U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM 10-KSB/A (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: (520) 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)
The undersigned Registrant hereby amends in its entirety its Annual Report on
Form 10-KSB for the fiscal year ended August 31, 1996, as follows:
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 / /.
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 February 25, 1997 was approximately $8,896,740 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 February 25, 1997 was
14,964,442. The aggregate number of Redeemable Common Stock Purchase Warrants
outstanding as of February 25, 1997 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>
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, each unit 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.
2
<PAGE>
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.
(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
3
<PAGE>
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.
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.
4
<PAGE>
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 omissions 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 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.
PART II
ITEM 5. MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company is quoted on the Nasdaq-Small Cap Market. Trading activity with
respect to the Company's Common Stock has been limited. A public market having
the characteristics of depth, liquidity and orderliness depends on the existence
of market makers as well as the presence of willing buyers and sellers, all of
which are circumstances over which the Company does not have control. 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
Common ------- ------ ------- ------- --- ---
Stock High Low High Low High Low High Low
- ------ ---- --- ---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1994 1/8 3/32 9/32 1/8 6 1/2(1) 1 1/4(1) 1 7/16 (1) 1/4 (1)
1995 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 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.
5
<PAGE>
As of February 25, 1997, the Company had 360 shareholders of record of its
Common Stock. The Company believes that it has over 2,022 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 $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.
6
<PAGE>
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
7
<PAGE>
WAVETECH, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
August 31, 1996 and 1995
ASSETS
1996 1995
---- ----
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
========== ==========
See Independent Auditor's Report.
The Accompanying Notes are an Integral Part of These
Consolidated Financial Statements.
8
<PAGE>
WAVETECH, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the Years Ended August 31, 1996, 1995 and 1994
-----------
1996 1995 1994
---- ---- ----
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
=========== =========== ===========
See Independent Auditor's Report.
The Accompanying Notes are an Integral Part of These
Consolidated Financial Statements.
9
<PAGE>
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.
10
<PAGE>
WAVETECH, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended August 31, 1996, 1995 and 1994
------------
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
Cash Flows From Operating Activities:
<S> <C> <C> <C>
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.
11
<PAGE>
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.
12
<PAGE>
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 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.
13
<PAGE>
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.
14
<PAGE>
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:
PERIOD ENDED PERIOD ENDED
AUGUST 31, 1995 AUGUST 31, 1994
--------------- ---------------
Revenues $ 24,468 $ 1,151
=========== ===========
Net Loss $(1,347,139) $(1,062,866)
=========== ===========
Net Loss Per Common Share $ (.17) $ (.14)
=========== ===========
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.
15
<PAGE>
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.
16
<PAGE>
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:
1996 1995
---- ----
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
========= =========
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:
1997 $ 53,639
========
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:
1997 $ 31,091
1998 31,091
1999 12,659
2000 6,515
2001 4,834
--------
$ 86,190
========
17
<PAGE>
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:
1997 $ 85,446
1998 99,453
1999 105,056
2000 110,659
2001 116,262
Thereafter 29,416
--------
total $546,292
========
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.
18
<PAGE>
WAVETECH, INC. AND SUBSIDIARIES
Notes To Financial Statements
--------------
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.
EXERCISE PRICE
NUMBER OF SHARES RANGE PER SHARE
---------------- ---------------
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
========= ===========
19
<PAGE>
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:
1996 1995 1994
--------- --------- ---------
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-
========= ========= =========
The company's tax benefit differs from the benefit calculated using the
federal statutory income tax rate for the following reasons:
1996 1995 1994
---- ---- ----
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%
==== ==== ====
The components of the net deferred tax asset are as follows:
1996 1995
----------- -----------
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-
=========== ===========
20
<PAGE>
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:
Income taxes $ 50 $ 50 $ 54
======= ====== ====
Interest $39,327 $1,941 $140
======= ====== ====
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.
Item 8. Changes in and Disagreements With Accountants.
None.
21
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY; COMPLIANCE WITH SECTION
16 (a) OF THE EXCHANGE ACT
DIRECTORS AND OFFICERS
The Board of Directors currently consists of three members. Each
Director is elected each year to serve for a term of one year until the next
annual meeting of stockholders after election and until such Director's
successor has been duly elected and qualified, or until the earlier resignation
or removal. All officers serve at the pleasure of the Board of Directors of the
Company.
The names of all Directors and executive officers of the Company as of
August 31, 1996 and certain information about them, are as follows:
NAME AGE POSITIONS WITH COMPANY
---- --- ----------------------
Terence E. Belsham 61 Chairman of the Company's Board of Directors
Gerald I. Quinn 53 President, Chief Executive Officer, and a member
of the Company's Board of Directors
Richard P. Freeman 40 Vice President, Investor Relations and Product
Development, and a member of the Company's
Board of Directors
Lydia M. Montoya 44 Chief Financial Officer and Treasurer
Donna S. Moore 42 Vice President, Operations
TERENCE E. BELSHAM was a co-founder of Interpretel, Inc. ("Interpretel"), a
wholly-owned subsidiary of the Company. Since it was founded in 1992 until May
1996, Mr. Belsham was the President and CEO of Interpretel. From March 1995
until May 1996, Mr. Belsham was the Company's President and CEO. Mr. Belsham has
also served as the Company's Chairman of the Board since March 1995. From 1989
until 1992, Mr. Belsham was President of Intran Systems, Inc. From 1983 to 1989,
Mr. Belsham owned Sinclair Associates, a real estate marketing and management
firm. From 1965 to 1983, Mr. Belsham was president and owner of Lackie
Manufacturing Company, Ltd., a jewelry manufacturing company in Canada. Mr.
Belsham graduated from the business school of the University of Western Ontario.
Mr. Belsham has been active in Rotary International, the Canadian Jeweler's
Association and the 24 Karat Club.
GERALD I. QUINN has been the President of Interpretel (Canada) Inc., a
subsidiary of the Company, since 1995. In May 1996, Mr. Quinn became the
President, Chief Executive Officer and a Director of the Company. From 1986 to
1994, Mr. Quinn was Vice President of University Affairs and Development at the
University of Guelph, which is one of Canada's leading teaching and research
universities. While at the University of Guelph, Mr. Quinn's responsibilities
included marketing, image development, constituent relations and media
relations, including systems development, telemarketing and the development of
affinity programs. From 1975 until 1986, Mr. Quinn held many senior
administrative positions with Canada's largest college of applied arts and
technology, including positions relating to the development and
commercialization of technology and multimedia based interactive learning
programs. Since 1984, Mr. Quinn has served as a consultant to Cableshare
Interactive Technology, Inc. ("Cableshare"), a Canadian TSE listed public
company that operates in the interactive television industry. Mr. Quinn has been
a director of Cableshare since 1993 and chairs its board committee on mergers
and acquisitions. Mr. Quinn is active in numerous civic and professional
organizations and has been recognized for his work in marketing, sales,
promotion and public relations by various trade organizations. Mr. Quinn has two
arts degrees with majors in English, Economics and Political Science. Mr.
Quinn's sister is married to Terrence H. Pocock.
22
<PAGE>
RICHARD P. FREEMAN was a co-founder of Interpretel and has served as
Interpretel's Vice President since 1993; and as a Director of the Company since
March 1995. Prior to joining Interpretel, Mr. Freeman was a principal in several
entrepreneurial companies located in Arizona, which were primarily involved in
the tourism and travel industries. Those companies included Desert Divers, a
scuba retail and boat charter company, and Vacation, Etc., a tour and travel
company which focused on corporate, leisure and adventure travel, wholesale tour
operations and escorted senior travel. Mr. Freeman has also served as a
consultant to several travel-related organizations, including the Business Radio
Network, a national radio network. Mr. Freeman holds a Bachelor of Arts degree
from the University of Arizona and is active in various civic and community
organizations.
DONNA S. MOORE joined the Company in May 1995 as Director of Client Services. In
May 1996, Ms. Moore was promoted to her current position as Vice President of
Operations. Prior to joining the Company, Ms. Moore founded and operated two
service-based businesses. From 1991 to 1995, Ms. Moore operated The Greeting
Connection, a wholesale greeting card distributorship in southern Arizona. From
1981 to 1990, Ms. Moore operated Simonsen Generator Service, an industrial
generator sales and service company in Tucson, Arizona. Ms. Moore has degrees in
Consumer Services and Journalism/Communications from Iowa State University.
LYDIA M. MONTOYA joined the Company in September 1996 as its Chief Financial
Officer. From May 1994 until September 1996, Ms. Montoya was self-employed as a
certified public accountant. Ms. Montoya was Controller of Ugly Duckling
Corporation, a publicly traded company ("Ugly Duckling") from November 1992 to
May 1994. Ugly Duckling is an operator of nine Buy Here-Pay Here used car
dealerships which also finances and services retail installment contracts
generated from the sale of used cars by its dealerships. From July 1987 to
October 1992, Ms. Montoya was Director of Partnership Accounting for Verde
Investments, Inc., a real estate development company that constructed, operated
and sold over 5,000 apartment units. Ms. Montoya began her career with Coopers &
Lybrand. Ms. Montoya has a B.S. in Accounting from the University of Arizona and
a B.S. in Sociology from Arizona State University.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and Directors, and persons who beneficially own more than 10%
of a registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the SEC. Officers, Directors and greater
than 10% stockholders are required by Exchange Act regulations to furnish the
Company with copies of all Section 16(a) forms they file.
In 1995, Terence E. Belsham and Richard P. Freeman failed to timely
report their election to the Company's Board of Directors and their appointment
as executive officers of the Company on Form 3's. In 1996, Gerald I. Quinn
failed to timely report that he had become a director and executive officer of
the Company on a Form 3. In 1996, Messrs. Belsham, Freeman and Quinn failed to
timely report the grant of certain stock options on Form 4's, and Ms. Moore and
Ms. Montoya failed to timely report initial statements of beneficial ownership
on Form 3. In addition, Switch Telecommunications Pty. Ltd. failed to timely
report the acquisition of certain stock of the Company on Form 3.
23
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
(A) CASH COMPENSATION
The Company had 16 employees as of August 31, 1996. The following table
summarizes all compensation paid to the Company's President and Chief
Executive Officer and to the Company's other most highly compensated
executive officer other than the President (collectively, the "Named
Executive Officers"), for services rendered in all capacities to the
Company during the fiscal year ended August 31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
----------------------
Awards
------
Annual Compensation Restricted Securities
Name and Fiscal ------------------- Stock Underlying
Principal Position Year Salary Bonus Award(s) Option(s)
------------------ ---- ------ ----- -------- ---------
<S> <C> <C> <C> <C> <C>
Terence E. Belsham 1996 $85,000 $ 0 $979,023 200,000
Chairman of the Board (1)
Gerald I. Quinn 1996 $85,000 $ 0 $203,637 500,000
President and Chief
Executive Officer (1)
</TABLE>
- ----------
(1) Terence E. Belsham served as the Company's Chief Executive Officer until
February 1996, at which time Gerald I. Quinn became the Company's Chief
Executive Officer.
The following table sets forth certain information concerning each
exercise of stock options during the year ended August 31, 1996 by each of the
Named Executive Officers and the aggregated fiscal year-end value of the
unexercised options of each such Named Executive Officer.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR ANDOPTION
VALUE AS OF AUGUST 31, 1996
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money
Shares Options Options at Fiscal
Acquired on Value at Fiscal Year End (#) Year End ($)
Name Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
- ------------------ ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Terence E. Belsham 0 $ 0 0 200,000 $ 0 $ 0
Gerald I. Quinn 0 $ 0 300,000 500,000 $ 0 $ 0
The following table sets forth information concerning individual
grants of stock options made to the Named Executive Officers during the last
fiscal year.
</TABLE>
24
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Percent of Total
Options Granted
Options Granted to Employees in Exercise Price Expiration
Name (#) Fiscal Year ($/Sh) Date
---- ------- --------------- -------------- ----------
<S> <C> <C> <C> <C>
Terence E. Belsham 200,000 18% $1.75(1) May 2006
Gerald I. Quinn 300,000 73% $1.3875(1) May 2006
500,000 $1.75(1) May 2006
</TABLE>
(1) In January of 1997, the Company's stock price had decreased significantly
from the date these options were granted. In addition, the Company's Board
of Directors approved the Company's 1997 Stock Incentive Plan. The
Company's Board of Directors determined that these options were no longer
providing appropriate incentives to the officers of the Company due to the
significant decrease in market price of the Company's common stock.
Accordingly, in January of 1997, the Company agreed to cancel these options
and issue an equal number of options under the 1997 Stock Incentive Plan to
these officers at an exercise price per share equal to the closing bid
price of the Company's common stock on the date of grant.
(B) COMPENSATION PURSUANT TO PLANS
None.
(C) COMPENSATION OF DIRECTORS
All Directors are reimbursed for their reasonable out-of-pocket expenses
incurred in connection with attendance at Board Meetings. Directors who are
employees of the Company do not receive compensation for service on the
Board other than their compensation as employees.
(D) TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENTS
EMPLOYMENT CONTRACTS
In May 1996, the Board of Directors approved a two-year employment
agreement with Gerald I. Quinn for services as President and Chief Executive
Officer. The agreement requires Mr. Quinn to devote his full time to the Company
and provides for a salary of $85,000 annually. Mr. Quinn is also entitled to
receive any fringe benefits extended to the employees of the Company, including
medical, disability and life insurance. Mr. Quinn also has the right to receive
certain sales commissions from the Company under the agreement.
In May 1996, the Board of Directors approved a one-year employment
agreement with Terence E. Belsham for services as Chairman. In September 1996,
the agreement was amended to eliminate Mr. Belsham's responsibilities as Chief
Financial Officer because the Company retained Lydia Montoya to serve as its
Chief Financial Officer. The agreement requires Mr. Belsham to devote his
full-time to the Company and provides for a salary of $85,000 annually. Mr.
Belsham is also entitled to receive any fringe benefits extended to the
employees of the Company, including medical, disability and life insurance.
In June 1996, the Board of Directors approved a one-year employment
agreement with Richard P. Freeman for services as Vice President. The agreement
provides for a base salary of $72,000 per year. The agreement requires Richard
P. Freeman to devote his full time to the Company.
After their initial terms, each of the above-described agreements
continue at will, terminable with/on ninety days written notice by either party
to the other. The agreements terminate upon the occurrence of any of the
following events: (i) if the employee voluntarily terminates; (ii) the death of
the employee; (iii) if the employee is unable to properly discharge his
obligations under his employment agreement due to illness, disability or
25
<PAGE>
accident for three consecutive months or for a period aggregating six months in
any continuous twelve months; (iv) if the employee is convicted of a crime of
moral turpitude by a court of competent jurisdiction; (v) if the employee is
convicted of a felony, except to the extent that the charge arises from an act
taken at the board's direction; or (vi) if the employee is grossly negligent or
guilty of wilful misconduct in connection with the performance of his duties,
which negligence or misconduct, if curable, is not cured within fifteen days of
a notice of cure by the Board or the Chairman of the Board. Each of the
above-described agreements provides that the employee shall not compete with the
Company during the term of the agreement and for a period of one year
thereafter.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of February 14, 1997 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>
Name and Address of Number of Shares Percent of
Beneficial Owner Beneficially Held Ownership(1)
- ------------------- ----------------- ------------
<S> <C> <C>
Terence E. Belsham (2) 1,079,023 (3) 7.2%
Richard P. Freeman (2) 1,079,023 (4) 7.2%
Len B. Casebier (2) 979,023 6.5%
Gerald I. Quinn (2) 803,637 (5) 5.4%
Richard Baillie (2) -0- 0%
Terry Cuthbertson (2)
Terrence H. Pocock (2) -0- 0%
Switch Telecommunications Pty. Limited 3,544,110 (6) 23.7%
55 Mentmore Ave.
Rosebery, New South Wales 2018
Australia
ALL OFFICERS AND DIRECTORS AS A GROUP
(7 IN NUMBER) 3,450,844 (3)(4)(5)(7) 23.1%
</TABLE>
- ----------
(1) The percentages shown include the shares of Common Stock actually owned as
of January 14, 1997 and the shares of Common Stock with respect to which
the person had the right to acquire beneficial ownership within 60 days of
such date pursuant to options. All shares of Common Stock that the
identified person had the right to acquire within 60 days of February 14,
1997 upon the exercise of options are deemed to be outstanding when
computing the percentage of the securities owned by such person, but are
not deemed to be outstanding when computing the percentage of the
securities owned by any other person.
(2) Each of these holders has an address at c/o the Company, 5210 E. Williams
Circle, Suite 200, Tucson, Arizona 85711.
(3) Includes 100,000 common shares issuable in connection with options to
purchase common stock.
(4) Includes 100,000 common shares issuable in connection with options to
purchase common stock.
(5) Includes 600,000 common shares issuable in connection with options to
purchase common stock.
(6) Includes an immediately exercisable warrant to purchase up to 2,000,000
common shares at $1.50 per share.
(7) Includes 800,000 common shares issuable in connection with options to
purchase common stock.
26
<PAGE>
(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
In August 1996, the Company entered into certain agreements with Switch
Telecommunications Pty. Ltd., an Australian corporation ("Switch") which
owns approximately 10% of the Company's issued and outstanding Common
Stock. Pursuant to such agreements, Switch was issued 1,544,110 shares of
Common Stock of the Company in exchange for 5% of the outstanding common
stock of Switch as well as the right to purchase a warrant to purchase up
to 2,000,000 shares of the Company's Common Stock at a price of $1.50 per
share in exchange for consideration of $20,000. The Company also licensed
Switch to use certain technology of the Company in Australia and various
other Asian countries.
27
<PAGE>
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/A AS THE
PAGE INDICATED.
EXHIBITS DESCRIPTION FILING METHOD
- -------- ----------- -------------
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. *****
27 Financial Data Schedule ****
- ----------
* Incorporated by reference from the like numbered exhibit to a Form 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.
**** Previously Filed
***** Filed herewith
(b) REPORTS ON FORM 8-K FILED DURING THE LAST QUARTER OF THE PERIOD COVERED BY
THIS REPORT ARE AS FOLLOWS:
None.
28
<PAGE>
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: March 12, 1997 BY: /s/ Gerald I. Quinn
----------------------------------
GERALD I. QUINN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER, DIRECTOR
DATED: March 12, 1997 BY: /s/ Lydia M. Montoya
-----------------------------------
LYDIA M. MONTOYA, CHIEF FINANCIAL
OFFICER
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: March 12, 1997 BY: /s/ Gerald I. Quinn
-----------------------------------
GERALD I. QUINN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER, DIRECTOR
DATED: March 12, 1997 BY: /s/ Terence E. Belsham
-----------------------------------
TERENCE E. BELSHAM, CHAIRMAN OF THE
BOARD OF DIRECTORS
DATED: March 12, 1997 BY: /s/ Richard P. Freeman
-----------------------------------
RICHARD P. FREEMAN, DIRECTOR
29
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 dated November 1, 1996 (and to all references to our firm) included in or
made a part of this Annual Report.
/s/ ADDISON, ROBERTS & LUDWIG, P.C.
Addison, Roberts & Ludwig, P.C.
Tucson, Arizona
March 12, 1997
