF $46,361. AS THE SHARES OF COMMON STOCK HAD NOT BEEN
ISSUED AT AUGUST 31, 1996, NOTES PAYABLE INCLUDES THE UNPAID BALANCE OF
$53,639. THE COMPANY INTENDS TO ISSUE THE 100,000 SHARES OF COMMON STOCK IN
1996 (NOTE 11). THE TERMS OF THE BORROWING REQUIRE THE COMPANY TO ISSUE
50,000 SHARES OF REGISTERED COMMON STOCK WITH THE REMAINING 50,000 SHARES
OF COMMON STOCK BEING ISSUED AS UNREGISTERED COMMON STOCK.
FUTURE MATURITIES OF NOTES PAYABLE ARE AS FOLLOWS:
<TABLE>
<S> <C>
1997 $ 53,639
============
</TABLE>
9. CAPITAL LEASES PAYABLE
THE COMPANY HAS ENTERED INTO CAPITAL LEASE ARRANGEMENTS FOR OFFICE
FURNITURE AND EQUIPMENT. THE LEASES REQUIRE MONTHLY PAYMENTS OF $2,591
INCLUDING INTEREST.
FUTURE LEASE COMMITMENTS ARE AS FOLLOWS:
<TABLE>
<S> <C>
1997 $ 31,091
1998 31,091
1999 12,659
2000 6,515
2001 4,834
------------
$ 86,190
============
</TABLE>
16
<PAGE> 17
WAVETECH, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
--------------
10. COMMITMENTS
THE COMPANY HAS ENTERED INTO CANCELABLE OPERATING AGREEMENTS WITH A
TELECOMMUNICATIONS SERVICE PROVIDER. THE COMPANY HAS AGREED TO A $12,040
MONTHLY MINIMUM CHARGE. ALTHOUGH THERE ARE A LIMITED NUMBER OF SERVICE
PROVIDERS FOR THE CALL PROCESSING SYSTEMS USED BY THE COMPANY, MANAGEMENT
BELIEVES THAT OTHER SUPPLIERS COULD PROVIDE SIMILAR SERVICES ON COMPARABLE
TERMS.
THE COMPANY HAS ENTERED INTO A LEASE AGREEMENT FOR OFFICE SPACE.
FUTURE LEASE COMMITMENTS ARE AS FOLLOWS:
<TABLE>
<S> <C> <C>
1997 $ 85,446
1998 99,453
1999 105,056
2000 110,659
2001 116,262
THEREAFTER 29,416
--------
TOTAL $546,292
========
</TABLE>
11. STOCKHOLDERS' EQUITY
COMMON STOCK
DURING THE YEAR ENDED AUGUST 31, 1996, THE COMPANY ISSUED COMMON STOCK
PURSUANT TO VARIOUS SECURITIES AND EXCHANGE COMMISSION REGULATION S STOCK
SUBSCRIPTION AGREEMENTS. THE COMPANY ISSUED 3,115,253 SHARES OF COMMON
STOCK AND RECEIVED $2,658,734.
ON MAY 21, 1996 THE COMPANY ENTERED INTO AN AGREEMENT WITH SWITCH TO
EXCHANGE AN EQUITY INTEREST IN THE COMPANY FOR AN EQUITY INTEREST IN SWITCH
(NOTE 5). ON AUGUST 30, 1996 THE COMPANY ISSUED 1,544,110 SHARES COMMON
STOCK IN EXCHANGE FOR FIVE SHARES OF SWITCH COMMON STOCK.
ON MARCH 8, 1995, THE COMPANY ENTERED INTO AN AGREEMENT WITH INTERPRETEL
PURSUANT TO WHICH THE COMPANY AGREED TO ISSUE 6,000,000 SHARES OF ITS
COMMON STOCK IN EXCHANGE FOR 100% OF THE OUTSTANDING 1,532,140 SHARES OF
COMMON STOCK OF INTERPRETEL.
DURING THE YEAR ENDED AUGUST 31, 1995, INTERPRETEL ISSUED 481,140 SHARES OF
COMMON STOCK FOR CASH AND SERVICES VALUED AT $348,389.
DURING THE PERIOD FROM SEPTEMBER 1, 1994 THROUGH THE DATE OF THE
ACQUISITION, THE COMPANY ISSUED 625,000 SHARES OF COMMON STOCK FOR A NET
VALUE OF $406,774. INCLUDED IN THE SHARES ISSUED BY THE COMPANY PRIOR TO
THE MERGER ARE 315,000 SHARES VALUED AT $.50 PER SHARE ISSUED TO THE
COMPANY'S ATTORNEY FOR LEGAL SERVICES. DURING THE PERIOD FROM THE DATE OF
THE MERGER THROUGH AUGUST 31, 1995, THE COMPANY ISSUED 1,488,980 SHARES OF
COMMON STOCK IN ACCORDANCE WITH SECURITIES AND EXCHANGE COMMISSION
REGULATION S FOR NET PROCEEDS OF $1,200,238.
DURING THE YEAR ENDED AUGUST 31, 1995, INTERPRETEL RECEIVED A SHORT-TERM
ADVANCE OF $100,000 FROM AN UNAFFILIATED ENTITY (NOTE 8). THE TERMS OF THE
ADVANCE REQUIRED A PAYMENT OF $46,361 AND ISSUANCE OF 100,000 SHARES OF THE
COMPANY'S COMMON STOCK. THE TERMS OF THE BORROWING REQUIRE THE COMPANY TO
ISSUE 50,000 SHARES OF REGISTERED COMMON STOCK WITH THE REMAINING 50,000
SHARES OF COMMON STOCK BEING ISSUED AS UNREGISTERED COMMON STOCK. AT AUGUST
31, 1996, THE 100,000 SHARES OF COMMON STOCK HAD NOT BEEN ISSUED. THE
COMPANY INTENDS TO ISSUE THE 100,000 SHARES OF COMMON STOCK DURING THE YEAR
ENDED AUGUST 31, 1997.
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
WAVETECH, INC. AND SUBSIDIARIES
--------------
11. STOCKHOLDERS' EQUITY, CONTINUED
WARRANTS
DURING 1995 AND 1994, INTERPRETEL ISSUED WARRANTS FOR THE PURCHASE OF ITS
COMMON STOCK IN CONNECTION WITH A NOTE OFFERING (NOTE 8). AT THE DATE OF
THE ACQUISITION, THE WARRANTS WERE CONVERTED TO WARRANTS TO PURCHASE COMMON
STOCK OF THE COMPANY. THE WARRANTS ARE EXERCISABLE AT A PRICE OF $1.00 PER
SHARE AT ANY TIME PRIOR TO MAY 31, 1998. AS OF AUGUST 31, 1996, THERE WERE
820,885 WARRANTS OUTSTANDING.
DURING 1995 AND 1994, INTERPRETEL ISSUED WARRANTS FOR THE PURCHASE OF ITS
COMMON STOCK IN CONNECTION WITH A PRIVATE PLACEMENT OFFERING OF UNITS OF
COMMON STOCK. AT THE DATE OF THE ACQUISITION, THE WARRANTS WERE CONVERTED
TO WARRANTS TO PURCHASE COMMON STOCK OF THE COMPANY. THE WARRANTS ARE
EXERCISABLE AT A PRICE OF $3.50 PER SHARE. THE WARRANTS EXPIRE JUNE 30,
1997. AS OF AUGUST 31, 1996, THERE WERE 25,706 WARRANTS OUTSTANDING.
IN CONNECTION WITH ITS INITIAL PUBLIC OFFERING, THE COMPANY ISSUED CLASS A
AND CLASS B REDEEMABLE COMMON STOCK PURCHASE WARRANTS. AT AUGUST 31, 1995,
13,455 CLASS A WARRANTS AND 12,098 CLASS B WARRANTS WERE OUTSTANDING WITH
AN EXERCISE PRICE OF $10.00 PER SHARE. IN ACCORDANCE WITH THE TERMS OF
WARRANT AGREEMENTS, THE COMPANY CANCELED THE WARRANTS EFFECTIVE JANUARY 31,
1996.
STOCK OPTIONS
THE COMPANY HAS GRANTED CERTAIN OPTIONS TO EMPLOYEES AND CONSULTANTS AT
PRICES NOT LESS THAN THE MARKET PRICE OF THE COMPANY'S COMMON STOCK ON THE
DATE OF GRANT. ALL OPTIONS ARE GRANTED FOR FUTURE SERVICES AND VEST OVER A
PERIOD RANGING TO THREE YEARS. NO CHARGES TO OPERATIONS ARE RECORDED WITH
RESPECT TO AUTHORIZATION, GRANT, OR EXERCISE OF THESE STOCK OPTIONS.
DURING THE YEAR ENDED AUGUST 31, 1996, THE COMPANY GRANTED OPTIONS TO
PURCHASE 1,550,000 SHARES OF COMMON STOCK IN CONNECTION WITH FOUR
EMPLOYMENT AGREEMENTS. THE OPTIONS WERE GRANTED AT THE MARKET PRICE OF THE
STOCK ON THE DATES OF THE GRANTS.
DURING THE YEAR ENDED AUGUST 31, 1995 STOCK OPTIONS TO PURCHASE 450,000
WERE CANCELED PURSUANT TO THE TERMINATION OF AN EMPLOYMENT AGREEMENT.
<TABLE>
<CAPTION>
EXERCISE PRICE
NUMBER OF PER SHARE
SHARES RANGE
---------- --------------
<S> <C> <C> <C>
OUTSTANDING AUGUST 31, 1994 436,250 $ .10 - 6.25
EXERCISED (300,000) .10
---------- ------------
OUTSTANDING AUGUST 31, 1995 136,250 .10 - 6.25
ISSUED 1,550,000 1.31-1.94
CANCELED (450,000) 1.94
---------- ------------
OUTSTANDING AUGUST 31, 1996 1,236,250 $ .10 - 6.25
========== ============
</TABLE>
18
<PAGE> 19
WAVETECH, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
--------------
12. INCOME TAXES
AT AUGUST 31, 1996, THE COMPANY HAS NET OPERATING LOSS CARRYFORWARDS
TOTALING APPROXIMATELY $6,040,000 THAT MAY BE OFFSET AGAINST FUTURE INCOME
FROM 1997 TO 2001 WITH VARYING EXPIRATION DATES. NO TAX BENEFIT HAS BEEN
RECORDED IN THE FINANCIAL STATEMENTS SINCE THE COMPANY IS UNSURE AS TO IF
OR WHEN THE NET OPERATING LOSS CARRYFORWARDS WOULD BE REALIZED. THE
POTENTIAL BENEFIT OF THE NET OPERATING LOSS CARRYFORWARDS AND THE DEFERRED
TAX BENEFIT OF FUTURE TIMING DIFFERENCES UNDER SFAS NO. 109 IS
APPROXIMATELY $2,531,000. THE MARCH 8, 1995 ACQUISITION (NOTE 4) RESULTED
IN A "CHANGE IN CONTROL" AS DEFINED BY INTERNAL REVENUE SERVICE
REGULATIONS. ACCORDINGLY, THE UTILIZATION OF THE COMPANY'S NET OPERATING
LOSS CARRYFORWARDS MAY BE SUBJECT TO ANNUAL LIMITATIONS. THE TOTAL AMOUNT
OF THE NET OPERATING LOSS CARRYFORWARD, $6,040,000, CONSISTS OF
PRE-ACQUISITION LOSSES OF APPROXIMATELY $3,186,000
THE INCOME TAX BENEFIT FOR THE YEARS ENDED AUGUST 31 IS COMPRISED OF THE
FOLLOWING AMOUNTS:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
CURRENT $ -0- $ -0- $ -0-
--------- --------- ---------
DEFERRED
FEDERAL $(628,000) $(367,000) $(312,000)
STATE (67,000) (64,000) (80,000)
--------- --------- ---------
(695,000) (431,000) (392,000)
VALUATION ALLOWANCE 695,000 431,000 392,000
--------- --------- ---------
TOTAL TAX BENEFIT $ -0- $ -0- $ -0-
========= ========= =========
</TABLE>
THE COMPANY'S TAX BENEFIT DIFFERS FROM THE BENEFIT CALCULATED USING THE
FEDERAL STATUTORY INCOME TAX RATE FOR THE FOLLOWING REASONS:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
STATUTORY TAX RATE (35.0%) (35.0%) (35.0%)
STATE INCOME TAXES (9.0%) (9.0%) (9.0%)
AMORTIZATION OF ORGANIZATION COSTS 7.0% 5.0% 8.5%
RELEASE OF VALUATION ALLOWANCE 37.0% 39.0% 35.5%
------ ------ ------
EFFECTIVE TAX RATE .0% .0% .0%
====== ====== ======
</TABLE>
THE COMPONENTS OF THE NET DEFERRED TAX ASSET ARE AS FOLLOWS:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
DEFERRED TAX ASSET:
AMORTIZATION OF ORGANIZATION COSTS $ (164,000) $ (214,000)
NET OPERATING LOSS CARRYFORWARD (1,500,000) (1,127,000)
----------- -----------
(1,664,000) (1,341,000)
VALUATION ALLOWANCE 1,664,000 1,341,000
----------- -----------
$ -0- $ -0-
=========== ===========
</TABLE>
19
<PAGE> 20
WAVETECH, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
--------------
13. RELATED PARTY TRANSACTIONS
THE COMPANY HAS ENTERED INTO CANCELABLE OPERATING AGREEMENTS WITH A
TELECOMMUNICATIONS SERVICE PROVIDER WHO IS A SHAREHOLDER OF COMMON STOCK OF
THE COMPANY. THE COMPANY HAS AGREED TO A $12,040 MONTHLY MINIMUM CHARGE
WITH THE SERVICE PROVIDER. THE CURRENT AND FUTURE CONTRACTS WITH THE
SERVICE PROVIDER HAVE BEEN AND ARE ANTICIPATED TO BE AT MARKET RATES. THE
COMPANY ALSO PURCHASED COMPUTER EQUIPMENT AND SOFTWARE FROM THIS PROVIDER.
DURING 1995, THE COMPANY ISSUED 315,000 SHARES VALUED AT $.50 PER SHARE TO
THE COMPANY'S ATTORNEY FOR LEGAL SERVICES.
14. SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES
DURING THE YEAR ENDED AUGUST 31, 1996, THE COMPANY ENTERED INTO CAPITAL
LEASES IN THE AMOUNT OF $108,213 TO PURCHASE OFFICE EQUIPMENT.
DURING THE YEAR ENDED AUGUST 31, 1996, THE COMPANY ENTERED INTO AN
AGREEMENT WITH SWITCH TO EXCHANGE AN EQUITY INTEREST IN THE COMPANY FOR AN
EQUITY INTEREST IN SWITCH (NOTE 4). THE COMPANY ISSUED 1,544,110 SHARES OF
ITS COMMON STOCK IN EXCHANGE FOR 5 SHARES OF THE COMMON STOCK OF SWITCH.
DURING THE YEAR ENDED AUGUST 31, 1996, THE COMPANY ISSUED 250,000 SHARES OF
COMMON STOCK FOR CONSULTING SERVICES.
ON MARCH 8, 1995, THE COMPANY ISSUED 6,000,000 COMMON SHARES IN EXCHANGE
FOR THE 100% OF THE OUTSTANDING COMMON STOCK OF INTERPRETEL, INC. THE
TRANSACTION HAS BEEN ACCOUNTED FOR AS A REVERSE PURCHASE WITH THE VALUATION
OF THE SHARES ISSUED BASED ON THE FAIR VALUE OF THE NET ASSETS ACQUIRED
(NOTE 4).
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR:
<TABLE>
<S> <C> <C> <C>
INCOME TAXES $ 50 $ 50 $ 54
======= ====== ====
INTEREST $39,327 $1,941 $140
======= ====== ====
</TABLE>
15. SUBSEQUENT EVENTS
SUBSEQUENT TO AUGUST 31, 1995, THE COMPANY ENTERED IN TO A CANCELABLE
OPERATING AGREEMENT WITH A CONSULTING FIRM. THE FEE FOR THESE SERVICES IS
$5,000 PER MONTH OF WHICH $3,000 WILL BE IN CASH AND $2,000 WILL BE SHARES
OF COMMON STOCK. THE AGREEMENT ALSO PROVIDES FOR A FIVE YEAR OPTION ON
100,000 SHARE OF COMMON STOCK AT AN EXERCISE PRICE OF $1.00 PER SHARE.
SUBSEQUENT TO AUGUST 31, 1996, THE COMPANY ENTERED INTO A STOCK OPTION
AGREEMENT WITH A CUSTOMER. THE AGREEMENT ALLOWS OPTIONS ON 200,000 SHARES
OF COMMON STOCK AT AN EXERCISE PRICE OF THE CLOSING BID ON THE DATE OF THE
AGREEMENT. THE OPTIONS SHALL VEST OVER A PERIOD OF TIME WHICH COINCIDES
WITH A SCHEDULE OF ACTIVE USAGE OF THE INTERPRETEL SYSTEM.
20
<PAGE> 21
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
None.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY; COMPLIANCE WITH SECTION
16 (a) OF THE EXCHANGE ACT
DIRECTORS AND OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position Held with Company
- ---- --- --------------------------
<S> <C> <C>
Terence E. Belsham 60 Chairman of the Company's Board of Directors
Richard P. Freeman 39 Vice President, Investor Relations and Product Development,
and a member of the Company's Board of Directors
Donna S. Moore 42 Vice President, Operations
Gerald I. Quinn 52 President, Chief Executive Officer,
and a member of the Company's Board of Directors
</TABLE>
(1) All directors hold office until the next annual meeting of stockholders
of the Company and thereafter until their successors are chosen and
qualified. All officers serve at the pleasure of the Board of Directors
of the Company.
(2) On September 1, 1996, Lydia M. Montoya, CPA, age 43, joined the Company
as its Chief Financial Officer.
ITEM 10. EXECUTIVE COMPENSATION
(A) CASH COMPENSATION
The Company had 16 employees as of August 31, 1996. All Executive Officers,
Terence E. Belsham, Richard P. Freeman, and Gerald I. Quinn, have employment
contracts (see Exhibits 10.30. 10.31 and 10.32). The employment contracts of
Terence E. Belsham, Richard P. Freeman, and Gerald I. Quinn are for an
automatically renewing one year terms and provide for mutually agreed upon
levels of compensation.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
------------------------------------------------------------------------------
NAME AND PRINCIPAL ANNUAL COMPENSATION LONG TERM COMPENSATION
POSITION
- ------------------ ---------------------------------------- ----------------------------------
YEAR SALARY ($) BONUS ($) OPTIONS RESTRICTED STOCK
---- ---------- --------- ------- ----------------
<S> <C> <C> <C> <C> <C>
Terence E. Belsham
Chairman / CFO 1996 85,000 0 200,000 979,023
Gerald I. Quinn
President / CEO 1996 85,000 0 800,000 203,637
</TABLE>
21
<PAGE> 22
(B) COMPENSATION PURSUANT TO PLANS
None.
(C) COMPENSATION OF DIRECTORS
None.
(D) TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENTS
On February 27, 1996 Stephen A. Ezell's contract was terminated. Gerald
I. Quinn, President of Interpretel (Canada) Inc. was appointed President and
Chief Executive Officer of Interpretel, Inc. Terence E. Belsham assumed the
duties of Chief Financial Officer on February 27, 1996. On March 14, 1996, Len
B. Casebier resigned his executive position in the Company and as a member of
the Board of Directors. Mr. Casebier is now the administrative assistant to
Gerald I. Quinn. Donnas S. Moore was appointed Vice President, Operations, on
May 2, 1996. As a subsequent event, Lydia M. Montoya, CPA, joined the company as
Chief Financial Officer on September 1, 1996.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of November 14, 1996 certain
information with regard to the record and beneficial ownership of the Company's
Common Stock by (i) each shareholder owning of record or beneficially 5% or
more of the Company's Common Stock (ii) each director individually, and (iii)
all officers and directors and officer of the Company as a group:
<TABLE>
<CAPTION>
TITLE OF CLASS Name and Address of Shares Owned Percent of Class
Beneficial Owner
- -------------- ---------------------------------- ------------------------- ----------------
<S> <C> <C> <C>
Common Stock Terence E. Belsham
5210 E. Williams Circle, Suite 200 1,029,023 (1) 7.59%
Tucson, Arizona 85711
Common Stock Richard P. Freeman 1,029,023 (2) 7.26%
5210 E. Williams Circle, Suite 200
Tucson, Arizona 85711
Common Stock Len B. Casebier 979,023 6.94%
5210 E. Williams Circle, Suite 200
Tucson, Arizona 85711
Common Stock Gerald I. Quinn 803,637 (3) 5.46%
5210 E. Williams Circle, Suite 200
Tucson, Arizona 85711
Common Stock Donna S. Moore
5210 E. Williams Circle, Suite 200 23,527 0%
Tucson, Arizona 85711
Common Stock Switch Telecommunications Pty Limited 1,544,110 11.0%
55 Mentmove Ave.
Rosebery, New South Wales 2018
Australia
ALL OFFICERS AND DIRECTORS AS A GROUP (5 IN NUMBER) 3,914,233 (1)(2)(3) 27.25%
</TABLE>
(1) Includes 100,000 common shares issuable in connection with options to
purchase common stock issued subsequent to August 31, 1996. The options are
exercisable at $1.75 per share and vest on November 30, 1996. At August 31, 1996
none of the options was exercisable.
(2) Includes 50,000 common shares issuable in connection with options to
purchase common stock issued subsequent to August 31, 1996. The options are
exercisable at $1.34 per share and on November 30, 1996. At August 31, 1996 none
of the options was exercisable.
(3) Includes 600,000 common shares issuable in connection with options to
purchase common stock issued subsequent to August 31, 1996. 300,000 of the
options are exercisable at $1.3875 and 300,000 of the options are execisable at
$1.75 and vest over as follows: 300,000 shares on May 31, 1996; 300,000 shares
on November 30, 1996. At August 31, 1996, 300,000 share options were exercisable
and 500,000 options were not exercisable.
22
<PAGE> 23
(C) CHANGE IN CONTROL
On March 8, 1995, the Company entered into an agreement with Interpretel
pursuant to which the Company agreed to issue 6,000,000 shares of its common
stock in exchange for 100% of the outstanding 1,532,140 shares of common stock
of Interpretel. The transaction resulted in the former shareholders of
Interpretel owning approximately 80% of the outstanding shares of the
Company. 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 acquiring entity of the Company.
The common shares in connection with the Acquisition were valued at $2,000,000,
which is based on the fair market value of the Company's only major asset,
undeveloped land located in Ohio.
The Acquisition agreement also provides that during the three year period
following the March 8, 1995 closing, former shareholders of Interpretel can
receive an additional 7,500,000 common shares of the Company through an
"earn-out" based upon before tax net profit. During the two year period
following closing, former shareholders of Interpretel can earn up to 3,750,000
common shares of the Company for every $1.00 of cumulative total net profit
before taxes. During the third year following closing, any shares not previously
issued pursuant to this agreement can be earned at $1.50 net profit before taxes
per share. These additional shares will not be considered in recording the
Acquisition transaction until such time as the earnings targets have been met.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has entered into cancelable operating agreements with a
telecommunications service provider who is a shareholder of Common Stock of the
Company. The Company has agreed to a $12,040 monthly minimum charge with the
service provider. The current and future contracts with the service provider
have been and are anticipated to be at market rates. The Company also purchased
computer equipment and software from this provider.
During 1995, the Company issued 315,000 shares valued at $.50 per share to the
Company's attorney for legal services.
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A) THE FOLLOWING DOCUMENTS ARE FILED AS A PART OF THIS FORM 10-KSB AS THE PAGE
INDICATED.
EXHIBITS
<TABLE>
<CAPTION>
NUMBER Description Sequential
- ------ ----------- Page Number
-----------
<S> <C> <C>
3.1 Certificate of Incorporation of the Company *
3.2 By-Laws of the Company *
3.4 Certificate of Incorporation of Applied **
Environmental Technology, Inc.
10.28 Purchase Agreement dated June 6, 1991 between the Company ***
and Laurel Mountain Trust (relating to IES Ohio landfill purchase)
10.29 Royalty Agreement dated June 7, 1991 between the Company, ***
Laurel Mountain Trust and IES
10.30 Employment Contract dated May 21, 1996, between the Company
and Terence E. Belsham, Chairman and Chief Financial Officer ****
10.31 Employment Contract dated June 17, 1996 between the Company
and Richard P. Freeman, Vice President, Product Development & Strategic Planning ****
10.32 Employment Contract dated May 21, 1996 between the Company
and Gerald I. Quinn, President and Chief Executive Officer ****
22 Subsidiaries of Registrant ****
23 Consent of Addison, Roberts & Ludwig, P.C. ****
</TABLE>
23
<PAGE> 24
* Incorporated by reference from the like numbered exhibit to a Firm S-18
Registration Statement, SEC File No. 33-8353.
** Incorporated by reference from the like numbered exhibit to
Post-effective Amendment No. 1 to Form S-18 Registration Statement, SEC
File No. 33-8353 filed September 2, 1988.
*** Incorporated by reference from the like numbered exhibit to Form 10-K
for the year ending August 31, 1991.
**** Filed herewith
(b) REPORTS ON FORM 8-K FILED DURING THE LAST QUARTER OF THE PERIOD COVERED
BY THIS REPORT ARE AS FOLLOWS:
None.
24
<PAGE> 25
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, Wavetech, Inc. has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
WAVETECH, INC.
DATED: November 27, 1996 BY: /s/ Gerald I. Quinn
__________________________ __________________________________
GERALD I. QUINN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER, DIRECTOR
DATED: November 27, 1996 BY: /s/ Terence E. Belsham
__________________________ ___________________________________
TERENCE E. BELSHAM, CHIEF FINANCIAL
OFFICER, DIRECTOR
In accordance with the Securities Exchange Act of 1934, this report has been
signed on behalf of Wavetech, Inc. by the following persons and in the
capacities and on the dates indicated.
DATED: November 27, 1996 BY: /s/ Gerald I. Quinn
___________________________ ___________________________________
GERALD I. QUINN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER, DIRECTOR
DATED: November 27, 1996 BY: /s/ Terence E. Belsham
___________________________ ___________________________________
TERENCE E. BELSHAM, CHIEF FINANCIAL
OFFICER, DIRECTOR
DATED: November 27, 1996 BY: /s/ Richard P. Freeman
____________________________ ___________________________________
RICHARD P. FREEMAN, DIRECTOR
25
<PAGE> 1
EXHIBIT 10.30
SERVICES AGREEMENT
SERVICES AGREEMENT entered into this 21st day of May, 1996 by and between
WAVETECH, INC. ("ITEL") a New Jersey Corporation with offices at 5210 E.
Williams Circle, Suite 200, Tucson, Arizona 85711; and Terence E. Belsham
("TEB") of 8930 East Bears Path Road, Tucson, Arizona, 85749.
WITNESSETH:
between the aforesaid parties
NOW THEREFORE, in consideration of the mutual promises and undertakings
hereinafter provided, the parties hereto agree as follows:
1. Chairman and Chief Financial Officer of Wavetech, Inc.
------------------------------------------------------
ITEL hereby offers TEB and TEB hereby accepts effective at the time of
Closing, the position of Chairman and Chief Financial Officer upon the
terms and conditions hereinafter set forth.
2. Terms
-----
The term of the services rendered by TEB hereunder will be for a period of
one (1) year commencing at closing, unless sooner terminated in accordance
with the terms and conditions of this Agreement. Thereafter this Agreement
will continue at will, terminable with/on 90 days written notice be either
party to the other.
3. Duties
-------
3.1 Subject to the direction and supervision of the Board of Directors
of ITEL ("Board") and to ITEL's By-Laws, the duties of TEB shall
include, among other things the operations of the company financially
as its Chief Financial Officer and to be Chairman of the Board of
Directors. As chief financial officer TEB shall comply with the wishes
of the President and shall report all financial explanations,
information and assistance as the Board and/or the President may
require.
3.1 TEB agrees, during the term of the Agreement, to devote full time to
the business of Wavetech, Inc. and Interpretel, Inc.
4. COMPENSATION:
------------
TEB to be paid an annual salary of $85,000.00 per annum plus be extended
and fringe benefits that ITEL extends to its employees, but not limited to
Life Insurance, Long Term Disability Insurance and Medical Insurance.
5. Stock Options and Vesting:
--------------------------
5.1 Subject to confirmation of the Company's Board of Directors, TEB shall
be irrevocably granted stock options to purchase 200,000 shares of the
Company's common stock. The exercise price of such stock options shall
be closing bid price per share on the day of execution of the contract
by ITEL. The terms of the granted stock options shall be as described
in the "Stock Option Agreement."
5.2 Such stock options shall vest as follows: 100,000 shares on November
30, 1996, and 100,000 shares on May 30, 1997. If TEB terminates or is
terminated as per this Agreement, the stock options granted hereunder
will immediately cease vesting and the
<PAGE> 2
stock options previously vested must be exercised within 60 days of
resignation. All non-vested options are immediately vested under the
following conditions: a "change in control" of ITEL; in the event of
the permanent disability of TEB; in the event of the death of TEB; and
in the event of forced retirement of TEB. TEB or TEB's estate is
extended 180 days to exercise when non-vested options are vested.
6. Business Expenses
-----------------
TEB is authorized to incur and Wavetech, Inc. shall pay and reimburse him
for all reasonable and necessary business expenses incurred in the
performance of his duties hereunder including expenses for entertainment,
travel and other items in accordance with guidelines established from time
to time by the Board.
7. Covenants
---------
7.1 During the term of this Agreement, TEB as a partner or as an
individual or joint venture, as an employee or agent of any person, as
an officer or director, or shareholder of any corporation, or
otherwise agrees not to compete directly or indirectly with ITEL
without the written consent of the Board of ITEL.
7.2 TEB agrees not to market, or sell any competitive replacement product
or service or to compete with the company for one (1) year following
the termination or expiration of this Agreement.
8. Substance Abuse/Alcohol Abuse
-----------------------------
TEB hereby represents and warrants during the term of this Agreement that
he will not engage in any ingestion or administering of (or any other form
of delivery system that is commonly associated with substance abuse)
illegal substances without a doctor's written permission and/or
prescription. In addition, TEB represents that he will not engage in the
use of alcohol during business hours that would tend to impair the
performance of his duties under this Agreement.
9. Termination
-----------
9.1 TEB's rights hereunder shall terminate upon the occurrence of any of
the following events:
9.1.1 if TEB voluntarily terminates;
9.1.2 the death of the TEB;
9.1.3 if TEB is or shall be unable to discharge properly his
obligations hereunder through illness, disability or
accident for three (3) consecutive months or for a period
aggregating six (6) months in any continuous twelve (12)
months;
9.1.4 if TEB is convicted of a crime of moral turpitude by a court
of competent jurisdiction;
<PAGE> 3
9.1.5 if TEB is convicted of a felony except to the extent that
the charge arises from an act taken at the Board's
direction;
9.1.6 if TEB is grossly negligent or guilty of willful misconduct
in connection with the performance of his duties, which
negligence or misconduct, if curable, is not cured within
fifteen (15) days of a notice of cure by the Board or the
Chairman of the Board.
9.2 All sales commissions will cease as of the date of termination of TEB
pursuant to any of the paragraphs 9.1.1 through 9.1.6 inclusive.
10. Key Person Insurance
--------------------
TEB agrees that as long as this Agreement is in force, ITEL may obtain Key
Person life insurance on his life in an amount deemed appropriate by the
Board of Directors of ITEL. TEB represents and warrants that he has no
knowledge of any conditions which would prevent such Key Person life
insurance from being obtained at rates for a healthy male of his age.
11. Other Matters
-------------
This Agreement is a personal service contract intended to secure the
personal services of TEB, and TEB hereby agrees that none of his rights,
obligations or duties under this Agreement shall be assigned, subcontracted
or any way transferred by his to any other party without prior written
consent of ITEL.
12. Miscellaneous
-------------
12.1 The Agreement shall be governed by and construed in accordance with
the laws of the State of New Jersey, or the laws of the State of
Incorporation.
12.2 All notices, requests, demands or other communications from either
party hereto to the other pursuant to the Agreement shall be in
writing and shall be deemed to have been duly given when delivered
personally, or upon its mailing by registered or certified mail,
return receipt requested or shall be deemed received seven (7) days
from mailing thereof, postage prepaid, at such other party's last
known address.
12.3 If any provisions of the Agreement is invalidated for any reason
whatsoever, with the exception of non payment of fees and commissions
or non fulfillment of contracted services to clients by ITEL, the
Agreement shall remain binding between the parties and in full force
and effect except for such invalidated provision.
12.4 The Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors, heirs, executors,
legal representatives and assigns.
12.5 Except as waived in writing by a party hereto, no action taken
pursuant to the Agreement or failure to pursue the enforcement of any
right pursuant to the Agreement shall be deemed to constitute a waiver
by such party of compliance with any covenants or promises contained
herein. The waiver by either party hereto of a breach of any provision
of the Agreement shall not operate or be construed as a waiver of any
subsequent breach.
12.6 The Agreement shall extend to and be binding upon TEB, his heirs and
distributes, and upon ITEL, its successors and assigns and also any
subsidiary or affiliated corporation.
ITEL /s/ Illegible Initials
---------------------------------
ITEB /s/ Illegible Initials
---------------------------------
<PAGE> 4
12.7 The instrument contains the entire Agreement and understanding of the
parties relating to the subject matter hereof, and the parties hereto
have made no agreements, representations or warranties, oral or
written, relating to the subject matter of the Agreement which are not
set forth herein. The Agreement may be modified, amended, changed or
discharged only by a writing signed by the party against whom
enforcement of any such modification, amendment, change or discharge
is sought. The Agreement supersedes all prior agreements and
understandings, whether written or oral, regarding the contractual
relationship of TEB with ITEL in any capacity whatsoever.
12.8 This agreement shall supersede any agreements between the aforesaid
parties prior to the date of this agreement.
12.9 Paragraphs 4.2, 5.1, 5.2 and 6 shall survive the termination of the
within Agreement.
IN WITNESS WHEREOF, ITEL has caused the Agreement to be executed by its Board of
Directors and Officers hereunto duly authorized and TEB has hereunto set his
hand, all as of the day and year first written above.
ATTEST: WAVETECH, INC.
/s/ Illegible /s/ Gerald I. Quinn
- -------------------------------- --------------------------------------
Secretary By: Gerald I. Quinn, President and CEO
/s/ Terence E. Belsham
--------------------------------------
Terence E. Belsham, Chairman & CFO
<PAGE> 1
EXHIBIT 10.31
SERVICES AGREEMENT
SERVICES AGREEMENT entered into this 17th day of June, 1996 by and between
WAVETECH, INC. ("ITEL") a New Jersey Corporation with offices at 5210 E.
Williams Circle, Suite 200, Tucson, Arizona 85711; and Richard P. Freeman, 7479
N. Camino de la Tierra, Tucson, Arizona 85741.
WITNESSETH:
between the aforesaid parties
NOW THEREFORE, in consideration of the mutual promises and undertakings
hereinafter provided, the parties hereto agree as follows:
1. Vice President of Wavetech, Inc. and Interpretel, Inc.
--------------
ITEL hereby offers Freeman and Freeman hereby accepts effective at the time
of Closing, the position of Vice President Product Development & Strategic
Planning upon the terms and conditions hereinafter set forth.
2. Terms
-----
The term of the services rendered by Freeman hereunder will be for a period
of one (1) Year commencing at closing, unless sooner terminated in
accordance with the terms and conditions of this Agreement. Thereafter this
Agreement will continue at will, terminable with/on 90 days written notice
by either party to the other.
3. Duties
-------
3.1 Subject to the direction and supervision of the Board of Directors of
ITEL ("Board") and to ITEL's By-Laws, the duties of Freeman will be to
direct the Product Development and Strategic Planning.
3.2 In performing his duties hereunder, Freeman shall use due diligence
and all of his skills, expertise, knowledge and contacts for the
benefit of ITEL as its Vice President Product Development & Strategic
Planning Freeman shall comply with all such instructions as may, from
time to time be given to him by the President, all such explanations,
information and assistance as the President may require, including
such reports as are necessary to inform the President of the current
status of ITEL's communications.
3.3 Freeman agrees, during the term of the Agreement, to devote his full
time to the business of ITEL.
3.4 Freeman may accept, subject to confirmation and approval by
shareholders of ITEL, a position on the Board of ITEL.
4. Compensation
------------
4.1 Freeman to be paid an annual salary of $72,000.00 per annum plus be
extended and fringe benefits that ITEL extends to its employees, but
not limited to Life Insurance, Long Term Disability Insurance and
Medical Insurance.
<PAGE> 2
5. Stock Options and Vesting:
--------------------------
5.1 Subject to confirmation of the Board of ITEL, Freeman shall be
irrevocably granted stock options to purchase 100,000 shares of ITEL's
common stock. The exercise price of such stock options shall be
exercisable at the closing bid price per share on the day of execution
of this Agreement. The terms of the granted stock options shall be as
described in the "Stock Option Agreement."
5.2 Such stock options shall vest as follows: 50,000 shares on November
30, 1996 and 50,000 shares on May 31, 1997. If Freeman terminates or
is terminated as per this Agreement, the Stock options granted
hereunder will immediately cease vesting and the stock options
previously vested must be exercised within 60 days of the termination
date. Further, all non-vested options are immediately vested under the
----------
following conditions: a "change in control" of ITEL; in the event of
the permanent disability of Freeman; in the event of the death of
Freeman; and in the event of forced retirement of Freeman. Freeman or
Freeman's estate is extended 180 days to exercise when non-vested
options are vested.
6. Business Expenses
-----------------
Freeman is authorized to incur and Interpretel, Inc. shall pay and
reimburse him for all reasonable and necessary business expenses incurred
in the performance of his duties hereunder including expenses for
entertainment, travel and other items in accordance with guidelines
established from time to time by the Board.
7. Covenants
---------
7.1 During the term of this Agreement, Freeman as a partner or as an
individual or joint venture, as an employee or agent of any person, as
an officer or director, or shareholder of any corporation, or
otherwise agrees not to compete directly or indirectly with ITEL
without the written consent of the Board of ITEL.
7.2 Freeman agrees not to market, or sell any competitive replacement
product or service or to compete with the company for one (1) year
following the termination or expiration of this Agreement.
8. Substance Abuse/Alcohol Abuse
-----------------------------
Freeman hereby represents and warrants during the term of this Agreement
that he will not engage in any ingestion or administering of (or any other
form of delivery system that is commonly associated with substance abuse)
illegal substances without a doctor's written permission and/or
prescription. In addition, Freeman represents that he will not engage in
the use of alcohol during business hours that would tend to impair the
performance of duties under this Agreement.
9. Termination
-----------
9.1 Freeman's rights hereunder shall terminate upon the occurrence of any
of the following events:
9.1.1 if Freeman voluntarily terminates;
9.1.2 the death of the Freeman;
<PAGE> 3
9.1.3 if Freeman is or shall be unable to discharge properly his
obligations hereunder through illness, disability or accident
for three (3) consecutive months or for a period aggregating
six (6) months in any continuous twelve (12) months;
9.1.4 if Freeman is convicted of a crime of moral turpitude by a court
of competent jurisdiction;
9.1.5 if Freeman is convicted of a felony except to the extent that
the charge arises from an act taken at the Board's direction;
9.1.6 if Freeman is grossly negligent or guilty of willful misconduct
in connection with the performance of his duties, which
negligence or misconduct, if curable, is not cured within
fifteen (15) days of a notice of cure by the Board or the
Chairman of the Board.
10. Key Person Insurance
Freeman agrees that as long as this Agreement is in force, ITEL may
obtain Key Person life insurance on his life in an amount deemed
appropriate by the Board of Directors of ITEL. Freeman represents and
warrants that he has no knowledge of any conditions which would
prevent such Key Person life insurance from being obtained at rates
for a healthy male of his age.
11. Other Matters
This Agreement is a personal service contract intended to secure the
personal services of Freeman, and Freeman hereby agrees that none of his
rights, obligations or duties under this Agreement shall be assigned,
subcontracted or any way transferred by his to any other party without
prior written consent of ITEL.
12. Miscellaneous
12.1 The Agreement shall be governed by and construed in accordance
with the laws of the State of New Jersey, or the laws of the
State of Incorporation.
12.2 All notices, requests, demands or other communications from
either party hereto to the other pursuant to the Agreement shall
be in writing and shall be deemed to have been duly given when
delivered personally, or upon its mailing by registered or
certified mail, return receipt requested or shall be deemed
received seven (7) days from mailing thereof, postage prepaid, at
such other party's last known address.
12.3 If any provisions of the Agreement is invalidated for any reason
whatsoever, with the exception of non payment of fees and
commissions or non fulfillment of contracted services to clients
by ITEL, the Agreement shall remain binding between the parties
and in full force and effect except for such invalidated
provision.
12.4 The Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors, heirs,
executors, legal representatives and assigns.
12.5 Except as waived in writing by a party hereto, no action taken
pursuant to the Agreement or failure to pursue the enforcement
of any right pursuant to the Agreement shall be deemed to
constitute a waiver by such party of compliance with any
covenants or
<PAGE> 4
promises contained herein. The waiver by either party hereto of a
breach of any provision of the Agreement shall not operate or be
construed as a waiver of any subsequent breach.
12.6 The Agreement shall extend to and be binding upon Freeman, his heirs
and distributes, and upon ITEL, its successors and assigns and also
any subsidiary or affiliated corporation.
12.7 The instrument contains the entire Agreement and understanding of the
parties relating to the subject matter hereof, and the parties hereto
have made no agreements, representations or warranties, oral or
written, relating to the subject matter of the Agreement which are not
set forth herein. The Agreement may be modified, amended, changed or
discharged only by a writing signed by the party against whom
enforcement of any such modification, amendment, change or discharge
is sought. The Agreement supersedes all prior agreements and
understandings, whether written or oral, regarding the contractual
relationship of Freeman with ITEL in any capacity whatsoever.
12.8 This agreement shall supersede any agreements between the aforesaid
parties prior to the date of this agreement.
IN WITNESS WHEREOF, ITEL has caused the Agreement to be executed by its Board of
Directors and Officers hereunto duly authorized and Freeman has hereunto set his
hand, all as of the day and year first written above.
ATTEST: WAVETECH, INC.
/s/ illegible /s/ Terence E. Belsham
- ------------------------------- --------------------------------------
By: Terence E. Belsham, Chairman
/s/ Richard P. Freeman
--------------------------------------
Richard P. Freeman, Vice President
<PAGE> 1
EXHIBIT 10.32
SERVICES AGREEMENT
SERVICES AGREEMENT entered into this 21st day of May, 1996 by and between
WAVETECH, INC. ("ITEL") a New Jersey Corporation with offices at 5210 E.
Williams Circle, Suite 200, Tucson, Arizona 85711; and Gerald I. Quinn ("Quinn")
of 9981 N. Bighorn Butte Drive, Oro Valley, Arizona 85737.
WITNESSETH:
between the aforesaid parties
NOW THEREFORE, inconsideration of the mutual promises and undertakings
hereinafter provided, the parties hereto agree as follows:
1. President and CEO of Wavetech, Inc. and Interpretel, Inc.
-----------------
ITEL hereby offers Quinn and Quinn hereby accepts effective at the time of
Closing, the position of President and CEO upon the terms and conditions
hereinafter set forth.
2. Terms
-----
The term of the services rendered by Quinn hereunder will be for a period
of Two (2) Years commencing at closing, unless sooner terminated in
accordance with the terms and conditions of this Agreement. Thereafter this
Agreement will continue at will, terminable with/on 90 days written notice
by either party to the other.
3. Duties
-------
3.1 Subject to the direction and supervision of the Board of Directors of
ITEL ("Board") and to ITEL's By-Laws, the duties of Quinn will include
the administration of all operations of Wavetech, Inc. and its
subsidiaries.
3.2 In performing his duties hereunder, Quinn shall use due diligence and
all of his skills, expertise, knowledge and contacts for the benefit
of ITEL as its Chief Executive Officer. Quinn shall comply with all
such instructions as may, from time to time be given to him by the
Board, all such explanations, information and assistance as the Board
may require, including such reports as are necessary to inform the
Board of the current status of ITEL.
3.3 Quinn agrees, during the term of the Agreement, to devote full time to
the business of ITEL.
3.4 Quinn may accept, subject to confirmation and approval by shareholders
of ITEL, a position on the Board of ITEL.
4. Compensation
------------
4.1 Quinn to be paid an annual salary of $85,000.00 per annum plus be
extended and fringe benefits that ITEL extends to its employees, but
not limited to Life Insurance, Long Term Disability Insurance and
Medical Insurance.
4.2 Sales Commissions: Attached to this agreement is the former Agreement
dated 27th day of October 1995 between ITEL and Quinn. The section
Number 4 of the former Agreement, with subsections 4.1, 4.1.1, 4.1.2,
4.2, 4.3 and 4.4 survive at Quinn's option, only to the time that all
stock options declared in Section 5 of this Agreement are vested. At
that time the former Agreement in its entirety is of no further
effect.
<PAGE> 2
5. Stock Options and Vesting:
--------------------------
5.1 Subject to confirmation of the Board of ITEL, Quinn shall be
irrevocably granted stock options to purchase 500,000 shares of ITEL's
common stock. This is in addition to the stock options to purchase
300,000 shares of ITEL's common stock as per the former Agreement.
Therefore Quinn has stock options to purchase 800,000 shares of ITEL's
common stock. The exercise price of such stock options shall be as
follows: 300,000 shares exercisable at $1.3875 the closing bid price
on the date of exercising the former contract, and 500,000 shares
exercisable at the closing bid price per share on the day of execution
of this Agreement. The terms of the granted stock options shall be as
described in the "Stock Option Agreement."
5.2 Such stock options shall vest as follows: 300,000 shares on May 31,
1996, 300,000 shares on November 30, 1996 and 200,000 shares on May
31, 1997. If Quinn terminates or is terminated as per this Agreement,
the Stock options granted hereunder will immediately cease vesting and
the stock options previously vested must be exercised within 60 days
of the termination date. Further, all non-vested options are
immediately vested under the following conditions: a "change in
control" of ITEL; in the event of the permanent disability of Quinn;
in the event of the death of Quinn; and in the event of forced
retirement of Quinn. Quinn or Quinn's estate is extended 180 days to
exercise when non-vested options are vested.
6. Business Expenses
-----------------
Quinn is authorized to incur and Wavetech, Inc. shall pay and reimburse him
for all reasonable and necessary business expenses incurred in the
performance of his duties hereunder including expenses for entertainment,
travel and other items in accordance with guidelines established from time
to time by the Board.
7. Covenants
---------
7.1 During the term of this Agreement, Quinn as a partner or as an
individual or joint venture, as an employee or agent of any person, as
an officer or director, or shareholder of any corporation, or
otherwise agrees not to compete directly or indirectly with ITEL
without the written consent of the Board of ITEL.
7.2 Quinn agrees not to market, or sell any competitive replacement
product or service or to compete with the company for one (1) year
following the termination or expiration of this Agreement.
8. Substance Abuse/Alcohol Abuse
-----------------------------
Quinn hereby represents and warrants during the term of this Agreement that
he will not engage in any ingestion or administering of (or any other form
of delivery system that is commonly associated with substance abuse)
illegal substances without a doctor's written permission and/or
prescription. In addition, Quinn represents that he will not engage in the
use of alcohol during business hours that would tend to impair the
performance of duties under this Agreement.
<PAGE> 3
9. Termination
-----------
9.1 Quinn's rights hereunder shall terminate upon the occurrence of any
of the following events:
9.1.1 if Quinn voluntarily terminates;
9.1.2 the death of the Quinn;
9.1.3 if Quinn is or shall be unable to discharge properly his
obligations hereunder through illness, disability or
accident for three (3) consecutive months or for a period
aggregating six (6) months in any continuous twelve (12)
months;
9.1.4 if Quinn is convicted of a crime of moral turpitude by a
court of competent jurisdiction;
9.1.5 if Quinn is convicted of a felony except to the extent that
the charge arises from an act taken at the Board's
direction;
9.1.6 if Quinn is grossly negligent or guilty of willful
misconduct in connection with the performance of his
duties, which negligence or misconduct, if curable, is not
cured within fifteen (15) days of a notice of cure by the
Board or the Chairman of the Board.
9.2 All sales commissions will cease as of the date of termination of
Quinn pursuant to any of the paragraphs 9.1.1 through 9.1.6 inclusive.
10. Key Person Insurance
--------------------
Quinn agrees that as long as this Agreement is in force, ITEL may obtain
Key Person life insurance on his life in an amount deemed appropriate by
the Board of Directors of ITEL. Quinn represents and warrants that he has
no knowledge of any conditions which would prevent such Key Person life
insurance from being obtained at rates for a healthy male of his age.
11. Other Matters
-------------
This Agreement is a personal service contract intended to secure the
personal services of Quinn, and Quinn hereby agrees that none of his
rights, obligations or duties under this Agreement shall be assigned,
subcontracted or any way transferred by his to any other party without
prior written consent of ITEL.
12. Miscellaneous
-------------
12.1 The Agreement shall be governed by and construed in accordance with
the laws of the State of New Jersey, or the laws of the State of
Incorporation.
12.2 All notices, requests, demands or other communications from either
party hereto to the other pursuant to the Agreement shall be in
writing and shall be deemed to have been duly given when delivered
personally, or upon its mailing by registered or certified mail,
return receipt requested or shall be deemed received seven (7) days
from mailing thereof, postage prepaid, at such other party's last
known address.
<PAGE> 4
12.3 If any provisions of the Agreement is invalidated for any reason
whatsoever, with the exception of non payment of fees and commissions
or non fulfillment of contracted services to clients by ITEL, the
Agreement shall remain binding between the parties and in full force
and effect except for such invalidated provision.
12.4 The Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors, heirs, executors,
legal representatives and assigns.
12.5 Except as waived in writing by a party hereto, no action taken
pursuant to the Agreement or failure to pursue the enforcement of any
right pursuant to the Agreement shall be deemed to constitute a waiver
by such party of compliance with any covenants or promises contained
herein. The waiver by either party hereto of a breach of any provision
of the Agreement shall not operate or be construed as a waiver of any
subsequent breach.
12.6 The Agreement shall extend to and be binding upon Quinn, his heirs and
distributes, and upon ITEL, its successors and assigns and also any
subsidiary or affiliated corporation.
12.7 The instrument contains the entire Agreement and understanding of the
parties relating to the subject matter hereof, and the parties hereto
have made no agreements, representations or warranties, oral or
written, relating to the subject matter of the Agreement which are not
set forth herein. The Agreement may be modified, amended, changed or
discharged only by a writing signed by the party against whom
enforcement of any such modification, amendment, change or discharge
is sought. The Agreement supersedes all prior agreements and
understandings, whether written or oral, regarding the contractual
relationship of Quinn with ITEL in any capacity whatsoever.
12.8 This agreement shall supersede any agreements between the aforesaid
parties prior to the date of this agreement.
12.9 Paragraphs 4.2, 5.1, 5.2 and 6 shall survive the termination of the
within Agreement.
IN WITNESS WHEREOF, ITEL has caused the Agreement to be executed by its Board of
Directors and Officers hereunto duly authorized and Quinn has hereunto set his
hand, all as of the day and year first written above.
ATTEST: WAVETECH, INC.
/s/ Illegible /s/ Terence E. Belsham
- -------------------------------- --------------------------------------
Secretary By: Terence E. Belsham, Chairman
/s/ Gerald I. Quinn
--------------------------------------
Gerald I. Quinn, President and CEO
<PAGE> 1
EXHIBIT 22
SUBSIDIARIES OF REGISTRANT
INTERPRETEL, INC.
INTERNATIONAL ENVIRONMENTAL SERIES CORPORATION
<PAGE> 1
EXHIBIT 23
CONSENT OF ADDISON, ROBERTS & LUDWIG, P.C.
Addison, Roberts & Ludwig, P.C.
As independent public accountants, we hereby consent to the use of our
report (and to all references to our firm) included in or made a part of this
Form 10-KSB.
/s/ Addison, Roberts & Ludwig, P.C.
Tucson, Arizona
November 27, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> AUG-31-1996
<CASH> 857,488
<SECURITIES> 0
<RECEIVABLES> 280,867
<ALLOWANCES> 0
<INVENTORY> 241,037
<CURRENT-ASSETS> 1,380,913
<PP&E> 539,528
<DEPRECIATION> 169,562
<TOTAL-ASSETS> 4,580,239
<CURRENT-LIABILITIES> 715,430
<BONDS> 0
0
0
<COMMON> 14,114
<OTHER-SE> 3,509,710
<TOTAL-LIABILITY-AND-EQUITY> 4,580,239
<SALES> 0
<TOTAL-REVENUES> 19,895
<CGS> 0
<TOTAL-COSTS> 1,901,291
<OTHER-EXPENSES> 21,192
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,860,204)
<INCOME-TAX> (1,860,204)
<INCOME-CONTINUING> (1,860,204)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,860,204)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> (.17)
</TABLE>
