U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended May 31, 1999.
[ ] 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)
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 9, 1999
Class No. of Shares Outstanding
----- -------------------------
Common Stock, Par Value $.001 3,433,202
Transitional Small Business Disclosure Format (Check One): [ ] Yes [X] No
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INDEX
WAVETECH INTERNATIONAL, INC. AND SUBSIDIARIES
Page
----
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets
May 31, 1999 (Unaudited) and August 31, 1998................ 3
Condensed Consolidated Statements of Operations for
the Nine Month Periods Ended May 31, 1999, and
May 31, 1998 (Unaudited).................................... 4
Condensed Consolidated Statements of Operations for the
Three Month Periods Ended May 31, 1999 and
May 31, 1998 (Unaudited).................................... 5
Condensed Consolidated Statements of Cash Flows for the
Nine Month Periods Ended May 31, 1999 and
May 31, 1998 (Unaudited).................................... 6
Notes to Condensed Consolidated Financial Statements -
May 31, 1999 and May 31, 1998 (Unaudited)................... 7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 9
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings........................................... 15
ITEM 2. Change in Securities........................................ 15
ITEM 3. Defaults upon Senior Securities............................. 15
ITEM 4. Submission of Matters to a Vote of Security Holders......... 15
ITEM 5. Other Information........................................... 15
ITEM 6. Exhibits and Reports on Form 8-K............................ 16
SIGNATURES ................................................................. 17
2
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WAVETECH INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MAY 31, 1999 (UNAUDITED) AND AUGUST 31, 1998
ASSETS
MAY 31, AUGUST 31,
1999 1998
----------- -----------
Current assets:
Cash and cash equivalents $ 1,350,589 $ 2,202,573
Accounts receivable, net of allowance of $9,927 18,276 18,276
Prepaid expenses and other assets 8,268 6,547
----------- -----------
Total current assets 1,377,133 2,227,396
Property and equipment, net 421,999 259,270
Noncurrent assets:
Investment in DCI Telecommunications, Inc. 1,421,684 --
Intangibles, net 219,991 25,422
Deposits and other assets 25,083 30,083
----------- -----------
Total noncurrent assets 1,666,758 55,505
----------- -----------
Total assets $ 3,465,890 $ 2,542,171
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 456,160 $ 246,666
Accrued interest payable 4,041 8,579
Notes payable, current portion 13,000 63,000
Capital leases payable, current portion 33,276 45,709
----------- -----------
Total current liabilities 506,477 363,954
Noncurrent liabilities:
Capital leases payable 3,966 25,265
----------- -----------
Total liabilities 510,443 389,219
Stockholders' equity:
Common Stock, par value $.001 per share;
50,000,000 shares authorized, 3,433,202
and 2,832,481 shares issued and outstanding 3,433 2,832
Additional paid in capital 10,118,916 8,531,086
Accumulated deficit (7,166,902) (6,380,966)
----------- -----------
Total stockholders' equity 2,955,447 2,152,952
----------- -----------
Total liabilities and stockholders' equity $ 3,465,890 $ 2,542,171
=========== ===========
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WAVETECH INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS FOR THE NINE MONTH PERIODS ENDED MAY
31, 1999 AND MAY 31, 1998
(UNAUDITED)
1999 1998
---------- ----------
Revenues $ 9,173 $ 147,360
Expenses:
Cost of sales (exclusive of depreciation and
amortization shown separately below) 8,793 82,144
General and administrative 474,140 767,266
Depreciation and amortization 95,148 117,651
---------- ----------
Total expenses 578,081 967,061
Net loss from operations (568,908) (819,701)
Other income and expense:
Interest income 59,242 2,008
Interest expense (7,472) (33,332)
Settlement costs (15,000) --
Issuance costs (108,000) --
Merger costs (118,500) --
Debt conversion expense -- (92,894)
---------- ----------
Total other income and expense (189,730) (124,218)
Net loss before preferred dividends (758,638) (943,919)
Dividends on preferred stock 27,300 3,900
---------- ----------
Net loss available to common shareholders $ (785,938) $ (947,819)
========== ==========
Net loss per common share, basic $ (0.25) $ (0.36)
========== ==========
Net loss per common share, diluted $ (0.25) $ (0.36)
========== ==========
Weighted average number of shares outstanding,
basic (Note 3) 3,082,553 2,612,485
========== ==========
Weighted average number of shares outstanding,
diluted (Note 3) 3,082,553 2,612,485
========== ==========
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WAVETECH INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS FOR THE THREE MONTH PERIODS ENDED MAY
31, 1999 AND MAY 31, 1998
(UNAUDITED)
1999 1998
----------- -----------
Revenues $ 3,683 $ 32,971
Expenses:
Cost of sales (exclusive of depreciation and
amortization shown separately below) 1,454 6,955
General and administrative 156,839 326,866
Depreciation and amortization 42,541 38,800
----------- -----------
Total expenses 200,834 372,621
Net loss from operations (197,151) (339,650)
Other income and expense:
Interest income 15,808 1,956
Interest expense (2,020) (14,401)
Settlement costs -- --
Issuance costs (36,000) --
Merger costs (17,274) --
----------- -----------
Total other income and expense (39,486) (12,445)
Net loss before preferred dividends (236,637) (352,095)
Dividends on preferred stock 9,200 3,900
Net loss available to common shareholders $ (245,837) $ (355,995)
=========== ===========
Net loss per common share, basic $ (0.10) $ (0.13)
=========== ===========
Net loss per common share, diluted $ (0.10) $ (0.13)
=========== ===========
Weighted average number of shares outstanding,
basic (Note 3) 2,574,777 2,750,655
=========== ===========
Weighted average number of shares outstanding,
diluted (Note 3) 2,574,777 2,750,655
=========== ===========
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WAVETECH INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED MAY 31, 1999 AND 1998
(UNAUDITED)
1999 1998
----------- -----------
Cash flows from operating activities:
Net Loss $ (758,638) $ (947,821)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 95,148 117,650
Common stock issued for services and
accrued interest -- 166,810
Debt conversion expense -- 92,894
Preferred stock issuance costs 108,000 --
Changes in assets and liabilities:
(Increase) in other current assets (1,722) (12,722)
Increase (decrease) in accounts payable &
accrued expenses 200,592 (160,580)
(Decrease) increase in accrued interest payable (4,538) 11,419
Decrease in unearned revenue -- (53,571)
----------- -----------
Total Adjustments 397,480 161,900
----------- -----------
Net cash used in operating activities (361,158) (785,921)
Cash flows from investing activities:
Purchase of property and equipment (252,444) --
Payment for acquisition of licensing rights (200,000) --
Decrease in other assets 5,000 5,550
----------- -----------
Net cash used in investing activities (447,444) 5,550
Cash flows from financing activities:
Proceeds from notes payable -- 580,000
(Payments) on capital lease payable (33,732) (29,932)
Dividends paid (18,400) --
Proceeds from exercise of warrants -- 135,448
Proceeds from preferred stock issued (net) -- 527,925
Proceeds from common stock issued 8,750 1,918
----------- -----------
Net cash provided by financing activities (43,382) 1,215,359
----------- -----------
Net (decrease) increase in cash (851,984) 434,988
Cash and cash equivalents, beginning of period 2,202,573 13,329
=========== ===========
Cash and cash equivalents, end of period $ 1,350,589 $ 448,317
=========== ===========
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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. 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, 1999 are not necessarily indicative of the
results that may be expected for the full fiscal year ending August 31,
1999. For further information, refer to the Company's financial
statements for the year ended August 31, 1998 included in its Form
10-KSB/A-1.
The consolidated financial statements include the accounts of Wavetech
International, Inc. (the Company) and its wholly owned subsidiaries,
Interpretel, Inc. (Interpretel) and Telplex International
Communications, Inc. (Telplex). All material intercompany balances and
transactions have been eliminated.
On December 18, 1998, the Company effected a one-for-six reverse stock
split. All share and per share information have been restated to
retroactively show the effect of this stock split.
NOTE 2 - INVESTMENT IN DCI TELECOMMUNICATIONS, INC.
On February 26, 1999, the Company entered into an agreement with DCI
Telecommunications, Inc. ("DCI") (OTCBB: DCTC) to exchange an equity
interest in the Company for an equity interest in DCI of equal fair
market value. The equity interests consist of outstanding common stock
of the respective companies. The Company received 576,047 shares of DCI
common stock representing 2% of its issued and outstanding common
stock, in exchange for 568,846 shares of the Company's stock
representing 16.6% of its existing shares outstanding.
DCI is a global provider of telecommunications services, including long
distance, prepaid phone cards and Internet services. It has an
extensive distribution network throughout North America, Europe and the
Far East. DCI owns and operates switching facilities in Canada, the
United Kingdom, Spain and Denmark.
The value assigned to the DCI common shares received was determined
using DCI's closing sales price of $2.468 per share on the date the
agreement was signed. The fair market value of the DCI investment is
$1,421,684.
Subsequent to May 31, 1999, the Company and DCI agreed to terminate the
above agreement. As part of that termination, the companies returned
their respective shares of common stock that had been issued to each
other. The decision to terminate the agreement follows the termination
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of a merger agreement between Wavetech and DCI and the ceasing of all
business agreements between the two companies. The returned shares will
be cancelled, retired and returned to authorized and unissued common
stock from the date of such retirement.
NOTE 3 - LICENSING AGREEMENT
The Company entered into a Licensing Agreement on April 23, 1999 with
Softalk, Inc. ("Softalk"), a private telecommunication software
development company located in Toronto, Canada. This agreement sets
forth the terms under which the Company and Softalk agree to provide
certain rights and services to each other. The agreement provides for a
non-exclusive, non-transferable worldwide license of Softalk's Internet
Protocol (IP) based software and hardware systems for use by Wavetech
to provide switched long distance services to Wavetech clients and
certain existing clients of Softalk. In addition, the agreement calls
for Wavetech to provide customer service and billing for Softalk's
clients on an exclusive basis. The Company will pay Softalk a 5%
royalty payment on the monthly cost of long distance minutes used by
Wavetech customers. Wavetech will bill Softalk for billing and customer
service to non-Wavetech clients on an ongoing basis. The Company paid
$200,000 in consideration for receiving the above rights to the Softalk
programs. The fee for licensing rights is included under the caption
"Intangibles, net". Softalk and the Company have agreed to a seven-year
term for the licensing rights.
NOTE 4 - EQUIPMENT AND FURNITURE
On April 23, 1999 the Company purchased from Softalk certain hardware
and software for a total of $252,444. This equipment is the cornerstone
of the Company's new IP-based network to run customer traffic for its
long distance calling services. Depreciation expense was $9,156 for the
hardware and $4,700 for the software for the quarter ended May 31,
1999.
NOTE 5 - NOTES PAYABLE
On October 12, 1998, a note payable for $50,000, plus accrued interest,
was converted into 26,042 shares of common stock pursuant to an
agreement between the Company and the payee. The conversion price of
$1.92 was based on the closing bid price of the common stock on the
Nasdaq SmallCap Market on the date the letter of agreement was entered
into.
NOTE 6 - COMMON STOCK
During the quarter ended May 31, 1999, an employee of the Company
exercised 5,833 common stock options. The options were granted pursuant
to the Company's 1997 Amended and Restated Stock Incentive Plan on
January 31, 1997 at the fair market value of $1.50 per share on the
grant date.
NOTE 7 - PER SHARE DATA
Net earnings (loss) per common share amounts are based on the weighted
average number of common shares outstanding throughout the periods
presented. For the three months and nine months ended May 31, 1999,
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earnings per share were calculated with a weighted average number of
Common Shares outstanding of 2,574,777 and 3,082,553 respectively. At
May 31, 1999 the Company had outstanding 492,498 options at an exercise
price of $1.50 to $3.96 per share and 352,500 Common Stock warrants at
an exercise price of $2.28 to $9.00 per share. At May 31, 1998 the
Company had outstanding 386,667 options at an exercise price of $2.25
to $4.86 per share and 382,500 Common Stock warrants at an exercise
price of $2.28 to $10.50 per share. Since there is a loss from
continuing operations, inclusion of shares underlying the Company's
outstanding options and warrants would have an anti-dilutive effect. As
a result, they have not been included for purposes of calculating the
Company's per share data.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
This quarterly report on Form 10-QSB contains certain statements which
constitute forward-looking statements within the meaning of the safe harbor
provisions of Section 27A of the Securities Act and Section 21E of the Exchange
Act. These statements relate to future events, including future financial
performance of Wavetech in a new business venture. In some cases, you can
identify forward-looking statements by terminology such as "may," "will,"
"should," "expects," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential," or "continue" or the negative of such terms and other
comparable terminology. These only reflect management's expectations and
estimates on the date of this report. Actual events or results may differ
materially from these expectations and Wavetech does not undertake any
obligation to update the statements made in this report. In evaluating those
statements, you should specifically consider various factors, including the
risks included in the reports filed by Wavetech with the SEC. These factors may
cause actual results to differ materially from any forward-looking statements
contained in this report.
OPERATIONS OVERVIEW
The global telecommunication infrastructure is undergoing significant change
based on the emergence of digital technologies that replace older analog
switching systems. These new technologies are based on powerful software and
network innovations and provide significant opportunities for companies that are
developing and/or deploying systems for commercial use.
On April 23, 1999, the Company signed a licensing agreement with Softalk, a
developer of proprietary IP-based telecommunication technologies. This licensing
agreement grants to the Company non-exclusive rights to market and resell
Softalk's patent-pending technology and, in addition, grants Wavetech exclusive
rights to provide billing and customer support services for all accounts. The
Softalk technology is the foundation for a distributed, intelligent IP-based
global network that manages voice, video and fax traffic for routing and
transporting over a combination of networks, including the Internet, frame
relay, Integrated Services Digital Network ("ISDN"), in additional to the
traditional Public Switched Telecommunications Network (PSTN). The Softalk
technology is based on Microsoft's NT operating platform, which the Company
believes will play an important role in redefining the next generation of
communication systems within the next five years. In addition to the software,
the Company has purchased specialized telecommunication equipment needed to
operate the licensed technology. The system is currently operational on a trial
basis and is anticipated to be ready for general use by August 1, 1999.
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Wavetech believes that its IP-based long distance service can reduce
international communication costs for its customers by 50% or more. Softalk and
Wavetech have informally agreed to work on a collaborative basis to build out
Virtual Private Networks (VPN) for large multi-national organizations. The
IP-based long distance services are currently being tested by a major
multi-national organization in North America and Southeast Asia. The Company is
in the process of establishing both domestic and international distribution
networks.
From 1995 until the present, the Company created customized calling card
services through the application of "intelligent" call processing technology and
proprietary software targeted to the business traveler. These systems have been
marketed by the Company to large organizations or companies for their members.
With the wide scale deployment of cellular telephones with messaging capability,
the market for business related calling card services has greatly diminished. As
a result, commencing in March 1999 the Company's Board of Directors began
exploring alternative industry segments in which to expand its business
ventures.
On May 3, 1999 the Company terminated its Merger Agreement with DCI
Telecommunications, Inc. ("DCI") pursuant to the terms of the Merger Agreement.
Wavetech terminated this agreement because it had determined that is was not
reasonably likely that the conditions to the merger would be satisfied prior to
the expiration of the Merger Agreement on August 31, 1999.
On June 18, 1999, Wavetech and DCI terminated the Share Exchange Agreement that
was executed on February 26, 1999. The companies returned their respective
shares of Common Stock that had been issued to each other. The decision to
terminate the agreement followed the previous termination of the merger
agreement between the two companies.
On May 4, 1999, the Company received formal notification from the Nasdaq Stock
Market ("Nasdaq") that the conditional listing under which its shares had been
quoted had terminated and the Company's Common Stock was delisted from the
Nasdaq SmallCap Market effective at the close of business on May 4, 1999. The
Company subsequently applied for inclusion of its Common Stock on the OTC
Bulletin Board and on June 23, 1999 Wavetech received notification of acceptance
for trading as OTC BB: ITEL. The Company's Common Stock began trading on the OTC
Bulletin Board on June 28, 1999.
RESULTS OF OPERATIONS
NINE MONTHS ENDED MAY 31, 1999 COMPARED TO NINE MONTHS ENDED MAY 31, 1998
REVENUES. Total revenues decreased to $9,173 for the nine months ended May 31,
1999 from $147,360 for the nine months ended May 31, 1998. Revenues from the
resale of international long distance minutes therefore decreased to zero for
the nine months ended May 31, 1999 as compared to $60,151 for the nine months
ended May 31, 1998. The decrease is a result of the Company's decision in fiscal
1998 to wind down its wholesale business of reselling international long
distance minutes. This decision was made in order to conserve cash resources
that would otherwise need to be applied towards supporting these activities, and
because the Company was unable to purchase long distance minutes at competitive
enough prices that would still result in net revenues. A licensing agreement
with Switch Telecommunications Pty Ltd in Sydney, Australia was also terminated
during fiscal 1998 resulting in license fee revenues decreasing to zero for the
nine months ended May 31, 1999 as compared to $53,571 for the nine months ended
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May 31, 1998. During the nine months ended May 31, 1998 the Company developed a
customized application for one customer resulting in revenues of $13,500. No
such applications were developed during the nine months ended May 31, 1999. The
Company did not initiate any new marketing or advertising during the nine months
ended May 31, 1999 and believes that that decision contributed, at least in
part, to a $10,900 decrease in revenues from enhanced calling card services,
such as long distance and voice and fax mail services.
COST OF SALES. Total cost of sales decreased to $8,793 for the nine months ended
May 31, 1999 from $82,144 for the nine months ended May 31, 1998. Costs
associated with the resale of international minutes decreased to zero for the
nine months ended May 31, 1999 from $49,129 for the nine months ended May 31,
1998, as a result of a reduction in associated resales of wholesale
international long distance minutes. During fiscal 1998, the Company
renegotiated fees related to its T1 telephone access lines and related
maintenance costs. This resulted in a decrease of $12,732 for the nine months
ended May 31, 1999 as compared to the nine months ended May 31, 1998. Costs to
provide enhanced calling card services, such as domestic long distance, voice
and fax mail services, and interpretation services decreased by $10,718 for the
nine months ending May 31, 1999 as compared to the prior year's period. This
decrease resulted from the Company's decision not to implement new marketing
initiatives. As a result, the Company's costs associated with lower revenues for
these services also decreased.
GENERAL AND ADMINISTRATIVE EXPENSES. Expenses decreased to $474,140 for the nine
months ended May 31, 1999 from $767,266 for the same period in 1998. Legal
expenses were broken out into fees for general corporate matters and other
merger-related legal fees. General legal fees decreased by $80,852, however,
much of that decrease was due to the reclassification into merger-related
expenses (see "Merger Expenses" below). Other professional fees decreased by
$71,737 due to costs in 1998 for a fairness opinion for the proposed, but later
terminated, merger with Imagitel, Inc. During fiscal 1998, the Company
renegotiated fees for its call processing platform services which resulted in a
decrease of $61,284 for the nine months ended May 31, 1999. A decrease of
$43,526 was due to expenses in the prior year period for consulting fees for an
investor relations firm. The Company handled investor relations in-house during
the nine months ended May 31, 1999. Rent expenses decreased by $22,828 from the
prior year period due to an agreement to sublet a portion of the Company's
office space. In the period ended May 31, 1998, the Company required additional
services from its outside accountants for reviews of proxy and SEC filings which
resulted in a decrease of $8,920 in accounting fees for the period ended May 31,
1999 as compared to the prior year's period.
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization expenses
decreased to $95,148 for the nine months ended May 31, 1999 as compared to
$117,651 for the nine months ended May 31, 1998 due to aging of certain assets,
resulting in lower depreciation amounts.
INTEREST INCOME. Interest income increased to $59,242 for the nine months ended
May 31, 1999 from $2,008 for the nine months ended May 31, 1998. All of the
Company's interest income during both periods was from its money market fund.
The increase in interest income was attributable to increased funds in its money
market account.
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INTEREST EXPENSE. Interest expense decreased to $7,472 for the nine months ended
May 31, 1999 from $33,332 for the nine months ended May 31, 1998. The decrease
was related to higher interest costs in the prior year period associated with
notes payable, convertible notes payable and capital leases.
SETTLEMENT COSTS. On January 21, 1999, the Company paid Mr. Steven A. Ezell in
an out-of-court settlement $15,000 in settlement of all pending legal claims.
These costs represent a one-time expense. The terms of this settlement have been
previously disclosed under "Legal Proceedings" in Part II of Form 10-QSB for the
period ended February 28, 1999.
ISSUANCE COSTS. The Company incurred costs of $108,000 relating to its Series A
Convertible Preferred Stock issued in April 1998. As part of this issuance, the
Company is subject to pay a penalty of $12,000 for each 30-day period after
August 31, 1998 until such time as a Registration Statement on Form S-3 is
declared effective. On September 30, 1998, the Company filed a Form S-3 to
register the resale of the underlying shares of Common Stock, however, the
registration statement has not yet been declared effective by the Securities and
Exchange Commission. The purchaser of the Preferred Stock has agreed to accept
payment for the penalties in restricted common shares in lieu of cash. The
common shares will be priced at fair market value, based on the closing sales
price of the Company's common stock on the date the penalty payment is due each
month.
MERGER EXPENSES. Costs incurred during the nine months ended May 31, 1999 in
connection with the previously proposed merger with DCI total $118,500. These
expenses include $62,079 for legal fees, $24,340 paid to the Securities and
Exchange Commission for registration fees for securities that were to be issued
in connection with the DCI merger, and $20,000 for a fairness opinion.
DEBT CONVERSION EXPENSE. Debt conversion costs decreased to zero for the nine
months ended May 31, 1999 from $92,894 for the nine months ended May 31, 1998.
This decrease was due to an expense in fiscal 1998 resulting from converting
notes payable and accrued interest thereon into common stock.
PREFERRED DIVIDENDS. Preferred dividends increased to $27,300 for the nine
months ended May 31, 1999 from $3,900 for the nine months ended May 31, 1998.
The increase is due to the issuance of 600 shares of Series A Convertible
Preferred Stock in April 1998. Dividends accumulate, with respect to outstanding
shares of the Preferred Stock, at a rate of 6% per annum and are due quarterly,
and may be paid in cash or in shares. The 6% Preferred Stock has a stated value
at $1,000 per share. At the Company's option, the dividends will be paid in
restricted common shares based on the closing sales price of the Company's
Common Stock on the date the dividend is due each month.
THREE MONTHS ENDED MAY 31, 1999 COMPARED TO THREE MONTHS ENDED MAY 31, 1998
REVENUES. Revenues decreased to $3,683 for the three months ended May 31, 1999
from $32,971 for the three months ended May 31, 1998. A decrease of $17,857 was
due to licensing fees recognized in the three month period ended May 31, 1998,
for a previous, but subsequently terminated, licensing agreement with Switch
Telecommunications. An additional $9,000 decrease was from development fees for
a customized application paid during the three month period ended May 31, 1998.
Lower revenues for calling card services such as long distance and voice and fax
mail services resulted in a decrease of $2,431.
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COST OF SALES. Cost of sales decreased to $1,454 for the three months ended May
31, 1999 from $6,955 for the three months ended May 31, 1998. This decrease was
directly related to lower costs associated with the lower revenues for calling
card services, such as long distance and voice and fax mail services.
GENERAL AND ADMINISTRATIVE EXPENSES. Expenses decreased to $156,839 for the
three months ended May 31, 1999 from $326,866 for the three months ended May 31,
1998. Investor relations expenses decreased by $28,336 due to handling investor
relations in-house during the three months ended May 31, 1999. Legal fees
decreased by $30,294 during the 1999 period due to legal services in 1998 for
the proposed, but later terminated, merger with Imagitel, Inc. Accounting fees
decreased by $6,150. Other professional fees decreased by $55,237 due to costs
of fairness opinions for the proposed, but later terminated, merger with
Imagitel, Inc. Platform services and fees decreased by $12,489 due to
renegotiations of costs. General licenses and fees decreased by $9,317 due to
fees paid related to listing of additional shares of the Company's Common Stock
on Nasdaq in 1998. Marketing and advertising costs decreased by $8,836 as the
Company had previously used an outside agency to develop marketing materials.
Rent expenses decreased by $7,770 due to an agreement to sublet certain office
space.
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization expenses
increased to $42,541 for the three-month period ending May 31, 1999, from
$38,800 for the three-month period ending May 31, 1998. Depreciation and
amortization expenses increased due to additional equipment purchased to run
customer traffic and also from amortization costs for the licensing agreement
with Softalk.
INTEREST INCOME. Interest income increased to $15,808 for the three-month period
ending May 31, 1999 from $1,956 for the three-month period ending May 31, 1998.
All of the Company's interest income during both periods was from its money
market fund. The increase in interest income was attributable to increased funds
in its money market account in the current period.
INTEREST EXPENSE. Interest expense decreased to $2,020 for the three-month
period ended May 31, 1999 from $14,401 for the three-month period ended May 31,
1998. The decrease was due to higher interest costs in the prior year period
associated with notes payables, convertible notes payable and capital leases.
ISSUANCE COSTS. The Company incurred $36,000 in costs relating to the Series A
Convertible Preferred Stock issued in April 1998. As part of this issuance, the
Company is subject to pay a penalty of $12,000 for each 30-day period after
August 31, 1998, until such time as a Registration Statement on Form S-3 is
declared effective. On September 30, 1998, the Company filed a Form S-3 to
register the resale of the underlying shares of Common Stock, however, the
registration statement has not yet been declared effective by the Securities and
Exchange Commission. The purchaser of the Preferred Stock has agreed to accept
payment for the penalties in restricted common shares in lieu of cash. The
common shares will be priced at fair market value, based on the closing sales
price of the Company's common stock on the date the penalty payment is due each
month.
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MERGER EXPENSES. Costs incurred during the three-months ended May 31, 1999 in
connection with the previously proposed merger with DCI total $17,274. These
expenses were entirely for merger-related legal expenses.
PREFERRED DIVIDENDS. Preferred dividends increased to $9,200 for the three
months ended May 31, 1999 from $3,900 for the three months ended May 31, 1998.
The increase is due to the issuance of 600 shares of Series A Convertible
Preferred Stock in April 1998. Dividends accumulate, with respect to outstanding
shares of the Preferred Stock, at a rate of 6% per annum and are payable
quarterly, and may be paid in cash or in shares. The 6% Preferred Stock has a
stated value at $1,000 per share. At the Company's option, the dividends will be
paid in restricted common shares based on the closing sales price of the
Company's Common Stock on the date the dividend is due each month.
LIQUIDITY AND CAPITAL RESOURCES
At May 31, 1999, the Company had cash of $1,350,589. The Company does not
currently generate income sufficient to offset the costs of its operations. As a
result, it has historically relied upon the issuance of debt or equity in order
to raise capital. The Company currently has sufficient cash to support its
current and planned operations for the next 12 months.
Net cash used in investing activities increased to $447,444 for the quarter
ended May 31, 1999 compared to $5,550 in 1998. The increase in 1999 was due to
the purchase of the licensing rights from Softalk and the purchase of certain
hardware and software necessary to operate the licensed technology. The
agreement with Softalk extends to Wavetech worldwide rights to market, bill and
provide customer service for both Wavetech and Softalk customers.
The Company is currently seeking additional financing to fund growth of
operations although it does not presently have any agreements, binding or
non-binding, with respect to any such financing. The Company does not have any
commitments for significant future expenditures.
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.
RISKS ASSOCIATED WITH YEAR 2000
Many computer programs were designed to recognize calendar years by their last
two digits. As a result, such programs are expected to misidentify dates
commencing in calendar year 2000. This problem is referred to as the "Year 2000
Issue." These errors are likely to lead to computer errors, miscalculations,
delays and business interruptions if not properly corrected in a timely manner.
The Company's main billing program was originally written to accept dates from
the year 2000 and beyond. To assure compliance, the Company hired an independent
consultant to review the billing system for the purpose of thoroughly testing
its operation for readiness associated with the Year 2000 issue. All assessment
of internal systems and minor modifications has been completed. Total costs for
the initial programming, fees from the outside consultant, associated testing
and modifications were $6,500.
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The Company has also contacted its supplier, which handles the calling card call
processing software and supports platform services. The Company's hardware and
operating systems for the calling card services were not able to address the
Year 2000 Issue and it was not cost effective to implement the major
modifications required. The Company recently decided to shift its focus from
providing enhanced calling card products to IP-based long distance services. New
equipment and software has been purchased from Softalk which has been verified
as Year 2000 compliant. The Company will continue to test its new systems to
assure Year 2000 compliance. Other than with Softalk, the Company does not have
material relationships with any other third parties upon which its business and
operations are substantially dependent. However, it is seeking written
assurances from any third parties with which it enters into agreements that the
systems are compliant with the Year 2000 Issue.
If the Company experiences any unanticipated problems related to the Year 2000
Issue, it has the assurance of its primary supplier that they will immediately
correct any such issue. Within the next four months, the Company also plans to
hire a software programmer to assist in activities related to the anticipated
growth of the business. Part of this employee's responsibility would be
continued testing and assurance of system Y2K compliance. However, if the
Company is unable to immediately correct any problems that may arise, it may be
forced to temporarily interrupt or suspend its services. In that event, the
Company may be required to incur substantially higher costs to correct any Y2K
related problem.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGE IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
On May 4, 1999, the Company received formal notification from the Nasdaq
Stock Market ("Nasdaq") that the conditional listing under which its
shares had been quoted had terminated and the Company's Common Stock was
delisted from the Nasdaq SmallCap Market effective at the close of
business on May 4, 1999. The Company subsequently applied for inclusion
of its Common Stock on the OTC Bulletin Board and on June 23, 1999
Wavetech received notification of acceptance for trading as OTC BB:
ITEL. The Company's Common Stock began trading on the OTC Bulletin Board
on June 28, 1999.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Method of
Number Description Filing
------ ----------- ------
10.1 Licensing Agreement, dated April 23, 1999, Filed herewith
between Softalk, Inc. and the Registrant
10.2 DCI Share Exchange Termination Agreement Filed herewith
27 Financial Data Schedule Filed herewith
(b) Reports on Form 8-K
On May 12, 1999 the Company filed two Current Reports on Form 8-K
regarding the termination of the Merger Agreement between DCI
Telecommunications, Inc. and the Registrant and the Registrant's
Common Stock becoming delisted from the Nasdaq SmallCap Market.
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: July 12, 1999 WAVETECH INTERNATIONAL, INC.
By: /s/ Gerald I. Quinn
-------------------------------------
Gerald I. Quinn
President and Chief Executive Officer
By: /s/ Gerald I Quinn
-------------------------------------
Gerald I. Quinn
Treasurer
17
LICENSE AGREEMENT
THIS LICENSE AGREEMENT (the "LICENSE AGREEMENT") is entered into as of
this 23rd day of April 1, 1999 (the "EFFECTIVE DATE"), by and between Softalk,
Inc., an Ontario corporation whose principal offices are located at 415 Yonge
St., Suite 1701, Toronto, Ontario ("SOFTALK"), and Wavetech International, Inc.,
a Nevada corporation whose principal offices are located at 5210 E. Williams
Circle, Suite 200, Tucson, Arizona 85711 ("WAVETECH").
WHEREAS, Softalk is the owner of certain unique intellectual property
for use in the transmission of voice, data and fax services using Voice over
Internet Protocol ("V0I") and Voice of Frame ("VOF"); and
WHEREAS, Wavetech possesses the resources to sell, market and conduct
billing, collection and customer services with respect to Softalk's intellectual
property;
NOW THEREFORE, in consideration of the covenants and agreements
contained in this License Agreement and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. LICENSE GRANTS.
1.1 Subject to the terms and conditions of this License Agreement,
Softalk hereby grants to Wavetech, for the term of this License Agreement, a
non-exclusive, non-transferable worldwide license, to the software programs
commonly referred to as ICALL, IBILL, CCALL and IFAX (collectively referred to
as the "SOFTALK PRODUCTS") for use by Wavetech solely in connection with the
sale, marketing, and provision of customer support services of the Softalk
Products. For purposes of clarification, the Softalk Products include the
technology covered by Canadian Patent Application No. 2,198,024 and U.S. Patent
Application No. 08/811,099 and the trademarks, tradenames and service marks
associated therewith, copyright in the Softalk Products, ownership of
proprietary Confidential Information (as hereinafter defined) and ownership of
certain trade-marks.
1.2 Any sublicense granted by Wavetech with respect to the Softalk
Property shall be subject to the prior approval of Softalk.
<PAGE>
1.3 Wavetech shall have a right to obtain a non-exclusive,
non-transferable license to all modifications and improvements to the Softalk
Products on mutually agreeable terms negotiated in good faith by the parties.
1.4 Wavetech shall have the right to license from Softalk any new
products developed by Softalk on mutually agreeable terms negotiated in good
faith by the parties.
2. TECHNOLOGY TRANSFER.
2.1 Technical Information. Within a reasonable time following execution
of this License Agreement, Softalk will make available to Wavetech all necessary
technical information relating to the Softalk Property then in its possession.
2.2 Technical Assistance. Softalk shall render reasonable technical
training of, and assistance to, Wavetech's engineers or technical personnel, as
requested by Wavetech.
3. FURTHER RESEARCH AND DEVELOPMENT.
3.1 Softalk shall, during the term of this License Agreement, devote
resources to continuing product development and to research and development of
improvements and modifications for the purpose of augmenting exploitation by
Wavetech in all markets for, and all uses of, the Softalk Products
(collectively, referred to as the "IMPROVEMENTS").
3.2 Softalk shall, during the term of this License Agreement, as
appropriate, promptly communicate to Wavetech all Improvements that relate in
any manner to the Softalk Products.
4. TRANSFER OF ACCOUNTS RECEIVABLE;
4.1 In addition to the license granted under this License Agreement,
Softalk shall transfer and convey to Wavetech all accounts receivable resulting
from the sale or other distribution by Softalk of the Softalk Products, in
existence as of the date hereof (the "SOFTALK ACCOUNTS"). Wavetech shall conduct
all billing and collection activities related to the Softalk Accounts. If it is
determined that billing of Softalk Accounts can be better facilitated offshore,
Wavetech will have first right of refusal as offshore billing. Softalk shall
have the right to cause Wavetech to conduct such activities through an offshore
entity.
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4.2 Wavetech shall be entitled to receive and retain 100% of any actual
collections made with respect to the Softalk Accounts.
4.3 Wavetech shall pay to Softalk an amount equal to (i) 100% of
Softalk's actual direct expenses incurred in connection with the sale and
delivery of Softalk Products resulting in the Softalk Accounts plus (ii) five
percent (5%) of the total amount of the Softalk Account relating thereto.
Wavetech shall make payment in accordance with this Section 4.3 in arrears on a
monthly basis commencing with the monthly period ending May 31, 1999, upon
presentation of an invoice for such amounts prepared by Softalk. Softalk shall
deliver such invoice no later than fifteen (15) days after the end of each
monthly period.
4.4 Wavetech and Softalk shall have the right to audit the books and
records of each other for the purpose of determining the correctness of amounts
paid hereunder. Each shall provide the other at least fifteen (15) days prior
written notice of their intent to conduct an audit. Any such audit shall be
conducted no more than twice each calendar year, and shall be conducted in a
manner reasonably intended not to interfere with the regular business operations
of either party. Each shall bear all costs and expenses related to any audits
conducted pursuant to this paragraph.
5. FEES
5.1 In consideration of the license granted in Section 1 hereof,
Wavetech shall pay to Softalk, the amount of Two Hundred Thousand Dollars
(US$200,000). This fee shall be payable in cash upon execution of this License
Agreement (the "LICENSE FEE"). In the event the License Agreement is terminated
pursuant to Section 11 hereof, Softalk shall refund to Wavetech a portion of the
License Agreement equal to (i) $200,000 minus (ii) the aggregate amount of the
Softalk Accounts.
5.2 In addition, Wavetech shall pay to Softalk the sum of Two Hundred
Fifty Thousand Dollars (US$250,000) in cash upon execution of this License
Agreement, as consideration for certain hardware, software, equipment and
technical support and training.
6. STANDARDS, QUALITY CONTROL, PROMOTION.
6.1 Softalk must approve all promotional, advertising and product
literature prepared by Wavetech in connection with the actions to be taken by
Wavetech pursuant to this License Agreement. Neither Softalk nor Wavetech shall
take any action or make any omission that would tend to impair or damage the
goodwill associated with the Softalk Products. Wavetech shall maintain high
standards of quality and service with respect to all Softalk Products made
and/or sold hereunder, and all related advertising and promotional material
including, without limitation, the quality of physical material utilized. All
Softalk Products will be sold, and distributed in accordance with all applicable
federal, state, local and foreign laws and regulations. None of the content of
the Softalk Products-packaging, advertising, and promotional material related
thereto; the exploitation of the Softalk Products; or the manner in which any or
all rights granted to Wavetech hereunder are exercised or exploited, shall
violate or infringe any right of privacy or publicity, copyright, or trademark
or constitute defamatory, obscene, or unlawful matter. Softalk is familiar with
the standards and practices of Wavetech, and acknowledges that Wavetech
presently maintains high standards of quality, style, and appearance with
respect to its products and services.
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<PAGE>
6.2 If Softalk reasonably determines that Wavetech has failed to
maintain such quality of service as to the Softalk Products, Softalk shall
promptly notify Wavetech in writing and shall specify with reasonable detail the
nature of the alleged deficiency. Wavetech will have sixty (60) days from the
date of the notice in which to remedy the failure to Softalk's satisfaction.
6.3 Patent Infringement
In the event Wavetech becomes aware of any information indicating that
a third party may be infringing (or may have infringed) any of the Softalk
Products, Wavetech shall give notice of such alleged infringement, identifying
the country or countries in which the alleged infringing product or service is
sold and describing the alleged infringing product or service in sufficient
detail to enable Softalk to determine whether such product or service infringes
any of the Softalk Products. To the extent possible, Softalk shall assert the
Softalk Products against the infringer within three (3) months of such notice,
unless (a) Wavetech and Softalk determine not to assert such claim, or (b)
Softalk has received an opinion from patent counsel acceptable to Wavetech that
the allegedly infringing product does not infringe the Softalk Products.
All reasonable litigation expenses and costs, including reasonable
attorneys' fees, incurred by Wavetech in the course of any litigation pursuant
to the immediately preceding paragraph shall be promptly reimbursed by Softalk.
In such event, all recoveries including, but not limited to, awards of damages,
statutory damages, and awards of attorneys' fees, expenses and/or costs,
obtained by Wavetech in the course of any litigation arising out of any
notification of Softalk by Wavetech pursuant to this Section shall be paid to
Softalk, provided, however, that Wavetech shall be entitled to offset such
payments by amounts previously incurred by Wavetech in connection with the
defense of the Softalk Products pursuant to this section and not previously
reimbursed by Softalk.
7. CONFIDENTIALITY.
7.1 Wavetech acknowledges that Softalk's Confidential Information is
unique and valuable and was developed or otherwise acquired by Softalk at great
expense, and that any unauthorized disclosure or use of Softalk's Confidential
information may cause Softalk irreparable injury or loss for which damages would
be an inadequate remedy. Wavetech agrees to hold such Confidential Information
in strictest confidence, to use all efforts reasonable under the circumstances
to maintain the secrecy thereof, and not to make use thereof other than in
accordance with this License Agreement, and not to release or disclose
Confidential Information to any third party without Softalk's prior written
consent. Softalk hereby acknowledges and consents to the disclosure of Softalk's
Confidential Information to those employees of Wavetech and any permitted
sublicensees, that must have access to such Confidential Information in order to
perform services for Wavetech pursuant to this License Agreement, but only after
each employee of Wavetech and its sublicensees agrees to maintain Softalk's
Confidential Information in strictest confidence, to use all efforts reasonable
under the circumstances to maintain the secrecy thereof, not to make use thereof
other than in accordance with this License Agreement, and not to release or
disclose Confidential Information to any third party without Softalk's prior
written consent.
4
<PAGE>
7.2 Softalk acknowledges that various information regarding the
business plans and product concepts of Wavetech may comprise Confidential
Information. Softalk agrees to hold Wavetech's Confidential Information in
strictest confidence, not to make use thereof other than in accordance with this
License Agreement, to use all efforts reasonable under the circumstances to
maintain the secrecy thereof, and not to release or disclose Confidential
Information to any third party without Wavetech's prior written consent.
Wavetech hereby acknowledges and consents to Softalk's disclosure of Wavetech's
Confidential Information to Softalk employees and agents, but only after such
employees and agents having access to Wavetech Confidential Information agree,
in writing, to maintain Wavetech's Confidential Information in strictest
confidence, to use all efforts reasonable under the circumstances to maintain
the secrecy thereof, not to make use thereof other than in accordance with this
License Agreement, and not to release or disclose Confidential Information to
any third party without Wavetech's prior written consent.
7.3 The parties acknowledge that any violation of this Section shall
constitute a material breach of this License Agreement resulting in irreparable
injury to the non-breaching party and agree that, in addition to any and all
other rights available to the non-breaching party by law or by this Agreement,
the non-breaching party shall have the right to have an injunction entered
against the breaching party to enjoin any further violations of this Agreement.
7.4 For purposes of this Section 7, "Confidential Information" shall
mean any and all technology, information and/or data which is not readily
ascertainable by proper means and which derives economic value, actual or
potential, from not being generally known, and which has been the subject of
efforts that are reasonable under the circumstances to maintain its secrecy. All
know-how and technical information and/or information relating to the products
or operations of Wavetech or Softalk, as the case may be (in either case the
"DISCLOSING PARTY"), which is provided to the other party (the "RECEIVING
PARTY"), or to which the Receiving Party otherwise obtains access, pursuant to,
or as a result of, this License Agreement shall be considered Confidential
Information; except such information which the Receiving Party can clearly show:
(a) as of the Effective Date of this License Agreement is publicly and openly
known; (b) after the Effective Date of this License Agreement becomes publicly
and openly known through no fault of the Receiving Party; (c) comes into the
Receiving Party's possession and lawfully obtained by the Receiving Party from a
source other than from the Disclosing Party or a source deriving from the
Disclosing Party, and not subject to any obligation of confidentiality or
restrictions on use; or (d) is approved for release by written authorization of
the Disclosing Party.
7.5 Neither Wavetech nor any of its officers directors, employees
agents or representatives shall discuss this License Agreement, the transactions
contemplated hereby or any other matters related to agreements among Softalk and
Wavetech. Neither Softalk nor any of its officers directors, employees agents or
representatives shall discuss this License Agreement, the transactions
contemplated hereby or any other matters related to agreements among Wavetech
and Softalk.
5
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7.6 Any press release or other public statement by either Softalk or
Wavetech that relates to the other party, this License Agreement or the
transactions contemplated hereby shall be approved by both parties prior to its
release.
8. WARRANTIES.
8.1 Softalk is the owner of all right, title and interest in and to the
Softalk Products, free and clear of any and all liabilities, obligations,
licenses, liens or assignments, whether written, oral or implied in fact or law,
except as follows:
(a) Personal Property Security Act ("PPSA") registration 970805
1749 1531 7439 in favor of the Canadian Imperial Bank of
Commerce; and
(b) PPSA registration 980323 1754 1530 9274 in favor of the
Canadian Imperial Bank of Commerce.
The above-noted registrations are currently in the process of being
discharged.
Softalk makes no representation, promise or warranty whatsoever that
the Softalk Products will ultimately be protected by issued patents or that the
Softalk Products and their use do not or will not infringe the intellectual
property rights of others.
8.2 Softalk has the full right, power and authority to grant the
licenses contemplated by this License Agreement.
8.3 Softalk hereby represents and warrants that the Softalk Products
shall perform in the manner intended without interruption. Notwithstanding the
prior sentence, Wavetech acknowledges and agrees that its sole indemnification
rights with respect to hardware purchased by Softalk from third parties will be
limited to warranties provided by such third parties if any.
9. INDEMNITIES.
9.1 The parties shall each indemnify and hold the other harmless from
and against any and all claims, liabilities, loss, expense (including reasonable
attorneys' fees) or damages arising out of any breach of this License Agreement,
provided that the indemnified party shall, with reasonable promptness, notify
the indemnifying party of any such claim, demand, or suit and shall fully
cooperate in the defense thereof. The indemnifying party shall have the right to
designate counsel to defend against such claims and suits; however, at the
indemnified party's option, the indemnified party shall have the right to
participate in the defense with its own counsel at its own expense. In no event
shall any such claims or suits affecting the rights of a party be settled
without the prior written consent of that party.
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9.2 Wavetech agrees that any liability on the part of Softalk hereunder
for breach of warranties contained herein or any other breach giving rise to
liability, including a breach of a condition or fundamental term or fundamental
breach or breaches or in any other way arising out of or related to this License
Agreement for any cause of action whatsoever and regardless of the form of
action (including breach of contract, strict liability, tort including
negligence or any other legal or equitable theory) shall be limited to
Wavetech's actual, direct, provable damages in an amount not to exceed the
License Fee payable hereunder.
9.3 WAVETECH AGREES THAT IN NO EVENT WILL SOFTALK BE LIABLE FOR DAMAGES
IN RESPECT OF INCIDENTAL, ORDINARY, PUNITIVE, EXEMPLARY, INDIRECT, SPECIAL OR
CONSEQUENTIAL DAMAGES EVEN IF WAVETECH HAS BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGES INCLUDING, BUT NOT LIMITED TO, LOST BUSINESS REVENUE, LOST PROFITS,
FAILURE TO REALIZE EXPECTED SAVINGS, LOSS OF DATA, LOSS OF BUSINESS OPPORTUNITY
OR ANY CLAIM AGAINST WAVETECH BY ANY OTHER PARTY.
10. TERM. This License Agreement shall commence on the Effective Date and
shall continue until terminated by either party upon delivery of one hundred
twenty (120) days prior written notice of the other party, unless sooner
terminated pursuant to Section 11 hereof.
11. DEFAULT AND TERMINATION.
11.1 Either party shall have the right to terminate this Agreement upon
thirty (30) days written notice to the other party, if such other party fails to
comply in any material respect with any term or condition of this Agreement and
such failure to comply is not corrected within the foregoing thirty (30) day
notice period.
11.2 Either party shall have the right to terminate this License
Agreement in the event the other party becomes bankrupt or insolvent, suffers a
receiver to be appointed, or makes an assignment for the benefit of its
creditors.
11.3 Softalk shall have the right to terminate this License Agreement
upon sixty (60) days written notice following a change of control of Wavetech.
For purposes of this Section 11.3, a "change of control" shall be deemed to have
occurred:
(a) When, after the date of this Agreement, any person (as
such term is used in Sections 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) is or becomes
the beneficial owner (as defined in Rule 13d-3 of the Exchange Act),
directly or indirectly, of securities of Wavetech representing
fifty-one percent (51%) or more of the combined voting power of the
Company's then outstanding securities, other than (i) an employee
benefit plan established or maintained by Wavetech or a subsidiary of
Wavetech, or (ii) any person who presently owns such quantity of
securities as of the date hereof, or
(b) Upon the approval by Wavetech's stockholders of (i) a
merger or consolidation of Wavetech with or into another corporation
(other than a merger or consolidation the definitive agreement for
which provides that at least a majority of the directors of the
surviving or resulting corporation immediately after the transaction
are Continuing Directors (as hereinafter defined), (ii) a sale or
disposition of all or substantially all of Wavetech's assets, or (iii)
a plan of liquidation or dissolution of Wavetech.
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(c) Individuals who, as of the date hereof, constitute the
Board of Directors of Wavetech (the "INCUMBENT BOARD") cease for any
reason to constitute at least 80% of the Board; provided, however, that
any person becoming a member of the Board subsequent to the date hereof
whose election, or nomination for election by Wavetech's stockholders,
was approved by a vote of at least 80% of the members then comprising
the Incumbent Board (other than an election or nomination of an
individual whose initial assumption of office is in connection with an
actual or threatened election contest relating to the election of
directors of Wavetech, as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act or any successor
provision thereto) shall be, for purposes of this License Agreement,
considered as though such person were a member of the Incumbent Board.
11.4 Paragraphs 7, 8, 9 and 13 hereof shall survive termination (for
any reason) of this License Agreement.
11.5 Upon the termination of this License Agreement for any reason
whatsoever, Wavetech shall immediately cease to use the Softalk Products and
shall return all copies of the Softalk Products and the Confidential Information
to Softalk and shall provide Softalk with a certificate of a senior officer of
Wavetech certifying such return and that no copies of the Softalk Products and
the Confidential Information, or any part thereof, in any form, remain in the
possession or control of Wavetech.
12. BOARD REPRESENTATION. During the term of this License Agreement,
Softalk shall have the right to designate one person to serve on the Board of
Directors of Wavetech.
13. ASSIGNMENT. Neither party may assign or otherwise transfer this
Agreement, or any rights under it, without the prior written consent of the
other party, which consent shall not be unreasonably withheld. Any attempted
assignment in violation of this Section 13 shall be null and void.
14. CHOICE OF LAW, ARBITRATION. This Agreement is made under, and shall be
governed by and construed in accordance with the internal laws of Ontario,
Canada, without reference to principles of conflicts of law. Any disputes
arising under this License Agreement shall be settled by binding arbitration
conducted in Toronto in accordance with the Rules of Procedure for the Conduct
of Arbitration and Mediation Antitrust of Ontario Inc.
15. GENERAL.
15.1 This Agreement, constitutes the entire agreement between the
parties and supersedes all prior proposals, representation, negotiations and
communications, oral or written, between the parties with respect to its subject
matter. No variation from these provisions shall be binding unless in writing
and signed by both parties.
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15.2 Each party shall be responsible for, and shall pay, all sales,
value added and similar taxes, if any, which may be imposed on any sales of the
Softalk Products hereunder by such party, as well as any other tax based upon
such party's use, sale, or possession of the Softalk Products.
15.3 All rights and remedies conferred under this Agreement or by any
other instrument or law shall be cumulative, and may be exercised singularly or
concurrently. Either party's failure or forbearance to enforce any right or
claim against the other arising under this Agreement shall not be deemed a
waiver of future enforcement of that or any other provision. In the event that
any portion of this Agreement shall be held to be unenforceable by a court of
competent jurisdiction, the remaining portions of this Agreement shall remain in
full force and effect.
15.4 In the event any provision of this Agreement or the application of
any provision shall be held by a tribunal of competent jurisdiction to be
contrary to law, then the remaining provisions of this Agreement shall be
unimpaired, and the illegal, invalid or unenforceable provision shall be
replaced by a provision, which, being legal, valid and enforceable, comes
closest to the intent of the parties underlying the illegal, invalid or
unenforceable provision.
15.5 If a party commences any action at law or in equity, or for
declaratory relief, or in appellate proceedings, to secure or protect any rights
under, or to enforce any provision of, this License Agreement, then, in addition
to any judgment, order, or other relief obtained in such proceedings, the
prevailing party shall be entitled to recover from the losing party all
reasonable costs, expenses, and attorneys' fees incurred by the party in
connection with such proceedings, including, attorneys' fees incurred for
consultation and other legal services performed prior to the filing of such
proceeding.
15.6 All terms and conditions of this Agreement shall be binding upon
and shall inure to the benefit of the parties to this Agreement and their
respective permitted successors, permitted assigns, and legal representatives.
15.7 All notices required or permitted under this Agreement shall be in
writing and shall be deemed to have been given upon personal delivery or upon
deposit in the U.S. mail, first-class, postage prepaid. The addresses of the
parties (until written notice of change shall have been given) shall be as
follows:
SOFTALK: Softalk, Inc.
415 Yonge Street, Suite 1701
Toronto, Ontario
Canada M5B 2E7
Attn: Chris Lang
Facsimile: 416-597-2785
9
<PAGE>
WITH A COPY TO: Gowling, Strathy & Henderson
Suite 4900 Commerce CT W
Toronto, Ontario M5L lJ3
Attn: David Aylen and Karyn Bradley
Facsimile: 416-862-7661
WAVETECH: Wavetech International, Inc.
5210 E. Williams Circle, Suite 200
Tucson, Arizona 85711
Attn: Gerald I. Quinn
WITH A COPY TO: Squire, Sanders & Dempsey L.L.P.
40 North Central Avenue
Suite 2700
Phoenix, Arizona 85004
Attn: Christopher D. Johnson, Esq.
Facsimile: (602) 253-8129
15.8 Nothing in this License Agreement shall constitute, or be deemed
to constitute, either party as an employee, agent, partner or joint venturer of
the other.
15.9 Further Assurances. The parties shall from time to time execute
and deliver all such further documents and do all acts and things as the other
party may reasonably require to effectively carry out or better evidence or
perfect the full intent and meaning of this License Agreement.
[REMAINDER OF THIS PAGE
INTENTIONALLY LEFT BLANK]
10
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives.
SOFTALK, INC. WAVETECH INTERNATIONAL, INC.
By /s/ A. Chris Lang By /s/ Gerald I. Quinn
------------------------------- -------------------------------
Name A. Chris Lang Name Gerald I. Quinn
----------------------------- -----------------------------
Title President of Softalk, Inc. Title President & CEO
---------------------------- ----------------------------
Date 23-04-99 Date April 23, 1999
----------------------------- -----------------------------
11
<PAGE>
ADDITIONS TO LICENSING AGREEMENT
1. Mutual approval of all information released to public.
2. Softalk has the right to terminate the agreement if there is a change
in control of Wavetech International, Inc.
3. In the event of termination, with or without cause, Softalk will refund
license fee minus receivables collected from the "Softalk Accounts" and
any payables owing by Wavetech.
4. Softalk to be offered one seat on the Wavetech Board of Directors.
(ORIGINAL IS INITIALED
BY BOTH PARTIES)
MUTUAL TERMINATION
BY THIS MUTUAL TERMINATION dated this 18th day of June 1999, WAVETECH
INTERNATIONAL, INC., a Nevada corporation ("Wavetech"), and DCI
TELECOMMUNICATIONS, INC., a Colorado corporation ("DCI"), hereby agree as
follows:
1. RECITALS. Wavetech and DCI entered into an Agreement dated February
26, 1999 (the "Exchange Agreement"), pursuant to which the parties, among other
things, exchanged 568,846 shares of the common stock, $.001 par value per share,
of Wavetech (the "Wavetech Shares") for 576,047 shares of DCI's common stock,
$.01 par value per share (the "DCI Shares"). By this Mutual Termination,
Wavetech and DCI desire to mutually terminate the Exchange Agreement and to
return to Wavetech the Wavetech Shares and to DCI the DCI Shares.
2. TERMINATION. Wavetech and DCI agree that the Exchange Agreement is
hereby terminated effective the date hereof, and rendered null and void and of
no further force or effect. Neither Wavetech nor DCI shall have any obligation
or liability to the other arising out of or in any way related to the
negotiation, execution, delivery or performance of the Exchange Agreement.
3. RETURN OF SHARES. Concurrent with the execution and delivery hereof,
Wavetech shall return to DCI the certificate representing the DCI Shares, duly
endorsed in blank, and DCI shall return to Wavetech the certificate representing
the Wavetech Shares, duly endorsed in blank. Wavetech shall have no further
right, title or interest in or to the DCI Shares, and DCI shall have no further
right, title or interest in or to the Wavetech Shares.
4. BOARD REPRESENTATION. To the extent either party has designated a
representative to the Board of Directors of the other party pursuant to the
Exchange Agreement, the designating party shall cause such representative to
resign immediately. Neither party shall have any further rights whatsoever to
designate a representative to the other party's Board of Directors.
5. FURTHER ASSURANCES. The parties agree to take such further action
and execute such further documents as may be reasonably necessary in order to
effect the purposes and terms of this Mutual Termination.
IN WITNESS WHEREOF, the parties have executed and delivered this Mutual
Termination as of the day and year first written above.
WAVETECH INTERNATIONAL, INC. DCI TELECOMMUNICATIONS, INC.
By /s/ Richard P. Freeman By /s/ Joseph J. Murphy
----------------------------------- ---------------------------------
Its: Director Its: President & CEO
----------------------------------- ---------------------------------
<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, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-01-1998
<PERIOD-END> MAY-31-1999
<CASH> 1,350,589
<SECURITIES> 0
<RECEIVABLES> 28,203
<ALLOWANCES> 9,927
<INVENTORY> 0
<CURRENT-ASSETS> 1,377,133
<PP&E> 1,042,540
<DEPRECIATION> (620,541)
<TOTAL-ASSETS> 3,465,890
<CURRENT-LIABILITIES> 506,477
<BONDS> 0
0
0
<COMMON> 3,433
<OTHER-SE> 2,952,014
<TOTAL-LIABILITY-AND-EQUITY> 3,465,890
<SALES> 9,173
<TOTAL-REVENUES> 9,173
<CGS> 8,793
<TOTAL-COSTS> 8,793
<OTHER-EXPENSES> 810,788
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,472
<INCOME-PRETAX> (758,638)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (758,638)
<EPS-BASIC> (0.25)
<EPS-DILUTED> (0.25)
</TABLE>
