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 November 30, 1998.
[ ] 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) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. [X]
Yes [ ] No
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: January 11, 1999.
CLASS NO. OF SHARES OUTSTANDING
----- -------------------------
Common Stock, Par Value $.001 2,858,523
Transitional Small Business Disclosure Format (Check One): [ ] Yes [X] No
<PAGE>
INDEX
WAVETECH INTERNATIONAL, INC.
PAGE
----
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets --
November 30, 1998 (Unaudited) and August 31, 1998
(Audited)................................................. 3
Condensed Consolidated Statements of Operations for
the Three Month Periods Ended November 30, 1998 and
November 30, 1997 (Unaudited)............................. 4
Condensed Consolidated Statements of Cash Flows for
the Three Month Periods Ended November 30, 1998 and
November 30, 1997 (Unaudited)............................. 5
Notes to Condensed Consolidated Financial Statements --
November 30, 1998 and November 30, 1997 (Unaudited)....... 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 7
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings......................................... 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.......................... 11
SIGNATURES................................................................ 12
2
<PAGE>
WAVETECH INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, 1998 (UNAUDITED) AND AUGUST 31, 1998 (AUDITED)
ASSETS
November 30 August 31
1998 1998
---- ----
Current assets:
Cash and cash equivalents $ 1,997,566 $ 2,202,573
Accounts receivable, net 18,276 18,276
Prepaid expenses and other assets 9,829 6,547
----------- -----------
Total current assets 2,025,671 2,227,396
Property and equipment, net 233,984 259,270
Noncurrent assets:
Intangibles, net 24,405 25,422
Deposits and other assets 30,083 30,083
----------- -----------
Total noncurrent assets 54,488 55,505
----------- -----------
Total assets $ 2,314,143 $ 2,542,171
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 225,464 $ 246,666
Accrued interest payable 3,055 8,579
Notes payable, current portion 13,000 63,000
Capital leases payable, current portion 45,305 45,709
----------- -----------
Total current liabilities 286,824 363,954
Noncurrent liabilities:
Capital leases payable 14,780 25,265
----------- -----------
Total liabilities 301,604 389,219
Stockholders' equity:
Common stock, par value $.001 per share;
50,000,000 shares authorized, 2,858,523
and 2,832,481 shares issued and outstanding 2,859 2,832
Additional paid in capital 8,581,058 8,531,086
Accumulated deficit (6,571,378) (6,380,966)
----------- -----------
Total stockholders' equity 2,012,539 2,152,952
----------- -----------
Total liabilities and stockholders' equity $ 2,314,143 $ 2,542,171
=========== ===========
3
<PAGE>
WAVETECH INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIODS ENDED NOVEMBER 30, 1998
AND NOVEMBER 30, 1997 (UNAUDITED)
1998 1997
---- ----
Revenues $ 3,276 $ 68,887
Expenses:
Cost of sales (exclusive of depreciation
and amortization shown separately below) 4,526 52,570
General and administrative 163,473 208,779
Depreciation and amortization 26,304 39,216
---------- ----------
Total expenses 194,303 300,565
Net loss from operations (191,027) (231,678)
Other income and expense:
Interest income 24,057 2
Interest expense (3,312) (12,811)
Merger expenses (11,031) -0-
Debt conversion expense -0- (92,894)
---------- ----------
Total other income and expense 9,714 (105,703)
---------- ----------
Net loss before preferred dividends (181,313) (337,381)
Dividends on preferred stock 9,100 -0-
---------- ----------
Net loss available to common shareholders $ (190,413) $ (337,381)
========== ==========
Net loss per common share, basic $ (0.06) $ (0.13)
========== ==========
Net loss per common share, diluted $ (0.06) $ (0.13)
========== ==========
Weighted average number of shares outstanding,
basic (Note 3) 2,885,154 2,518,778
========== ==========
Weighted average number of shares outstanding,
diluted (Note 3) 2,885,154 2,518,778
========== ==========
4
<PAGE>
WAVETECH INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE-MONTH PERIODS ENDED NOVEMBER 30, 1998 AND 1997 (UNAUDITED)
1998 1997
---- ----
Cash flows from operating activities:
Net Loss $ (181,313) $(337,381)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 26,304 39,216
Debt conversion expense -0- 92,894
Common stock issued for services and accrued interest -0- 44,191
Changes in assets and liabilities:
(Increase) decrease in accounts receivable
and other current assets (3,282) (2,591)
(Decrease) in accounts payable and
accrued expenses (21,103) (6,530)
(Decrease) in accrued interest payable (5,524) (2,720)
(Decrease) in deferred revenue -0- (17,857)
---------- ---------
Total Adjustments (3,605) 146,603
Net cash used in operating activities (184,918) (190,778)
Cash flows from investing activities:
Net cash used in investing activities -0- -0-
Cash flows from financing activities:
Proceeds from notes payable -0- 250,000
Payments on capital lease payable (10,889) (8,251)
Dividends paid (9,200) 64
---------- ---------
Net cash provided by financing activities (20,089) 241,813
Net increase (decrease) in cash (205,007) 51,035
Cash and cash equivalents, beginning of period 2,202,573 13,329
---------- ---------
Cash and cash equivalents, end of period $1,997,566 $ 64,364
========== =========
5
<PAGE>
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 period
ended November 30, 1998 are not necessarily indicative of the results that may
be expected for the 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.
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 - NOTES PAYABLE
On October 12, 1998, a note payable for $50,000, plus accrued interest, was
converted into 26,042 shares of Common Stock. The conversion price of $1.92 was
based on the closing bid price on the Nasdaq SmallCap Market on the date of the
letter of agreement for repayment of this note. (Common Stock information is
post-split.)
NOTE 3 - PER SHARE DATA
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
(SFAS 128), which became effective in 1997, requires presentation of two
calculations of earnings per common share. "Basic" earnings (loss) per common
share equals net income (loss) divided by weighted average common shares
outstanding during the period. "Diluted" earnings (loss) per common share equals
net income (loss) divided by the sum of weighted average common shares
outstanding during the period plus common stock equivalents. Common stock
equivalents are shares assumed to be issued if outstanding stock options were
exercised. 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. At November 30, 1998, the
Company had outstanding options to purchase 441,667 shares of Common Stock at
exercise prices ranging from $1.50 to $4.86 per share and 382,500 common stock
warrants with exercise prices ranging from $2.28 to $10.50 per share. At
November 30, 1997, the Company had outstanding options to purchase 378,333
shares of Common Stock at exercise prices ranging from $3.96 to $4.86 per share
and 509,901 common stock warrants with exercise prices ranging from $2.64 to
$21.00 per share. Common stock equivalents from stock options and warrants are
excluded from the computation when the effect is anti-dilutive. Prior period
amounts have been restated in accordance with SFAS 128.
6
<PAGE>
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 ARE
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 A PROPOSED MERGER OR THE FUTURE
FINANCIAL PERFORMANCE OF WAVETECH. 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. 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. WAVETECH IS NOT UNDERTAKING ANY OBLIGATIONS TO
UPDATE ANY FORWARD-LOOKING STATEMENTS CONTAINED IN THIS REPORT.
OPERATIONS OVERVIEW
The Company specializes in creating interactive communication systems
through the application of "intelligent" call processing technology and
proprietary software to reflect or target the needs of an identified audience.
These systems are often used as privatized networks for organizations and their
members, companies and their suppliers and/or customers and special purpose
groups. During the three-month period ended November 30, 1998, the majority of
the Company's management time and other resources were spent in evaluating
potential merger and/or acquisition candidates.
On November 6, 1998, the Company signed a definitive Merger Agreement with
DCI Telecommunications, Inc. ("DCI"). Through its subsidiaries and joint
ventures, DCI provides international long distance telecommunications, prepaid
telephone cards, Internet-related services, media distribution services and
travel services. Pursuant to this agreement, DCI will be merged into the
Company. At closing, Wavetech will exchange one share of its common stock for
each share of DCI common stock. As a result, DCI will become a wholly-owned
subsidiary of Wavetech and its shareholders will hold in excess of 85% of the
Wavetech common stock to be outstanding at that time. The Company expects the
Merger to create an international carrier with enhanced services, call
management and switching equipment in the U.S., Canada, Europe and the Far East.
During the quarter ended November 30, 1998, the Company was notified by The
Nasdaq Stock Market ("Nasdaq") that its Common Stock would be delisted from the
Nasdaq SmallCap Market because it was not in compliance with the $1.00 minimum
bid price requirement. The Company appealed Nasdaq's decision to delist its
Common Stock for failure to meet this requirement at a hearing on November 19,
1998. On December 9, 1998, the Company was notified by Nasdaq that its Common
Stock will continue to be listed on the Nasdaq SmallCap market via an exception
from the minimum bid price requirement, provided the Company meets certain
conditions. One of the conditions was that the Company's stock meet the $1.00
minimum bid price. To comply with this requirement, on December 18, 1998, the
Company effected a one-for-six reverse split, which had been previously approved
by its shareholders on May 26, 1998.
The Company continues to support its current subscribers and acquire new
subscribers through its ongoing programs. As of November 30, 1998, the Company
had 279 cardholders active on its system. 31 new customers subscribed during the
quarter ended November 30, 1998.
7
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED NOVEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED
NOVEMBER 30, 1997
REVENUES. Revenues decreased to $3,276 for the three months ended November
30, 1998 from $68,887 for the three months ended November 30, 1997. During
fiscal 1998, the Company made a decision to wind down its wholesale business of
reselling international long distance minutes. Revenues from the resale of
international long distance minutes therefore decreased to zero for the three
months ended November 30, 1998 as compared to $39,320 for the three months ended
November 30, 1997. A licensing agreement with Switch Telecommunications was also
terminated during fiscal 1998 so license fee revenues decreased to zero in the
three months ended November 30, 1998 as compared to $17,857 for the three months
ended November 30, 1997. During the three months ended November 30, 1998, the
Company did not initiate any new marketing to solicit new subscribers. The
Company's management believes that the absence of such initiatives is at least
partially responsible for a decrease in its revenues from enhanced calling card
services, such as domestic long distance minutes and voice and fax mail
services. During this period, revenues from these operations decreased by $8,457
to $3,276.
COST OF SALES. Cost of sales decreased to $4,526 for the three-month period
ended November 30, 1998 from $52,570 for the three months ended November 30,
1997. Costs associated with the resale of international minutes decreased to
zero for the three months ended November 30, 1998 from $32,009, due to the
decision to wind down the wholesale business of reselling international long
distance minutes. During fiscal 1998, the Company renegotiated fees related to
T1 telephone access lines and related maintenance costs. This resulted in a
decrease of $9,393 for the three months ended November 30, 1998 as compared to
the three months ended November 30, 1997. Costs to provide enhanced calling card
services, such as domestic long distance and voice and fax mail services,
decreased by $6,640 for the three months ended November 30, 1998 as compared to
the three months ended November 30, 1997. This decrease resulted from the
Company's decision not to implement new marketing initiatives. As a result, the
Company's costs associated with revenues from its enhanced calling card services
also decreased.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
decreased to $163,473 for the three months ended November 30, 1998 from $208,779
for the three months ended November 30, 1997. During fiscal 1998, the Company
renegotiated fees for its call processing platform services which resulted in a
decrease of $25,231 for these expenses for the three months ended November 30,
1998. A decrease of $9,148 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 three months ended November 30, 1998. General
legal and professional fees decreased by $15,237 for the three months ended
November 30, 1998. However, legal expenses of $11,031 were incurred in
connection with the pending merger with DCI and have been included in a separate
expense category "Merger Expenses" (see "Merger Expenses" paragraph below).
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization
expenses decreased to $26,304 for the three months ended November 30, 1998 from
$39,216 for the three months ended November 30, 1997. This decrease was due to
normal depreciation and amortization adjustments as assets age.
INTEREST INCOME. Interest income increased to $24,057 for the three months
ended November 30, 1998 from $2 for the three months ended November 30, 1997.
All of the Company's interest income during the quarter ended November 30, 1998
was from its money market fund. The increase in interest income was attributable
to improved performance of the Company's portfolio.
INTEREST EXPENSE. Interest expense decreased to $3,312 for the three months
ended November 30, 1998 from $12,811 for the three months ended November 30,
1997. The decrease in interest expense was related to higher interest costs in
the prior year period associated with notes payables and convertible notes
payable.
8
<PAGE>
MERGER EXPENSES. Costs incurred during the three months ended November 30,
1998 as a result of the pending merger with DCI totaled $11,031. These expenses
were primarily legal fees. No such costs were incurred during the comparable
period of the prior year.
DEBT CONVERSION EXPENSE. Debt conversion costs decreased to zero for the
three months ended November 30, 1998 from $92,894 for the three months ended
November 30, 1997. This decrease was due to an expense in the 1997 period
resulting from converting certain notes payable and accrued interest thereon
into common stock.
PREFERRED DIVIDENDS. Preferred dividends increased $9,100 for the quarter
ended November 30, 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 of 6% Preferred
Stock valued at $1,000 per share, at the Company's option. The Company has opted
to pay the dividends in cash.
LIQUIDITY AND CAPITAL RESOURCES
At November 30, 1998 the Company had cash of $1,997,566. The Company does
not generate income sufficient to offset the costs of its operations. As a
result, it has historically relied upon issuance of debt or equity in order to
raise capital. The Company is currently conserving its capital resources pending
completion of the Merger with DCI. The Company averages approximately $62,000 a
month in expenses, which include costs associated with the Merger. The Company
is currently seeking other financing resources, however, the ability of the
Company to finance new operations will depend on external sources. No assurance
can be given that additional financing will be available, or if available, that
it will be on acceptable terms. Any debt issued by the Company may result in
additional interest expense and the imposition of certain restrictive covenants
upon the Company and its operations. Additionally, the issuance of equity may be
dilutive to the Company's existing shareholders.
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 had 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. However, the Company has 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. Estimated costs
for the consultant and associated testing activities is $700. The Company
anticipates that such assessment and any necessary modifications will be
completed by March 31, 1999. The Company is in the process of testing all other
internal systems and believes that no modifications to such systems will be
necessary. Total costs incurred and expensed to date by the Company in
connection with its Year 2000 software compliance equal approximately $5,000.
9
<PAGE>
The Company has also contacted its major supplier, which handles the call
processing software and supports platform services. The Company's call
processing hardware and operating systems are not currently able to address the
Year 2000 Issue. Modifications to this system have begun and the host server's
operating system is expected to be compliant no later than March 31, 1999. The
Company does not have material relationships with any other third partners upon
which its business and operations are substantially dependent. However, it
intends to seek assurances from any third parties with which it enters into
agreements in the future that the systems are compliant with the Year 2000
Issue. The Company currently estimates that its total costs to be incurred
relating to the Year 2000 issue will be approximately $60,000.
Presently, the Company is currently exploring options to develop a
contingency plan in the event it is unable to correct any vulnerability to the
Year 2000 Issue, such as using a service bureau to temporarily process calls and
run applications, should any problems arise in system operations. The Company
believes there exist multiple alternative suppliers for these services. However,
if it is unable to obtain such services and at terms acceptable to it, it may be
forced to interrupt or suspend its services. In addition, even if available, the
Company may be required to incur substantially higher costs in order to provide
such services. The Company has adequate resources to complete its Year 2000
assessment and any necessary modifications. The Company estimates that it has
completed 70% of its assessment and that 30% of the necessary modifications have
been made.
PART II
ITEM 1. LEGAL PROCEEDINGS
On December 22, 1998, Gregg Garrett filed a complaint in the Arizona
Supreme Court for Maricopa County in which the Company was named as a defendant,
along with certain affiliates of the Company. The complaint alleges that Mr.
Garrett performed certain services on behalf of the Company for the purpose of
identifying and contacting potential merger candidates for the Company. The
complaint further alleges that, as consideration for Mr. Garrett performing such
services, he is entitled to receive an unspecified amount of monetary damages,
declaratory relief as to the facts alleged in the complaint and unspecified
costs and attorney's fees in an amount in excess of $5,500,000. The Company
believes that Mr. Garrett's claims are without merit and intends to vigorously
defend itself in this matter. If, however, the Company is unsuccessful as to one
or more of the claims made in the complaint, it could be required to pay a
substantial amount of money to Mr. Garrett. Any such payment could materially
adversely affect the Company's liquidity and capital resources.
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.
10
<PAGE>
ITEM 5. OTHER INFORMATION
On December 9, 1998, following the end of the quarterly period to which
this report relates, the Company was notified by Nasdaq that its Common Stock
will continue to be listed on the Nasdaq SmallCap Market via an exception from
the minimum bid price requirement, provided the Company meets certain
conditions. One of the conditions was that the Company's stock meet the $1.00
minimum bid price on or before December 18, 1998. To comply with this
requirement, on December 18, 1998, the Company effected a one-for-six reverse
split, which had been previously approved by its shareholders on May 26, 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
a) Exhibits.
Number Description Method of Filing
------ ----------- ----------------
27 Financial Data Schedule Filed herewith
b) Reports on Form 8-K
None.
11
<PAGE>
SIGNATURES
Pursuant to 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: January 11, 1999 WAVETECH INTERNATIONAL, INC.
By: /s/ Gerald I. Quinn
-------------------------------------
Gerald I. Quinn
President and Chief Executive Officer
By: /s/ Lydia M. Montoya
-------------------------------------
Lydia M. Montoya
Chief Financial Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
QUARTER ENDED NOVEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-01-1998
<PERIOD-END> NOV-30-1998
<CASH> 1,997,566
<SECURITIES> 0
<RECEIVABLES> 28,203
<ALLOWANCES> 9,927
<INVENTORY> 0
<CURRENT-ASSETS> 2,025,671
<PP&E> 790,096
<DEPRECIATION> (556,112)
<TOTAL-ASSETS> 2,314,143
<CURRENT-LIABILITIES> 286,824
<BONDS> 0
0
0
<COMMON> 2,859
<OTHER-SE> 2,009,680
<TOTAL-LIABILITY-AND-EQUITY> 2,314,143
<SALES> 3,276
<TOTAL-REVENUES> 3,276
<CGS> 4,526
<TOTAL-COSTS> 4,526
<OTHER-EXPENSES> 200,808
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,312
<INCOME-PRETAX> (181,313)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (181,313)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
