U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the quarterly period ended November 30, 1997.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the transition period from to .
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Commission File Number 0-15482
WAVETECH INC.
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(Exact name of small business issuer as specified in its charter)
New Jersey 22-2726569
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5210 E. Williams Circle, Suite 200
Tucson, Arizona 85711
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(Address of principal executive offices)
(520) 750-9093
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(Issuer's telephone number)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports,
and (2) has been subject to such filing requirements for the past 90 days.
[X] Yes [ ] No
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: January 5, 1998.
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Class No. Of Shares Outstanding
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Common Stock. Par Value $.001 15,141,364
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
November 30, 1997 (unaudited) and August 31, 1997
(audited)...................................................... 3
Condensed Consolidated Statements of Operations -
Three Months Ended November 30, 1997 and November 30, 1996
(unaudited).................................................... 4
Condensed Consolidated Statements of Cash Flows -
Three Months Ended November 30, 1997 and November 30, 1996
(unaudited).................................................... 5
Notes to Condensed Consolidated Financial Statements -
November 30, 1997 and November 30, 1996
(unaudited).................................................... 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................ 6
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.............................................. 7
ITEM 2. Change in Securities........................................... 7
ITEM 3. Defaults upon Senior Securities................................ 8
ITEM 4. Submission of Matters to a Vote of Security Holders............ 8
ITEM 5. Other Information.............................................. 8
ITEM 6. Exhibits and Reports on Form 8 - K............................. 8
SIGNATURES .......................................................... 9
2
<PAGE>
WAVETECH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, 1997 (UNAUDITED) AND AUGUST 31, 1997 (AUDITED)
ASSETS
November 30 August 31
1997 1997
----------- -----------
Current assets:
Cash and cash equivalents $ 64,364 $ 13,329
Accounts receivable, net of allowance of $527 29,672 26,273
License fee receivable 150,000 150,000
Prepaid expenses and other assets 8,917 9,725
----------- -----------
Total current assets 252,953 199,327
Property and equipment, net 371,983 410,182
Noncurrent assets:
Investment in Switch Telecommunications
Pty Limited 2,316,165 2,316,165
License fee receivable 150,000 150,000
Intangibles, net 28,472 29,489
Deposits and other assets 35,633 35,633
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Total noncurrent assets 2,530,270 2,531,287
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Total assets $ 3,155,206 $ 3,140,796
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 388,689 $ 395,222
Accrued interest payable 2,529 5,248
Unearned revenue 150,000 150,000
Notes payable, current portion 63,000 172,071
Capital leases payable, current portion 56,119 56,119
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Total current liabilities 660,337 778,660
Noncurrent liabilities:
Capital leases payable 45,641 53,892
Unearned revenue - license fee 150,000 150,000
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Total liabilities 855,978 982,552
Stockholders' equity:
Common stock, par value $.001 per share;
50,000,000 shares authorized, 15,141,364
and 15,076,807 shares issued and outstanding 15,141 15,077
Additional paid in capital 7,428,089 7,024,823
Accumulated deficit (5,144,002) (4,881,656)
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Total stockholders' equity 2,299,228 2,158,244
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Total liabilities and stockholders' equity $ 3,155,206 $ 3,140,796
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3
<PAGE>
WAVETECH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE-MONTH PERIODS ENDED NOVEMBER 30, 1997 AND 1996 (UNAUDITED)
1997 1996
----------- -----------
Revenues: $ 51,030 $ 8,399
Cost of sales:
Direct costs 52,570 51,230
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Gross profit (loss) (1,540) (42,831)
Other costs
Development and administrative expenses 247,995 452,115
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Loss before other income (expenses) $ (249,535) $ (494,946)
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Other income (expense)
Interest income 2 6,549
Interest expense (12,811) (2,300)
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Total other income (expense) (12,809) 4,249
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Net loss $ (262,344) $ (490,697)
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Per share data
Net loss per share (0.02) (0.03)
Weighted average number of shares outstanding 15,112,666 14,114,441
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4
<PAGE>
WAVETECH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE-MONTH PERIODS ENDED NOVEMBER 30, 1997 AND 1996 (UNAUDITED)
1997 1996
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Cash flows from operating activities:
Net Loss $(262,344) $(490,697)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 39,216 48,740
Common stock issued for services and accrued interest 44,191
Changes in assets and liabilities:
(Increase) decrease in accounts receivable
and other current assets (2,591) 14,029
(Increase) in inventory deposit (3,422)
(Decrease) in accounts payable and accrued expenses (6,530) (69,987)
(Decrease) in accrued interest payable (2,720)
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Total Adjustments 71,566 (10,640)
Net cash used in operating activities (190,778) (501,337)
Cash flows from investing activities:
Purchase of property and equipment -- (8,266)
Decrease in notes receivable -- 2,797
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Net cash used in investing activities 0 (5,469)
Cash flows from financing activities:
Proceeds from notes payable 250,000
Payments on capital lease payable (8,251) (4,769)
Proceeds from common stock issued 64 5,002
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Net cash provided by financing activities 241,813 233
Net increase (decrease) in cash 51,035 (506,573)
Cash and cash equivalents, beginning of period 13,329 857,488
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Cash and cash equivalents, end of period $ 64,364 $ 350,915
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5
<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. 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 period
ended November 30, 1997 are not necessarily indicative of the results that may
be expected for the 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.
The consolidated financial statements include the accounts of Wavetech,
Inc. (the Company) , its wholly owned subsidiaries, Interpretel, Inc.
(Interpretel) and Telplex International Communications, Inc. (Telplex). All
material intercompany balances and transactions have been eliminated.
NOTE 2 - PER SHARE DATA
Per share data is based on the weighted average number of shares
outstanding throughout the periods. The assumed exercise of stock options
outstanding would not have a dilutive effect on the computation.
ITEM 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 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 their
members, companies and their suppliers and/or customers and special purpose
groups. During the three-month period ended November 30, 1997, several client
contracts were renewed and the Company is working with those clients on
revamping marketing efforts to stimulate activation and usage. The Company
continues to support its existing customer base.
On January 5, 1998, the Company executed a Reorganization Agreement with
Imagitel, Inc., a privately-held telecommunications company in Houston, Texas.
The transactions contemplated by the Reorganization Agreement would result in
Imagitel, Inc. becoming a wholly-owned subsidiary of the Company and the former
shareholders of Imagitel holding, in the aggregate, a majority of the
outstanding voting stock of the Company. The consummation of the transactions
contemplated by the Reorganization Agreement are subject to shareholder approval
and other customary conditions. There can be no assurance that such transactions
will be consummated.
6
<PAGE>
THREE MONTHS ENDED NOVEMBER 30, 1997 COMPARED TO
THREE MONTHS ENDED NOVEMBER 30, 1996
REVENUES
Revenues increased to $51,032 for the three months ended November 30, 1997
from $14,948 for the three months ended November 30, 1996. $39,320 of this
increase was related to the resale of international minutes.
COST AND EXPENSES
Expenses decreased to $313,376 for the three month period ended November
30, 1997 from $505,645 for the three month period ended November 30, 1996. The
expenses for the three months ended November 30, 1997 decreased by $192,000 as
compared to the quarter ended November 30, 1996. This decrease was due largely
to a reduction in workforce within the Company. Overhead costs comprise the
majority of the Company's current expenses.
LIQUIDITY AND CAPITAL RESOURCES
As of November 30, 1997, the Company had a working deficit of $407,384
compared with a working capital deficit of $579,333 at August 31, 1997. The
Company borrowed $250,000 during the three months ended November 30, 1997.
$200,000 of this debt, along with accrued interest, was converted to equity at
November 30, 1997. Other loans, plus accrued interest, totaling $169,507 were
also converted to equity at November 30, 1997.
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.
PART II
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGE IN SECURITIES
On October 24, 1997, the Company issued convertible unsecured promissory
notes (the "Notes") in the aggregate principal amount of $315,335 and attached
warrants (the "Warrants") to purchase an aggregate of 40,000 shares of the
Company's Common Stock. 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. 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.
7
<PAGE>
At November 30, 1997, an aggregate of $371,574 of the principal amount of
the convertible Notes, plus accrued interest, was converted into an aggregate of
1,061,640 shares of Common Stock .
The issuance of the Notes and Warrants was deemed exempt from registration
under the Securities Act of 1933 pursuant to Section 4(2) thereof. Restrictions
have been imposed on the resale of such securities and the share of Common Stock
issuable thereunder, including the placement of legends thereon noting such
restrictions, and written disclosure of such restrictions were made prior to
issuance of the securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
On January 7, 1998, following the end of the quarterly period to which this
report relates, the Company announced that it signed a definitive reorganization
agreement with Imagitel, Inc., a privately held company in Houston, Texas.
Following the reorganization, the new combined company will use the name
Imagitel and will continue to offer enhanced telecommunications products and
services. Under the terms of the agreement, Wavetech will receive all of the
capital stock of Imagitel, Inc. and former shareholders of Imagitel, Inc. will
own approximately 82.6 percent of the Company's Common Stock. The merger has
already been approved by the Board of Directors of both companies. The
agreement, which must be approved by Wavetech's shareholders and is subject to
certain adjustments for working capital and funded debt of the companies and
other terms, is expected to be completed in the second quarter of 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
a) Exhibits.
Number Description Method of Filing
- ------ ----------- ----------------
3.1 Certificate of Incorporation *
3.2 By-laws *
27 Financial Data Schedule **
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* Incorporated by reference to the like numbered exhibit to the Company's
Form 10-QSB for the quarterly period ended February 28, 1997
** Filed herewith
b) Reports on Form 8-K
None.
8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
undersigned has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: January 9, 1998 WAVETECH, INC.
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By: /s/ Gerald I. Quinn
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Gerald I. Quinn
President and Chief Executive Officer
By: /s/ Lydia M. Montoya
-------------------------------------
Lydia M. Montoya
Chief Financial Officer
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
QUARTER ENDED NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> NOV-30-1997
<CASH> 64,364
<SECURITIES> 0
<RECEIVABLES> 179,672
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 252,953
<PP&E> 788,110
<DEPRECIATION> (416,127)
<TOTAL-ASSETS> 3,155,206
<CURRENT-LIABILITIES> 660,337
<BONDS> 0
0
0
<COMMON> 15,141
<OTHER-SE> 2,284,087
<TOTAL-LIABILITY-AND-EQUITY> 3,155,206
<SALES> 51,032
<TOTAL-REVENUES> 51,032
<CGS> 52,570
<TOTAL-COSTS> 52,570
<OTHER-EXPENSES> 247,995
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,811
<INCOME-PRETAX> (262,344)
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