U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-QSB/A
Amendment No. 2
(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)
The undersigned Registrant hereby amends, in its entirety, its Quarterly Report
on Form 10-QSB for the Quarter Ended May 31, 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: 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, 1997 and 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
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 . . . . . . . . . . . . . 12
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
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
Accounts receivable, net of allowance of $527 40,823 --
Inventory deposit -- 241,037
Other current assets 66,975 82,388
----------- -----------
Total current assets 128,707 1,180,913
Property and equipment, net 474,127 539,528
Other assets:
Investment in Switch Telecommunications Pty Ltd 2,316,165 2,316,165
Deposits and other assets 66,139 43,633
----------- -----------
Total other assets 2,382,304 2,359,798
----------- -----------
Total assets $ 2,985,138 $ 4,080,239
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 402,274 $ 130,715
Deferred revenue 71,428 299,985
Notes payable, current portion 85,710 53,639
Capital leases payable, current portion 37,527 31,091
----------- -----------
Total current liabilities 596,939 515,430
Other liabilities:
Capital leases payable 81,703 55,099
Deferred revenue 92,858 --
----------- -----------
Total other liabilities 174,561 55,099
----------- -----------
Total liabilities 771,500 570,529
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) (4,625,943) (3,252,371)
----------- -----------
Total stockholders' equity 2,213,638 3,509,710
----------- -----------
Total liabilities and stockholders' equity $ 2,985,138 $ 4,080,239
=========== ===========
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 $ 633,693 $ 2,837
Cost of sales:
Direct costs 599,474 141,775
------------ ------------
Gross profit (loss) 34,219 (138,938)
Other costs:
Development and administrative expenses 1,252,423 995,813
------------ ------------
Net loss from operations (1,218,204) (1,134,751)
Other income (expense):
Interest income 8,497 19,051
Interest expense (16,947) (1,104)
Depreciation and amortization (146,915) (64,013)
------------ ------------
Total other income (expense) (155,365) (46,066)
------------ ------------
Net loss $ (1,373,569) $ (1,180,817)
============ ============
Per share data:
Net loss per common share $ (0.10) $ (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 $ 110,700 $ 854
Cost of sales:
Direct costs 84,060 33,993
------------ ------------
Gross profit (loss) 26,640 (33,139)
Other costs:
Development and administrative expenses 445,011 466,443
------------ ------------
Net loss from operations (418,371) (499,582)
Other income (expense):
Interest income 391 8,502
Interest expense (11,109) (272)
Depreciation and amortization (48,740) (21,338)
------------ ------------
Total other income (expense) (59,458) (13,108)
------------ ------------
Net loss $ (477,829) $ (512,690)
============ ============
Per share data:
Net loss per common share $ (0.03) $ (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 $(1,373,569) $(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 in inventory deposit 241,037 --
(Increase) in intangibles due to asset
purchase of Telplex, Inc. (25,000) --
Increase (Decrease) in accounts payable
and accrued expenses 271,558 (57,066)
Decrease in unearned revenue (135,699) --
----------- -----------
Total Adjustments 530,899 (313)
----------- -----------
Net cash used in operating activities (842,670) (1,181,131)
Cash flows from investing activities:
Purchase of property and equipment (25,238) (77,105)
(Increase) in other assets -- (68,555)
----------- -----------
Net cash used in investing activities (25,238) (145,660)
Cash flows from financing activities:
Proceeds from (payment) of notes payable, net 32,071 (324,600)
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 31,329 2,342,531
----------- -----------
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.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MAY 31, 1997 COMPARED TO
THREE MONTHS ENDED MAY 31, 1996
REVENUES. Revenues increased to $110,700 for the three months ended May 31, 1997
from $854 for the three months ended May 31, 1996. $57,802 was revenue for the
resale of international long distance minutes. $15,660 in revenue was for long
distance and voice and fax mail service. The Company received $200,000 per the
terms of the licensing agreement with Switch. A total of $500,000 for a
seven-year license is to be paid over a period of three years. The $35,714
represents the revenue recognized pursuant to this licensing agreement with
Switch.
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. $48,915 of the
increase was due to the costs associated with the resale of international
minutes.
EXPENSES. Expenses decreased to $445,011 for the three months ended May 31, 1997
from $466,443 for the three months ended May 31, 1996. The major expenses during
the three months ended May 31, 1997 included payroll and related expenses of
$144,186. Investor relations expenses were $54,918 primarily for the annual
meeting expenses and fees paid to an investor firm. Rent expenses were $24,867
and platform services were $31,879. As compared to the three months ended May
31, 1996, some expenses during the three months ended May 31, 1997 decreased,
such as fees paid to NASDAQ to issue stock, and other expenses increased, such
as investor relations, due to costs associated with the annual meeting and
utilizing services of an investor relations firm.
NINE MONTHS ENDED MAY 31, 1997 COMPARED TO
NINE MONTHS ENDED MAY 31, 1996
REVENUES. Total revenues increased to $633,693 for the nine months ended May 31,
1997 from $2,837 for the nine months ended May 31, 1996. $474,160 was revenue
8
<PAGE>
from the sale of the Interpretel System to Switch. $92,838 was revenue from the
resale of international minutes. $35,714 was revenue recognized pursuant to the
licensing agreement with Switch. $28,000 was an increase in revenue for long
distance, voice and fax mail services, and customized application generation
charges.
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
majority of the increase was from costs for the hardware and third party
software for the sale of the Interpretel System to Switch, resulting in an
increase of $378,009. Another increase of $77,095 was for costs associated with
the resale of international minutes.
EXPENSES. Expenses increased to $1,252,423 for the nine months ended May 31,
1997 from $995,813 for the nine months ended May 31, 1996. Legal and other
professional fees accounted for $75,846 of the increase. Investor relations
costs represented new expenses for the Company during the nine months ended May
31, 1997. The Company's first annual meeting was held during this period
increasing costs by $33,640. Other investor relations expenses included fees to
an outside investor relations firm and attending a major conference for an
increase of $72,972. Platform services and fees increased by $46,128. Overhead
costs associated with the asset purchase of Telplex, Inc. increased costs by
$31,376. Rent escalation accounted for an increase of $25,085. Enhancements to
the Company's interactive voice response system increased costs by $10,097.
Expenses for licenses and fees decreased by $44,848 during the nine months ended
May 31, 1997 due to NASDAQ fees for issuance of stock during the nine months
ended May 31, 1996.
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.
9
<PAGE>
"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.
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).
10
<PAGE>
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>
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
11
<PAGE>
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.
12
<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, 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
13
<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, 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> SEP-01-1996
<PERIOD-END> MAY-31-1997
<CASH> 20,909
<SECURITIES> 0
<RECEIVABLES> 41,350
<INVENTORY> 0
<ALLOWANCES> 527
<CURRENT-ASSETS> 128,707
<PP&E> 788,110
<DEPRECIATION> (313,983)
<TOTAL-ASSETS> 2,985,138
<CURRENT-LIABILITIES> 596,939
<BONDS> 0
0
0
<COMMON> 14,715
<OTHER-SE> 2,198,923
<TOTAL-LIABILITY-AND-EQUITY> 2,985,138
<SALES> 633,693
<TOTAL-REVENUES> 633,693
<CGS> 599,474
<TOTAL-COSTS> 599,474
<OTHER-EXPENSES> 1,399,338
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,947
<INCOME-PRETAX> (1,373,569)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,373,569)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
