U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
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 November 30, 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)
The undersigned Registrant hereby amends, in its entirety, its Quarterly Report
on Form 10-QSB for the Quarter Ended November 30, 1997, as follows:
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.
Class No. of Shares Outstanding
----- -------------------------
Common Stock. Par Value $.001 15,141,364
Transitional Small Business Disclosure Format (Check One): [ ] Yes [X] No
<PAGE>
INDEX
WAVETECH, INC. AND SUBSIDIARIES
Page
----
PART I. FINANCIAL INFORMATION
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. . . . . . . . . . . . 7
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . 8
ITEM 2. Change in Securities . . . . . . . . . . . . . . . . . . . 8
ITEM 3. Defaults upon Senior Securities. . . . . . . . . . . . . . 9
ITEM 4. Submission of Matters to a Vote of Security Holders. . . . 9
ITEM 5. Other Information . . . . . . . . . . . . . . . . . . . . 9
ITEM 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . 9
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
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
Prepaid expenses and other assets 8,917 9,725
----------- -----------
Total current assets 102,953 49,327
Property and equipment, net 371,983 410,182
Noncurrent assets:
Investment in Switch Telecommunications Pty Ltd 2,316,165 2,316,165
Intangibles, net 28,472 29,489
Deposits and other assets 35,633 35,633
----------- -----------
Total noncurrent assets 2,380,270 2,381,287
----------- -----------
Total assets $ 2,855,206 $ 2,840,796
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 388,689 $ 395,222
Accrued interest payable 2,529 5,248
Deferred revenue, current portion 71,428 71,428
Notes payable, current portion 63,000 172,071
Capital leases payable, current portion 56,119 56,119
----------- -----------
Total current liabilities 581,765 700,088
Noncurrent liabilities:
Capital leases payable 45,642 53,892
Deferred revenue 57,144 75,001
----------- -----------
Total liabilities 684,551 828,981
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 7,520,982 7,024,823
Accumulated deficit (5,365,468) (5,028,085)
----------- -----------
Total stockholders' equity 2,170,655 2,011,815
----------- -----------
Total liabilities and stockholders' equity $ 2,855,206 $ 2,840,796
=========== ===========
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: $ 68,887 $ 8,399
Cost of sales:
Direct costs 52,570 51,230
------------ ------------
Gross profit (loss) 16,317 (42,831)
Other costs:
Development and administrative expenses 208,779 403,375
------------ ------------
Loss before other income (expenses) (192,462) $ (446,206)
------------ ------------
Other income (expense):
Interest income 2 6,549
Interest expense (12,811) (2,300)
Debt conversion expense (92,894) --
Depreciation and amortization (39,216) (48,740)
------------ ------------
Total other income (expense) (144,919) (44,491)
------------ ------------
Net loss $ (337,381) $ (490,697)
============ ============
Per share data:
Net loss per share (0.02) (0.03)
============ ============
Weighted average number of shares outstanding 15,112,666 14,114,441
============ ============
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
------------ ------------
Cash flows from operating activities:
Net Loss $ (337,381) $ (490,697)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 39,216 48,740
Debt conversion expense 92,894
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) --
(Decrease) in deferred revenue (17,857) --
------------ ------------
Total Adjustments 146,603 (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
------------ ------------
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
------------ ------------
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
------------ ------------
Cash and cash equivalents, end of period $ 64,364 $ 350,915
============ ============
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 - 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 is charged to expense in the current
period.
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.
NOTE 3 - 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.
6
<PAGE>
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.
Wavetech currently has approximately 300 cardholders active on its system. 8 new
customers subscribed during the quarter ended November 30, 1997. Although the
Company gained a few new customers several existing customers were lost through
attrition.
RESULTS OF OPERATIONS
THREE MONTHS ENDED NOVEMBER 30, 1997 COMPARED TO
THREE MONTHS ENDED NOVEMBER 30, 1996
REVENUES. Revenues increased to $68,887 for the three months ended November 30,
1997 from $8,399 for the three months ended November 30, 1996. $39,320 of this
increase was related to the resale of international minutes and $17,857 was
revenue recognized pursuant to the licensing agreement with Switch.
COSTS. Cost of sales increased to $52,570 for the three-month period ended
November 30, 1997 from $51,230 for the three-month period ended November 30,
1996. Costs of sales associated with the resale of international minutes
increased $32,009 during the three months ended November 30, 1997. During the
three months ended November 30, 1997, commission costs decreased by $22,908 due
to expenses incurred for several sales positions in the three months ended
November 30, 1996. Call center costs decreased by $6,285 during the three months
ended November 30, 1997 due to handling customer service calls in-house instead
of using an outsourced call center.
EXPENSES. Expenses decreased to $208,779 for the three-month period ended
November 30, 1997 from $403,375 for the three-month period ended November 30,
1996. During the three-month period ended November 30, 1997, payroll and related
expenses decreased by $105,536 due to a reduction in workforce within the
7
<PAGE>
Company. Marketing and advertising efforts were cutback resulting in a decrease
of $40,208. Travel related expenses decreased by $27,492 due to fewer sales
presentations during the three months ended November 30, 1997, and also because
higher travel costs were incurred during the three months ended November 30,
1996 to install the Interpretel System purchased by Switch. Investor relations
expenses decreased by $17,627 during the three months ended November 30, 1997,
due to a Company decision not to attend a major investor relations conference.
Debt conversion costs of $92,894 were recorded during the quarter ended November
30, 1997. This expense relates to the notes payable and accrued interest that
were converted at the lesser of $0.35 or 80% of the closing bid price, which was
$0.4375. The difference resulted in an increase in expenses which was charged to
debt conversion expense.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash of $64,364 as of November 30, 1997. The Company borrowed
$250,000 during the three months ended November 30, 1997 and $200,000 of this
debt along with accrued interest was converted to equity at November 30, 1997.
Other loans totaling $169,507 were also converted to equity at November 30,
1997.
As part of the continuing strategy to preserve capital, the Company was
aggressively pursuing a number of financing, merger and acquisition
opportunities. Once the Company reaches a definitive agreement with a suitable
merger partner, it is anticipated that the Company will be able to do an equity
placement of its stock for approximately $500,000 to $1,000,000 to fund its
ongoing operations. A merger or private placement is expected to be completed
within three to four months.
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.
8
<PAGE>
At November 30, 1997, an aggregate of $371,574 of the principal amount of the
convertible notes, plus accrued interest, were 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 1993 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 **
- --------------
* 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.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
undersigned has duly caused this amended report to be signed on its behalf by
the undersigned thereunto duly authorized.
Dated: September 22, 1998 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
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
Consolidated Balance Sheet and Consolidated Statements of Operations, 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-30-1998
<CASH> 64,364
<SECURITIES> 0
<RECEIVABLES> 30,199
<INVENTORY> 0
<ALLOWANCES> 527
<CURRENT-ASSETS> 102,953
<PP&E> 788,110
<DEPRECIATION> (416,217)
<TOTAL-ASSETS> 2,855,206
<CURRENT-LIABILITIES> 581,765
<BONDS> 0
0
0
<COMMON> 15,141
<OTHER-SE> 2,155,514
<TOTAL-LIABILITY-AND-EQUITY> 2,855,206
<SALES> 68,887
<TOTAL-REVENUES> 68,887
<CGS> 52,570
<TOTAL-COSTS> 52,570
<OTHER-EXPENSES> 340,889
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,811
<INCOME-PRETAX> (337,381)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (337,381)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
