U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB/A
Amendment No. 1
(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, 1998.
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[ ] 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 INTERNATIONAL, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 86-0916826
(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)
The undersigned Registrant hereby amends, in its entirety, its Quarterly Report
on Form 10-QSB for the Quarter Ended May 31, 1998, as follows:
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the 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 14, 1998
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Class No. of Shares Outstanding
----- -------------------------
Common Stock, Par Value $.001 16,994,887
Transitional Small Business Disclosure Format (Check One): [ ] Yes [X] No
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INDEX
WAVETECH INTERNATIONAL, INC. AND SUBSIDIARIES
Page
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets
May 31, 1998 (unaudited) and August 31, 1997. . . . . . . 3
Condensed Consolidated Statements of Operations -
Nine Months Ended May 31, 1998, and May 31, 1997
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Operations -
Three Months Ended May 31, 1998 and May 31, 1997
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . 5
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended May 31, 1998 and May 31, 1997
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to Condensed Consolidated Financial Statements -
May 31, 1998 and May 31, 1997
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . 7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . 10
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . 13
ITEM 2. Change in Securities. . . . . . . . . . . . . . . . . . . 13
ITEM 3. Defaults upon Senior Securities . . . . . . . . . . . . . 14
ITEM 4. Submission of Matters to a Vote of Security Holders . . . 14
ITEM 5 Other Information . . . . . . . . . . . . . . . . . . . . 14
ITEM 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . 15
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2
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WAVETECH INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MAY 31, 1998 (UNAUDITED) AND AUGUST 31, 1997
ASSETS
May 31 August 31
1998 1997
Current assets: ----------- -----------
Cash and cash equivalents $ 448,317 $ 13,329
Accounts receivable, net of allowance of $527 38,176 26,273
Prepaid expenses and other assets 10,546 9,725
----------- -----------
Total current assets 497,039 49,327
Property and equipment, net 295,582 410,182
Other assets:
Investment in Switch Telecommunications Pty Ltd 2,316,165 2,316,165
Intangibles, net 26,439 29,489
Deposits and other assets 30,083 35,633
----------- -----------
Total other assets 2,372,687 2,381,287
----------- -----------
Total assets $ 3,165,308 $ 2,840,796
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 230,742 $ 395,222
Accrued interest payable 16,667 5,248
Dividends payable 3,900 --
Deferred revenue, current 71,428 71,428
Notes payable, current portion 393,000 172,071
Capital leases payable, current portion 44,455 56,119
----------- -----------
Total current liabilities 760,192 700,088
Other liabilities:
Capital leases payable 35,624 53,892
Deferred revenue 21,430 75,001
----------- -----------
Total liabilities 817,246 828,981
Stockholders' equity:
Preferred Stock, par value
$.001 per share; 10,000,000 shares authorized,
600 shares issued and outstanding 1
Common Stock, par value
$.001 per share; 50,000,000 shares
authorized, 16,994,887 and 15,076,807 shares
issued and outstanding 16,995 15,077
Additional paid in capital 8,306,972 7,024,823
Accumulated deficit (5,975,906) (5,028,085)
----------- -----------
Total stockholders' equity 2,348,062 2,011,815
----------- -----------
Total liabilities and stockholders' equity $ 3,165,308 $ 2,840,796
=========== ===========
3
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WAVETECH INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTH PERIODS ENDED MAY 31, 1998 AND MAY 31, 1997 (UNAUDITED)
1998 1997
----------- -----------
Revenue $ 147,360 $ 633,693
Cost of sales:
Direct costs 82,144 599,474
----------- -----------
Gross profit 65,216 34,219
Other costs
Administrative expenses 767,266 1,252,423
----------- -----------
Net loss from operations (702,050) (1,218,204)
Other income (expense)
Interest income 2,008 8,497
Interest expense (33,332) (16,947)
Dividend expense (3,900) --
Debt conversion expense (92,894) --
Depreciation and amortization expense (117,651) (146,915)
----------- -----------
Total other income (expense) $ (245,769) $ (155,365)
----------- -----------
Net loss $ (947,819) $(1,373,569)
=========== ===========
Net loss per share $ (0.06) $ (0.10)
=========== ===========
Net loss per share, assuming dilution $ (0.06) $ (0.10)
=========== ===========
4
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WAVETECH INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIODS ENDED MAY 31, 1998 AND MAY 31, 1997 (UNAUDITED)
1998 1997
---------- ----------
Revenue $ 32,971 $ 110,700
Cost of sales:
Direct costs 6,955 84,060
---------- ----------
Gross profit 26,016 26,640
Other costs
Administrative expenses 326,866 445,011
---------- ----------
Net loss from operations (300,850) (418,371)
Other income (expense)
Interest income 1,956 391
Interest expense (14,401) (11,109)
Dividend expense (3,900) --
Depreciation and amortization expense (38,800) (48,740)
---------- ----------
Total other income (expense) (55,145) (59,458)
---------- ----------
Net loss $ (355,995) $ (477,829)
========== ==========
Net loss per share $ (0.02) $ (0.03)
========== ==========
Net loss per share, assuming dilution $ (0.02) $ (0.03)
========== ==========
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WAVETECH INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED MAY 31, 1998 AND 1997 (UNAUDITED)
1998 1997
----------- -----------
Cash flows from operating activities:
Net Loss $ (947,821) $(1,373,569)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 117,650 146,915
Common stock issued for services and
accrued interest 166,810 57,500
Debt conversion expense 92,894 --
Changes in assets and liabilities:
(Increase) in other current assets (12,722) (25,412)
Decrease in inventory deposit -- 241,037
(Increase) in intangibles due to asset
purchase of Telplex, Inc. -- (25,000)
(Decrease) increase in accounts payable
and accrued expenses (164,480) 271,558
Increase in accrued interest payable 11,419 --
Increase in dividends payable 3,900 --
Decrease in unearned revenue (53,571) (135,699)
----------- -----------
Total Adjustments 161,900 530,899
----------- -----------
Net cash used in operating activities (785,921) (842,670)
Cash flows from investing activities:
Purchase of property and equipment -- (25,238)
Decrease in other assets 5,550 --
----------- -----------
Net cash used in investing activities 5,550 (25,238)
Cash flows from financing activities:
Proceeds from notes payable 580,000 32,071
(Payments) on capital lease payable (29,932) (20,742)
Proceeds from sale of warrants -- 20,000
Proceeds from exercise of warrants 135,448 --
Proceeds from preferred stock issued (net) 527,925 --
Proceeds from common stock issued 1,918 --
----------- -----------
Net cash provided by financing activities 1,215,359 (742)
----------- -----------
Net increase (decrease) in cash 434,988 (836,579)
Cash and cash equivalents, beginning of period 13,329 857,488
----------- -----------
Cash and cash equivalents, end of period $ 448,317 $ 20,909
=========== ===========
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WAVETECH INTERNATIONAL, 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, 1997 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, 1998 are not necessarily indicative of the results
that may be expected for the full fiscal year ending August 31, 1998. For
further information, refer to the Company's financial statements for the year
ended August 31, 1997 included in its Form 10-KSB, as amended, for such period
on file with the U.S. Securities and Exchange Commission.
The consolidated financial statements include the accounts of Wavetech
International, 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 three months ended November 30, 1997, the Company received proceeds
of $250,000 from the issuance of convertible notes payable. The notes were
issued with attached warrants (the "Warrants") to purchase an aggregate of
40,000 shares of the Company's Common Stock. Each of the Warrants is convertible
at any time prior to October 24, 1999 by the holder thereof at an exercise price
of $0.46 per share. The warrants were granted at the fair market value of the
Common Stock on the date of the grant. The Notes accrue interest at a rate of
12% per annum and principal and accrued interest thereon is payable on or before
April 24, 1998 in cash or, at the option of each holder, in a number of shares
of the Company's Common Stock equal to the aggregate unpaid principal and
accrued interest divided by a price per share equal to the lesser of $0.35 or
80% of the closing bid price on the Nasdaq SmallCap Market on the date of
conversion. On November 30, 1997, $200,000 in notes payable along with accrued
interest of $2,067 was converted to 577,333 shares of Common Stock. The
beneficial conversion feature of $92,894 was charged to expense.
On November 30, 1997, the Company converted $165,335 in existing notes payable
plus accrued interest of $4,172 to 484,307 shares of Common Stock. The notes
accrued interest at 12% per annum.
In February, 1998, the Company established a $450,000 secured line-of-credit
with Imagitel, Inc. to facilitate interim financing needs. The interest rate is
12 percent. Interest and principal were originally due July 1, 1998. Imagitel
has extended the line of credit until the completion of the merger. The note is
secured by the assets of the Company. As of May 31, 1998, the Company had total
borrowings of $330,000 under the line-of-credit. On July 14, 1998, $150,000 plus
accrued interest through June 30, 1998 was paid on the line of credit.
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On April 22, 1998, the Company sold 600 shares of Series A Convertible Preferred
Stock for $600,000 less issuance costs of $72,075. Dividends accumulate, with
respect to outstanding shares of the Preferred Stock, at the rate of 6% per
annum and are payable quarterly, and may be paid in cash or shares of 6%
Preferred valued at $1,000 per share, at the Company's option. The Company may,
at its option, cause all outstanding shares of the 6% Preferred to be converted
into Common Stock at any time beginning on January 1, 1999, with the following
conditions: prior to delivering a notice to convert, the Company's Common Stock
must trade at a price per share no less than $0.9632 for 20 consecutive days
prior thereto. The Company must give a ten-day advance notice of conversion.
Holders of Preferred Stock may elect at any time to convert each share into a
number of shares of the Company's Common Stock determined by dividing the amount
of $1,000 per share, plus accrued but unpaid dividends (the "Liquidation
Preference") of the Preferred Stock on the date of conversion by the applicable
"Conversion Price." The Conversion Price is defined as the lesser of $0.875, or
83 percent of the average of the closing bid prices of the Common Stock as
reported by Nasdaq during the five (5) consecutive trading days preceding the
conversion date.
The Preferred Stock must be registered no later than 120 days after issuance. If
registration is not made within this time period, then two percent of the total
Purchase Price on a pro-rated basis for each 30 day period until such
registration is effective. The Purchase Price is $1,000 per share.
If following the second anniversary of the issuance there are any outstanding
shares of Preferred Stock, then all such shares shall be automatically converted
into Common Stock at the Conversion Price specified above.
NOTE 3 - COMMON STOCK
During the quarter ended May 31, 1998, the Company issued 222,761 shares of
Common Stock for consulting services pursuant to various agreements valued at
$89,712.
During the quarter ended May 31, 1998, the Company issued 188,840 shares of
Common Stock in satisfaction for service performed in the previous year valued
at $71,759. This amount was previously recorded as a payable, however, in lieu
of cash the amount was converted to equity. The value assigned to the Common
Stock was based on the fair market value of the Common Stock on the date the
agreement to convert was executed.
During the quarter ended May 31, 1998, the Company offered to all warrant
holders with warrants expiring May 31, 1998 and an exercise price of $1.00 per
share, the following option: for a specific eleven day period, the right to
exercise their warrants for $0.585 per common share. A total of 380,280 out of
784,781 warrants were exercised under this special offer and the balance of
404,501 warrants expired on May 31, 1998. The Company received $222,503 for the
warrants. The Company recorded the proceeds from the exercise of warrants as an
increase to additional paid-in capital.
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NOTE 4 - PER SHARE DATA
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share," ("SFAS 128") which revises the calculation and
presentation of earnings per share. SFAS 128 is effective for Wavetech's second
quarter ended February 28, 1998, and retroactive application is required.
Per share data is based on the weighted average number of shares outstanding
throughout the periods. For the three months and nine months ended May 31, 1998,
earnings per share were calculated with a weighted average number of Common
Shares outstanding of 16,503,928 and 15,674,910 respectively. At May 31, 1998
the Company had in existence 2,320,000 options at an exercise price of $0.375 to
$0.81 per share and 2,295,000 Common Stock warrants at an exercise price of
$0.38 to $1.75 per share. At May 31, 1997, the Company had in existence
3,400,000 stock options at exercise prices ranging from $0.66 to $0.81 per share
and 2,994,403 common stock warrants at exercise prices ranging from $0.91 to
$3.50 per share. Since there is a loss from continuing operations, inclusion of
options and warrants would have an anti-dilutive effect.
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
OPERATIONS OVERVIEW
The Company is engaged in creating interactive communication systems through the
application of "intelligent" call processing technology and proprietary software
to reflect or target the needs of an identified audience. These systems are
marketed by the Company for use as privatized networks for organizations and
their members, companies and their suppliers and/or customers and special
purpose groups. During the three-month period ended May 31, 1998, the Company
continued to support its existing customer base and negotiate new distribution
agreements with other organizations. The Company intends to commence such new
relationships following the effective time of the Company's reorganization with
Imagitel, Inc. ("Imagitel") through the merger of Imagitel with and into the
Company's subsidiary, Wavetech Interim, Inc. (the "Merger"). There can be no
assurance when, if ever, the merger shall become effective.
Wavetech currently has approximately 300 cardholders active on its system. 14
new customers subscribed during the quarter ended May 31, 1998. Although the
Company gained a few new customers, several existing customers were lost through
attrition. It is the Company's intention to significantly reduce its overhead
expenditures and operational activities until such time as the merger is
complete, if ever.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MAY 31, 1998 COMPARED TO
THREE MONTHS ENDED MAY 31, 1997
REVENUES. Revenues decreased to $32,971 for the three months ended May 31, 1998
from $110,700 for the three months ended May 31, 1997. Of the $32,971 revenue,
$9,000 was from a contractual obligation for development of a customized
application. $57,802 of the decrease was due to revenue from the resale of
international minutes in the three-month period ended May 31, 1997. During the
three months ended May 31, 1998, the Company made a decision to wind down its
wholesale business of reselling international long distance minutes in
contemplation of its merger with Imagitel. The Company's subsidiary, Telplex
International Communications, Inc., is currently licensed to resell
international long distance service and intends to seek licenses to commence the
resale of domestic long distance service following the reorganization, however,
there can be no assurances in this regard. In addition, Telplex will have to be
certified for inter and intra state licenses in each state prior to commencing
the resale of domestic long distance services.
During the quarter ended May 31, 1998, the Company did not receive the licensing
fee of $150,000 that was due from Switch in May. However, effective June 30,
1998, an agreement was reached between the Company and Switch terminating the
license agreement. Switch agreed to pay the Company $150,000 in consideration of
the termination of the agreement. The payment was received on July 10, 1998.
COSTS. Cost of sales decreased to $6,955 for the three months ended May 31, 1998
from $84,060 for the three months ended May 31, 1997. $49,000 of the decrease
was due to the costs associated with the resale of international minutes during
the three months ended May 31, 1997. $28,000 of the decrease was directly
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related to lower costs associated with the lower revenues for calling card
services, such as long distance and news services.
EXPENSES. Expenses decreased to $326,866 for the three months ended May 31, 1998
from $445,011 for the three months ended May 31, 1997. A decrease in payroll and
related expenses accounted for $75,570 due to a reduction in the workforce
during the three months ended May 31, 1998. Investor relations expenses
decreased by $28,566 as costs for the annual meeting were incurred during the
three months ended May 31, 1997. Platform services and fees decreased by $14,488
due to renegotiations of costs. Most of the expenses during the quarter have
been related to the cost of the proposed merger with Imagitel, Inc.
NINE MONTHS ENDED MAY 31, 1998 COMPARED TO
NINE MONTHS ENDED MAY 31, 1997
REVENUES. Total revenues decreased to $147,360 for the nine months ended May 31,
1998 from $633,693 for the nine months ended May 31, 1997. The decrease was due
to $474,160 of revenues from the sale of the Interpretel System to Switch in
1997. Of the $147,360 revenue total, $60,151 represented the resale of
international minutes during the nine months ended May 31, 1998.
COSTS. Total cost of sales decreased to $82,144 for the nine months ended May
31, 1998 from $599,474 for the nine months ended May 31, 1997. The largest
decrease in cost of sales was $378,009 for costs related to the sale of the
Interpretel System to Switch during the nine months ended May 31, 1997. During
the nine months ended May 31, 1998, the Company was not implementing any new
direct mail marketing initiatives, so marketing and fulfillment costs decreased
by $69,153 over the same period in 1997. A decrease of $33,077 was due to lower
costs for calling card services, such as long distance and news services, due to
lower revenues of those services. Costs associated with the resale of
international minutes decreased by $27,966 during the three months ended May 31,
1998.
EXPENSES. Expenses decreased to $767,266 for the nine months ended May 31, 1998
from $1,252,423 for the same period in 1997. Payroll and related expenses
decreased by $291,719 due to a reduction in the workforce during the nine months
ended May 31, 1998 compared to the same period in 1997. Investor relations
expenses decreased by $53,628, primarily due to annual meeting and conference
expenses during the nine months ended May 31, 1997. Development of general
Company marketing collateral was completed in 1997, thereby resulting in a
$48,661 decrease in the nine months ended May 31, 1998. Travel and related
expenses decreased by $34,734, due to fewer sales presentations during the nine
months ended May 31, 1998, and also travel expenses to install the Interpretel
System for Switch were incurred during the nine months ended May 31, 1997.
Platform services and fees decreased by $18,414 due to renegotiations of costs.
Legal and other professional fees increased by $21,191 during the nine months
ended May 31, 1998, due to costs associated with the proposed merger with
Imagitel. The Company expects its costs and expenses to increase in the future
when, if ever, it has adequate resources to implement its business and growth
strategy.
LIQUIDITY AND CAPITAL RESOURCES
At May 31, 1998, the Company had cash of $448,317. The Company has financed its
operations through private placements of equity, borrowings of debt and cash
from warrant holders who exercised their warrants. The Company received $222,503
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in cash from warrant holders exercising their warrants. During the quarter ended
May 31, 1998, the Company issued 600 shares of its Series A Convertible
Preferred Stock in a private placement. The net proceeds to the Company from the
sale were approximately $528,000, some of which the Company applied toward
miscellaneous trade payables.
The Company has a $450,000 working line of credit from Imagitel of which
$120,000 was available as of June 30, 1998. Borrowings under the line of credit
accrue interest at a rate of 12% per annum and repayment thereof is secured by a
first priority lien upon all of the assets of the Company and its subsidiary,
Interpretel, Inc. The line of credit was originally due July 1, 1998, however,
Imagitel has extended the line of credit until the completion of the merger. On
July 14, 1998, the Company repaid $150,000 plus the accrued interest.
The Company expects to continue to incur operating losses until such time as the
Merger is completed. The Company anticipates that it will have additional
capital resources available to it upon consummation of the Merger. However,
there can be no assurances as to when the Merger will be closed, or that it will
provide capital to the Company sufficient to enable it to meet its future
expenses. The Company anticipates that it will have working capital available to
meet its needs over the next three months.
As part of the strategy to preserve capital, the Company was aggressively
pursuing a number of financing opportunities. As part of the strategy to reduce
overhead costs, the Company sublet a portion of its office space and the tenants
moved in June of 1998.
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.
YEAR 2000 RISKS
As with other organizations, some of the Company's computer programs were
originally designed to recognize calendar years by their last two digits.
Calculations performed using these truncated fields would not work properly with
dates from the year 2000 and beyond. The Company has initiated efforts to remedy
this situation and expects all programs to be corrected and tested prior to the
year 2000. The incremental costs of this project are not expected to have a
material effect on the Company's consolidated financial statements or results of
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.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - NOT APPLICABLE
ITEM 2. CHANGE IN SECURITIES -
On April 22, 1998, the Company issued 600 shares of its Series A Convertible
Preferred Stock, $.001 par value per share (the "Preferred Stock") in exchange
for gross proceeds of $600,000. Dividends, with respect to each share of
Preferred Stock, accumulate at the rate of 6% per annum and are payable
quarterly, and may be paid, at the Company's option, in cash or shares of
Preferred Stock, valued for such purpose at $1,000 per share. Liquidation,
dissolution or winding up of the Company entitles the Preferred shareholders to
receive, prior and in preference to any distribution of any assets of the
Company to holders of any other class or series of shares, the amount of $1,000
per share, plus any accrued but unpaid dividends thereon (the "Liquidation
Preference"). The Company may, at its option, cause all outstanding shares of
the 6% Preferred to be converted into Common Stock at any time beginning on
January 1, 1999, with the following conditions: prior to delivering a notice to
convert, the Company's Common Stock must trade at a price per share no less than
$0.9632 for 20 consecutive days prior thereto. The Company must give a ten-day
advance notice of conversion. Holders of Preferred Stock may elect at any time
to convert each share into a number of shares of the Company's Common Stock
determined by dividing the Liquidation Preference of the Preferred Stock on the
date of conversion by the applicable "Conversion Price." The Conversion Price is
defined as the lesser of $0.875, or 83 percent of the average of the closing bid
prices of the Common Stock as reported by Nasdaq during the five (5) consecutive
trading days preceding the conversion date. All of the shares of Preferred Stock
were offered solely to "accredited investors" (as such term is defined in Rule
501 promulgated under the Securities Act of 1933, as amended (the "Act")), in a
private offering transaction exempt from registration in reliance upon
Regulation D adapted under the Act. Appropriate restrictions upon the resale of
the Preferred Stock and the underlying shares of Common Stock have been put in
place and noted upon certificates representing such shares. In connection with
such sale, the Company paid an aggregate of $61,000 in commissions, in
consideration for services as placement agents. (See Note 2 - Convertible Note
Payable in the Notes to Condensed Consolidated Financial Statements for details
on terms and conversion rates and conditions.)
In May 1998, 380,280 outstanding warrants to purchase shares of the Company's
Common Stock were exercised at a price of $0.585 per share. 380,280 shares of
Common Stock were issued and the Company received gross proceeds of $222,503
upon payment of the applicable warrant exercise prices. All of these warrants
were exercised pursuant to an offer by the Company to exercise the warrants at a
reduced price of $0.585 per share. Prior to such offer, the warrants had an
exercise price of $1.00 per share. All of the warrants expired as of the close
of business on May 31, 1998. All of the warrants and the underlying shares of
Common Stock issued upon exercise thereof were sold to "accredited investors"
(as defined in Rule 501 under the Act) or other sophisticated investors in a
private offering without registration under the Act in reliance upon Regulation
D promulgated under the Act. All of the shares of Common Stock issued upon
exercise of the warrants are "restricted securities" (as defined in Rule 144
under the Act).
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES - Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company held a Special Meeting of Stockholders on May 26, 1998.
(b) At the 1998 Special Meeting, the following matter was submitted to a
vote by the stockholders:
(i) to consider and act upon a proposal to amend the Company's
Articles of Incorporation to effect a one-for-six reverse stock
split of the Company's issued and outstanding shares of Common
Stock.
The voting results as to the foregoing matter were as follows:
Votes Votes Votes Brokers
Proposal For Against Withheld Abstentions Non-Votes
- -------------------- ---------- ------- -------- ----------- ---------
Effect a one-for-six
stock split 13,381,084 333,632 0 79,250 0
ITEM 5. OTHER INFORMATION
On May 29, 1998, the Company received a letter from the Nasdaq Stock Market,
Inc. ("Nasdaq") stating that the Company was not in compliance with the
requirement that its Common Stock maintain a minimum bid price of $1.00 as a
condition to its continued listing on the Nasdaq SmallCap Market. The Company
was notified that, as a result of such non-compliance, formal delisting
proceedings would begin. The Company is currently appealing Nasdaq's decision to
delist the Common Stock. Delisting of the Common Stock from the Nasdaq SmallCap
Market has been stayed pending the final outcome of the Company's appeal. As of
this date, the Company has not yet received a response from Nasdaq regarding the
Company's appeal.
On January 6, 1998, the Company executed a Reorganization Agreement with
Imagitel, Inc., (the "Reorganization Agreement"), pursuant to which the former
shareholders of Imagitel, Inc. will be issued a number of shares of the
Company's authorized Common Stock representing a majority of the Common Stock to
be outstanding following the reorganization (the "Merger Shares") in
consideration of all of the outstanding shares of Imagitel, Inc. being
transferred to the Company. On June 15, 1998, the Company and Imagitel amended
the Reorganization Agreement to require the Company to issue 32.99 shares of its
Common Stock in exchange for each share of Imagitel, Inc. common stock
outstanding immediately prior to the reorganization and to limit the maximum
number of Merger Shares issuable to no more than 7,922,861. The Company intends
to solicit approval of the issuance of the Merger Shares by its shareholders at
the 1998 Annual Meeting, presently anticipated to occur in September 1998.
14
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Method of
Number Description Filing
------ ----------- ---------
3 Certificate of Designation, dated April 22, 1998, *
setting forth the rights, preferences and privileges
of the Series A Preferred Convertible Stock.
10.1 Addendum No. 1 dated as of June 15, 1998, *
Reorganization Agreement, dated January 6, 1998,
among the registrant, Imagitel, Inc. and Wavetech
Interim, Inc.
10.2 Form of Subscription Agreement for the sales of *
shares of Series A Convertible Preferred Stock
by the registrant
10.3 Promissory Note and Loan Agreement dated February 9, *
1998, between the registrant, Interpretel, Inc.
and Imagitel, Inc.
27 Financial Data Schedule **
- --------------
* Incorporated by reference to the like numbered exhibit to the Company's
Form 10-QSB for the Quarter Ended May 31, 1998, filed July 15, 1998
** Filed herewith
(b) Reports on Form 8-K
Not Applicable.
15
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this amended report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: September 22, 1998 WAVETECH INTERNATIONAL, 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
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
Consolidated Balance Sheet and Consolidated Statements of Operations, ended
May 31, 1998, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> MAY-31-1998
<CASH> 448,317
<SECURITIES> 0
<RECEIVABLES> 38,703
<INVENTORY> 0
<ALLOWANCES> 527
<CURRENT-ASSETS> 497,039
<PP&E> 788,110
<DEPRECIATION> (492,528)
<TOTAL-ASSETS> 3,165,308
<CURRENT-LIABILITIES> 760,192
<BONDS> 0
0
1
<COMMON> 16,995
<OTHER-SE> 2,331,066
<TOTAL-LIABILITY-AND-EQUITY> 3,165,308
<SALES> 147,360
<TOTAL-REVENUES> 147,360
<CGS> 82,144
<TOTAL-COSTS> 82,144
<OTHER-EXPENSES> 981,711
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,332
<INCOME-PRETAX> (947,819)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (947,819)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
