U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended May 31, 1997.
[ ] 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: JULY 10, 1997
Class No. Of Shares Outstanding
----- -------------------------
Common Stock. Par Value $.001 14,954,813
Transitional Small Business Disclosure Format (Check One): [ ] Yes [X] No
<PAGE>
INDEX
WAVETECH, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION Page
----
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets
May 31, 1997 (unaudited) and August 31, 1996 3
Condensed Consolidated Statements of Operations -
Nine Months Ended May 31, 1997and May 31, 1996
(unaudited) 4
Condensed Consolidated Statements of Operations -
Three Months Ended May 31, 1997 and May 31, 1996
(unaudited) 5
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended May 31, 1997 and May 31, 1996
(unaudited) 6
Notes to Condensed Consolidated Financial Statements
May 31, 1997 and May 31, 1996 (unaudited) 7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8/9
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 10
ITEM 2. Change in Securities 10
ITEM 3. Defaults upon Senior Securities 10
ITEM 4. Submission of Matters to a Vote of Security Holders 10
ITEM 5 Other Information 11
ITEM 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
2
<PAGE>
WAVETECH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MAY 31, 1997 (UNAUDITED) AND AUGUST 31, 1996
ASSETS
May 31 August 31
1997 1996
---------- ---------
Current assets:
Cash and cash equivalents 20,909 857,488
License fee receivable -- 200,000
Inventory deposit -- 241,037
Other current assets 107,798 82,388
----------- -----------
Total current assets 128,707 1,380,913
Property and equipment, net 474,127 539,528
Other assets:
License fee receivable 300,000 300,000
Investment in Switch Telecommunications
Pty Limited 2,316,165 2,316,165
Other assets 66,139 43,633
----------- -----------
Total other assets 2,682,304 2,659,798
----------- -----------
Total assets $ 3,285,138 $ 4,580,239
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 402,274 $ 130,715
Unearned revenue -- 499,985
Notes payable, current portion 85,710 53,639
Capital leases payable, current portion 37,527 31,091
----------- -----------
Total current liabilities 525,511 715,430
Other liabilities:
Capital leases payable 81,703 55,099
Unearned revenue - license fee 300,000 300,000
----------- -----------
Total other liabilities 381,703 355,099
----------- -----------
Total liabilities 907,214 1,070,529
Stockholders' equity:
Common Stock, par value
$.001 per share; 50,000,000 shares
authorized, 14,715,538 and 14,114,441 shares
issued and outstanding 14,715 14,114
Additional paid in capital 6,824,866 6,747,967
Retained earnings (accumulated deficit) (4,461,657) (3,252,371)
----------- -----------
Total stockholders' equity 2,377,924 3,509,710
----------- -----------
Total liabilities and stockholders' equity $ 3,285,138 $ 4,580,239
=========== ===========
3
<PAGE>
WAVETECH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTH PERIODS ENDED MAY 31, 1997 AND MAY 31, 1996 (UNAUDITED)
1997 1996
---- ----
Revenue $ 797,626 $ 2,837
Cost of sales:
Direct costs 599,474 141,775
----------- -----------
Gross profit (loss) 198,152 (138,938)
Other costs
Development and administrative expenses 1,398,985 1,059,826
----------- -----------
Net loss from operations (1,200,833) (1,198,764)
Other income (expense)
Interest income 8,497 19,051
Interest expense (16,947) (1,104)
----------- -----------
Total other income (expense) (8,450) 17,947
----------- -----------
Net loss $(1,209,283) $(1,180,817)
=========== ===========
Per share data
Net loss per common share $ (0.08) $ (0.11)
----------- -----------
Weighted average number of shares outstanding 14,364,769 10,789,422
=========== ===========
4
<PAGE>
WAVETECH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIODS ENDED MAY 31, 1997 AND MAY 31, 1996 (UNAUDITED)
1997 1996
---- ----
Revenue $ 274,987 $ 854
Cost of sales:
Direct costs 84,060 33,993
----------- -----------
Gross profit (loss) 190,927 (33,139)
Other costs
Development and administrative expenses 493,752 487,781
----------- -----------
Net loss from operations (302,825) (520,920)
Other income (expense)
Interest income 391 8,502
Interest expense (11,109) (272)
----------- -----------
Total other income (expense) (10,718) 8,230
----------- -----------
Net loss $ (313,543) $ (512,690)
=========== ===========
Per share data
Net loss per common share $ (0.02) $ (0.04)
----------- -----------
Weighted average number of shares outstanding 14,640,260 11,570,331
=========== ===========
5
<PAGE>
WAVETECH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED MAY 31, 1997 AND 1996 (UNAUDITED)
1997 1996
Cash flows from operating activities:
Net Loss $(1,209,283) $(1,180,818)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 146,915 64,013
Common stock issued for services 57,500
Changes in assets and liabilities:
(Increase) in other current assets (25,412) (7,260)
Decrease (increase) in license fee receivable 200,000 (500,000)
Decrease in inventory deposit 241,037
(Increase) in intangibles due to purchase
of Telplex, Inc. (25,000)
Increase (decrease) in accounts payable
and accrued expenses 271,558 (57,066)
(Decrease) increase in unearned revenue (499,985) 500,000
----------- -----------
Total Adjustments 366,613 (313)
----------- -----------
Net cash used in operating activities (842,670) (1,181,131)
Cash flows from investing activities:
Purchase of property and equipment (79,020) (149,467)
(Increase) in other assets (68,555)
----------- -----------
Net cash used in investing activities (79,020) (218,022)
Cash flows from financing activities:
Proceeds from (payment) of notes payable, net 32,071 (324,600)
Borrowing of capital lease payable 53,782 72,362
Payment of capital lease payable (20,742) (25,983)
Proceeds from sale of warrants 20,000
Proceeds from common stock issued 2,693,114
----------- -----------
Net cash provided by financing activities 85,111 2,414,893
----------- -----------
Net (decrease) increase in cash (836,579) 1,015,740
Cash and cash equivalents, beginning of period 857,488 285,793
----------- -----------
Cash and cash equivalents, end of period $ 20,909 $ 1,301,533
=========== ===========
6
<PAGE>
WAVETECH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. The balances as of August 31, 1996 were derived from
audited financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included. Operation results for the three month and nine
month periods ended May 31, 1997 are not necessarily indicative of the results
that may be expected for the fiscal year ending August 31, 1997. For further
information, refer to the Company's financial statements for the year ended
August 31, 1996 included in its Form 10-KSB/A.
The consolidated financial statements include the accounts of Wavetech, Inc.
(the Company) and its wholly owned subsidiaries, Interpretel, Inc., Interpretel
(Canada) Inc., International Environment Services Corporation (an inactive
corporation), and Telplex International Communications, Inc. All material
intercompany balances and transactions have been eliminated.
NOTE 2 - NOTES PAYABLE
During the quarter ended May 31, 1997 the Company borrowed $200,000 through a
short-term, 14% interest note. The note included warrants to purchase 30,000
shares of Wavetech, Inc.'s common stock at $0.91 per share. The note accrued
interest through May 22, 1997, at which time all principal and accrued interest
were paid.
NOTE 3 - PER SHARE DATA
Per share data is based on the weighted average number of shares outstanding
throughout the periods. There is no difference between primary and fully
dilutive earnings per share, because the assumed exercise of stock options
outstanding would not have a dilutive effect on the computation.
7
<PAGE>
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
OPERATIONS OVERVIEW
The Company specializes in creating interactive communication systems through
the application of "intelligent" call processing technologies and proprietary
software to reflect or target the needs of an identified audience. These systems
are often used as privatized networks for organizations and their members,
companies and their suppliers and/or customers and special purpose groups.
During 1995 and 1996 the Company has remained focused on the development of the
software infrastructure for its call processing and data management systems.
Beta sites and limited operations commenced in late 1995. During 1996, the
Company signed a licensing agreement with Switch Telecommunications Pty Limited
in Australia. Switch launched commercial operations of the Interpretel System in
Australia in December, 1996. Early 1997 saw the completion of the infrastructure
development. Customized applications were also completed for various companies
in Canada and the United States. Marketing strategies are being revised to
properly launch these initiatives.
THREE MONTHS ENDED MAY 31, 1997 COMPARED TO
THREE MONTHS ENDED MAY 31, 1996
REVENUES
Revenues increased to $274,987 for the three months ended May 31, 1997 from $854
for the three months ended May 31, 1996. $200,000 was due for the payment of a
licensing fee and $57,800 was due for the resale of international long distance
minutes. The licensing fee was the first of three payments due per the agreement
with Switch Telecommunications Pty Limited which was signed May 21, 1996.
COST OF SALES
Cost of sales increased to $84,060 for the three months ended May 31, 1997 from
$33,993 for the three months ended May 31, 1996. $49,000 of the increase was due
to the costs associated with the resale of international minutes.
DEVELOPMENT AND ADMINISTRATIVE COSTS
Expenses increased to $493,752 for the three months ended May 31, 1997 from
$487,781 for the three months ended May 31, 1996. The increase represents
additional overhead costs associated with the Telplex acquisition.
NINE MONTHS ENDED MAY 31, 1997 COMPARED TO
NINE MONTHS ENDED MAY 31, 1996
REVENUES
Total revenues increased to $797,626 for the nine months ended May 31, 1997 from
$2,837 for the nine months ended May 31, 1996. This increase was due almost
entirely to the installation revenue of $474,160, the licensing fee revenue of
$200,000 and the resale of international minutes of $92,840.
COST OF SALES
Total cost of sales increased to $599,474 for the nine months ended May 31, 1997
from $141,775 for the nine months ended May 31, 1996. The largest increase in
cost of sales was due to the costs associated with the installation of the
Interpretel System which represented $378,009 and the $77,095 associated with
the resell of international minutes. Marketing and fulfillment costs increased
by 100% to $69,153 compared to the nine months ended May 31, 1996.
DEVELOPMENT AND ADMINISTRATIVE COSTS
Total development and administrative costs increased to $1,398,985 for the nine
months ended May 31, 1997 from $1,059,826 for the nine months ended May 31,
1996. This increase was due to greater expenditures on advertising, rent
escalation and legal. Investor relations and the costs associated with the
8
<PAGE>
annual meeting represented a 100% increase or $106,600 for the nine months ended
May 31, 1997 as compared to the nine months ended May 31, 1996. The Company had
minimal costs associated with investor relations and no annual meeting costs for
the nine months ended May 31, 1996 because the Company did not hold an annual
meeting for the year ended August 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
At May 31, 1997 the Company had $20,909 in cash. In order to address its
short-term working capital needs, the Company borrowed $32,000 from certain
Board Members at the end of May.
The Company's liquidity position is strained. Because the Company has not
achieved positive cash flow from its operating activities, the Company's ability
to continue operations is dependent upon its ability to raise additional equity
and/or debt financing or to negotiate acquisitions or mergers with other
entities. The Company is currently negotiating agreements for financing although
it does not presently have any agreements, binding or non-binding, with respect
to any financing. There can be no assurance that the Company will be able to
consummate the transaction and/or raise the additional financing necessary to
continue its operations.
INFLATION
Although the Company's operations are influenced by general economic trends and
technology advances in the telecommunications industry, the Company does not
believe that inflation has a material effect on its operations.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1996
This Form 10-QSB may contain forward-looking statements that involve risks and
uncertainties, including, but not limited to, the impact of competitive products
and pricing, product demand, the presence of competitors with greater financial
resources, product development risks, the results of financing efforts and other
risks identified from time to time in the Company's Securities and Exchange
Commission filings.
9
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - NOT APPLICABLE
ITEM 2. CHANGE IN SECURITIES - NOT APPLICABLE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - NOT APPLICABLE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company held its 1997 Annual Meeting of Stockholders on March 26, 1997.
(b) At the 1997 Annual Meeting, the stockholders elected the following persons
to serve as Directors until the next Annual Meeting of the stockholders:
Terence E. Belsham, Richard P. Freeman, Gerald I. Quinn, Richard Baillie,
Terry Cuthbertson and Terrence H. Pocock. Following such election, Messrs.
Baillie and Cuthbertson declined to accept their respective membership on
the Company's Board of Directors.
(c) At the 1997 Annual Meeting, the following matters were submitted to a vote
by the stockholders:
(i) to elect Terence E. Belsham, Richard P. Freeman, Gerald I. Quinn,
Richard Baillie, Terry Cuthbertson and Terrence H. Pocock as
Directors, each to serve a one-year term;
(ii) to amend the Company's Certificate of Incorporation to change its
name from Wavetech, Inc. to Telplex International, Inc.;
(iii) to change the Company's state of incorporation from New Jersey to
Nevada; and
(iv) to ratify the adoption of the 1997 Stock Incentive Plan for
employees (including directors, officers and consultants).
The voting results as to the foregoing matters were as follows:
<TABLE>
<CAPTION>
Votes Votes Votes Brokers
Proposal For Against Withheld Abstentions Non-votes
-------- --- ------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Election of Terence E. Belsham 7,073,119 0 543,355 0 0
Election of Richard P. Freeman 7,073,119 0 543,355 0 0
Election of Gerald I. Quinn 7,073,119 0 543,355 0 0
Election of Richard Baillie 7,073,119 0 543,355 0 0
Election of Terry Cuthbertson 7,073,119 0 543,355 0 0
Election of Terrence E. Pocock 7,073,119 0 543,355 0 0
Amendment to Certificate of
Incorporation to change name 7,613,874 0 0 2,600 0
Change of state of incorporation 7,417,716 172,558 0 26,200 0
Ratification of adoption of 1997
Stock Incentive Plan 5,477,201 1,782,125 0 357,148 0
</TABLE>
10
<PAGE>
ITEM 5. OTHER INFORMATION
The Company currently lacks adequate funds to finance its ongoing working
capital needs. As a result of such circumstances, during May of 1997, two of the
Company's Directors made short-term loans to the Company in an aggregate amount
of $32,000. In addition, the Company has entered into agreements with its
employees to compensate such persons' salaries with a number of shares of the
Company's Common Stock with a fair market value on the last day of a regular pay
period equal to each respective employee's salary plus a 10% premium as
consideration for entering into such agreements. All of the shares will be
issued as Deferred Shares pursuant to the Company's 1997 Stock Incentive Plan.
The Company intends to continue such arrangements, subject to the agreement of
each employee, until it has secured additional working capital financing.
The Company is currently seeking to secure adequate sources of funds to finance
its immediate and long-term working capital needs. Such sources may include a
private placement of equity by the Company, commercial financing, or a strategic
alliance or other business combination. The Company does not currently have any
agreements, binding or non-binding, with respect to any such above stated
arrangements. Further, there can be no assurance that the Company will be able
to secure adequate sources of funds and its inability to do so would result in a
material adverse affect upon the Company's business and results of operations.
In addition, if the Company succeeds in acquiring additional financing, such
efforts may result in additional dilution to the Company's stockholders; impose
restrictions upon the Company's ability to incur additional debt, pay future
dividends, enter into future business combinations or other restrictions upon
the Company to act in a manner which its Board of Directors may deem advisable;
or result in a change in control of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
No. 27 - Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on April 1, 1997,
disclosing the issuance on March 17, 1997 of a promissory note
and warrants to purchase 30,000 shares of its Common Stock in
a transaction pursuant to Regulation S of the Securities Act
of 1933, as amended.
11
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: July 10, 1997 WAVETECH, INC.
By: /s/ Gerald I. Quinn
-------------------------------------
Gerald I. Quinn
President and Chief Executive Officer
By: /s/ Lydia M. Montoya
-------------------------------------
Lydia M. Montoya
Chief Financial Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet and Consolidated Statements of Operations, ended
May 31, 1997 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> MAR-01-1997
<PERIOD-END> MAY-31-1997
<CASH> 20,909
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 107,798
<PP&E> 788,110
<DEPRECIATION> (313,983)
<TOTAL-ASSETS> 3,285,138
<CURRENT-LIABILITIES> 525,511
<BONDS> 0
0
0
<COMMON> 14,715
<OTHER-SE> 2,363,209
<TOTAL-LIABILITY-AND-EQUITY> 3,285,138
<SALES> 274,987
<TOTAL-REVENUES> 274,987
<CGS> 84,060
<TOTAL-COSTS> 84,060
<OTHER-EXPENSES> 493,752
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,109
<INCOME-PRETAX> (313,543)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (313,543)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> 0
</TABLE>
