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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended November 30, 1995.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _______________to_______________.
Commission File Number: 0-15482
WAVETECH, INC.
(Exact name of small business issuer as specified in its charter)
NEW JERSEY 22-2726569
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5210 E. WILLIAMS CIRCLE, SUITE 200
TUCSON, ARIZONA 85711
(Address of principal executive offices)
(520) 750-9093
(Issuer's telephone number)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
[X] Yes [ ] No
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: January 10, 1996.
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<CAPTION>
Class No. of Shares Outstanding
<S> <C>
Common Stock, Par Value $.001 10,500,582
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Transitional Small Business Disclosure Format (Check One): [ ] Yes [X] No
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INDEX
WAVETECH INC. AND SUBSIDIARIES
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<CAPTION>
Page
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets - November 30, 1995
and August 31, 1995 ....................................... 3
Condensed Consolidated Statements of Operations - Three
Months Ended November 30, 1995 and November 30, 1994 ...... 4
Condensed Consolidated Statements of Cash Flows - Three
Months Ended November 30, 1995 and November 30, 1994 ...... 5
Notes to Condensed Consolidated Financial Statements -
November 30, 1995 and November 30, 1994 ................... 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ....................... 7
PART II. OTHER INFORMATION
ITEM 5. Other Information ......................................... 8
ITEM 6. Exhibits and Reports on Form 8-K .......................... 8
SIGNATURES ............................................................. 9
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WAVETECH, INC.
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1995 AND NOVEMBER 30, 1995 (UNAUDITED)
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<CAPTION>
August 31, November 30,
1995(1) 1995
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<S> <C> <C>
ASSETS
Current assets:
Cash $ 285,793 $ 832,305
Other 4,348 12,730
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Total current assets 290,141 845,035
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Property and equipment, net 476,465 311,455
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Deposits 33,125 58,125
Other 10,400 10,400
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Total other assets 43,525 68,525
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Total assets $ 810,131 $ 1,225,015
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 235,054 $ 82,617
Accrued interest payable 39,327 --
Notes payable, current portion 378,239 71,639
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Total current liabilities 652,620 154,256
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Stockholder's equity:
Common stock, par value $.001 per share; 50,000,000
shares authorized, 9,555,078 and 10,500,582 shares
issued and outstanding 9,455 10,500
Additional paid-in capital 1,540,223 2,739,792
Accumulated deficit (1,392,167) (1,679,533)
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Total Stockholder's equity (deficit) 157,511 1,070,759
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Total liabilities and Stockholder's equity $ 810,131 $ 1,225,015
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(1) These figures reflect the restatement of the Company's balance sheet as
of August 31, 1995 resulting from the prior loss of real estate assets
which were previously carried at a book value of $2,000,000. These
figures have not yet been restated in an amendment to the Company's
report on Form 10-K for the fiscal year ended August 31, 1995, and
have not yet been audited by the Company's independent auditors. See
Item 5 of Part II of this report.
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WAVETECH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE-MONTH PERIODS ENDED NOVEMBER 30, 1995 AND 1994 (UNAUDITED)
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<CAPTION>
1995 1994
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<S> <C> <C>
Revenue $ 7,359 $ 4,541
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Expenses:
Development and Administrative 294,725 133,663
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Total expenses 294,725 133,663
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Net loss $ 287,366 $ 129,122
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Net loss per common share $ .03 $ .12
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Weighted average number of shares outstanding 10,365,053 1,073,500
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WAVETECH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE-MONTH PERIODS ENDED NOVEMBER 30, 1995 AND 1994 (UNAUDITED)
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<CAPTION>
1995 1994
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<S> <C> <C>
Cash flows from operating activities:
Net loss $ 287,366 $ 129,122
Adjustments to reconcile net loss to
net provided by operating activities:
Depreciation and amortization (5,356) (4,448)
Changes in assets and liabilities:
Accounts receivable and other current assets 8,382 3,429
Accounts payable and accrued expenses 152,437 (4,954)
Accrued interest payable 39,327 (5,121)
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Total adjustments 194,790 (11,094)
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Net cash used in operating activities 482,156 118,028
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Cash flows from investing activities:
Change in property and equipment (159,654) 2,745
Increase deposits and other assets 25,000
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Net cash (provided by) used in investing activities (134,654) 2,745
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Cash flows from financing activities:
Proceeds from (reduction of) notes payable, net (306,600) 18,000
Proceeds from common stock issued, net 1,200,614 100,008
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Net cash provided by financing activities 894,014 118,008
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Net increase (decrease) in cash 546,512 (2,765)
Cash, beginning of period 285,793 3,958
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Cash, end of period $ 832,305 $ 1,193
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WAVETECH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
THREE MONTHS ENDED NOVEMBER 30, 1995
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidation financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included. Operation results for the three
month periods ended November 30, 1995 are not necessarily indicative of the
results that may be expected for the fiscal year ending August 31, 1996. For
further information, refer to the Company's financial statements for the year
ended August 31, 1995.
The consolidated financial statements include the accounts of Wavetech, Inc.
(the Company) and its wholly owned subsidiary, Interpretel, Inc. (Interpretel).
All material intercompany balances and transactions have been eliminated. As
of November 30, 1995, and for the previous three years, the Company had no
operations other than its investment in Interpretel which was made on March 8,
1995.
On March 8, 1995, the Company entered into a Plan and Agreement of
Reorganization for the Exchange of Stock ("Acquisition") with the shareholders
of Interpretel. Interpretel was incorporated April 15, 1993 ("Inception"),
under the laws of the state of Arizona to develop, market and provide
interactive telecommunication systems and services to business and individual
customers. The systems incorporate interactive call processing,
computer-telephony integration, card production/fulfillment, billing services,
marketing, sales support, and customer service to provide features and
services, including but not limited to, long distance dialing, voice/fax
messaging, voice/fax broadcast, language interpretation/translation,
information retrieval, interface to existing databases, and product promotion
services. Each Interpretel system is developed to reflect or target the needs
of an identified (target) market, with services provided to individual
customers via a calling card product incorporating the use of certain trade
secrets, trade marks, service marks, and materials related thereto.
In accordance with Accounting Principles Board Opinion No. 16, "Business
Combinations", the Acquisition has been accounted for as a reverse acquisition
with Interpretel deemed to be the acquiring entity. Accordingly, the
consolidated financial statements include the accounts of Interpretel, Inc.
from the earliest period presented. The accounts of the Company are included
in the financial statements from the date of the Acquisition transaction, March
8, 1995 to August 31, 1995.
NOTE 2 -- PER SHARE DATA
Per share data is based on the weighted average number of shares outstanding
throughout the periods. The assumed exercised of stock options outstanding
would not have a dilutive effect on the computation.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company specializes in creating interactive communication systems through
the application of "intelligent" call processing technology and proprietary
software to reflect or target the needs of an identified audience. These
systems are often used as privatized networks for organizations and 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 commenced on a limited basis in late 1995 with the
Company's first significant product launch.
OPERATIONS OVERVIEW
The Company will commence principal operations in January 1996 having completed
development of the necessary technical infrastructure and business
organization. Revenues for 1995 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
interactive communication systems are developed and placed in service.
COSTS AND EXPENSES
Expenses increased to $294,725 for the three-month period ended November 30,
1995 from $133,663 in the three-month period ended November 30, 1994 due to the
increased personnel and resources required to develop the Company's technical
infrastructure and business organization. The Company anticipates that costs
and expenses will continue to increase as additional personnel are hired to
support sales and marketing efforts.
LIQUIDITY AND CAPITAL RESOURCES
At November 30, 1995 the Company had working capital of $691,049 compared with
a working capital deficit of $362,479 at August 31, 1995. The Company has
utilized proceeds from equity financings occurring subsequent to August 31,
1995 to generate positive working capital balances. Working capital is
expected to increase as the Company generates cash from operations and external
funding. Cash balances increased from $285,793 at August 31, 1995 to $832,305
at November 30, 1995. This increase is primarily the result of $1,200,614 of
net proceeds from the sale of common stock which is offset by cash used in
operations. Capital expenditures are expected to further increase as the
Company expands the infrastructure for supplying its interactive communications
systems.
The Company may continue to require external funding to satisfy its funding
requirements for operations, capital expenditures and future growth of the
technical infrastructure until it is able to achieve revenues at a level
adequate to support its cost structure. Although there can be no assurance in
this regard, the Company believes that external funding from equity financing
and vendor program financing and cash generated from operations will be
sufficient to meet its operating requirements for the foreseeable future.
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.
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PART II
ITEM 5. OTHER INFORMATION
Subsequent to August 31, 1995, the Company entered into Regulation S
Subscription Agreement for the issuance of 1,304,348 shares of common stock at
$1.15 per share. Pursuant to the commitment and previous commitments, the
Company has completed the sale of 1,015,036 shares of common stock for
aggregate net proceeds of $1,166,231.
Subsequent to August 31, 1995, the Company granted options to purchase 750,000
shares of common stock in connection with two employment agreements. The
options were granted at the market price of the stock on the date of the grant
and vest over a three year period.
Subsequent to August 31, 1995, the Company was notified that a claim has been
made by an alleged beneficial shareholder of 70,000 shares of common stock that
the Company wrongfully canceled these shares for non-performance, along with
the remaining shares of the record-holder/consultant. When and if litigation
is filed against the Company, the Company intends to vigorously defend and
feels it has adequate defenses to such claim, although it is too early in the
litigation process, if any, to evaluate the merits of such claim.
The Company recently determined that real property which the Company believed
to be owned by its subsidiary, International Environmental Services
Corporation, which was reflected on the Company's August 31, 1995 audited
financial statement at a book value of $2,000,000, was actually sold in april
1994 in a delinquent tax sale. The property was not used in the Company's
operations. However, the Company's audited financial statements for the fiscal
year ended August 31, 1995 will have to be restated to reflect the loss of the
property, and such restatement will reduce the Company's assets below the level
required for maintenance of its NASDAQ listing. The Company is pursing
alternatives which would allow it to meet such NASDAQ listing requirements,
including seeking redress for the loss of the real estate asset from certain
responsible partners.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
None.
B. FORM 8-K
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
undersigned has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: January 31, 1996
WAVETECH, INC.
By: /s/ Terence E. Belsham
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Terence E. Belsham, President and
Chief Executive Officer
By: /s/ Stephen A. Ezell
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Stephen A. Ezell, Executive Vice
President and Chief Financial Officer
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