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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 February 29, 2000.
[ ] 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
As of March 31, 2000, there were 3,180,866 shares of Common Stock, par value
$.001 per share, outstanding.
Transitional Small Business Disclosure Format (Check One): [ ] Yes [X] No
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WAVETECH INTERNATIONAL, INC.
INDEX Page
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets--
February 29, 2000 and August 31, 1999........................... 3
Condensed Consolidated Statements of Operations for the Six
Month Periods Ended February 29, 2000 and February 28, 1999..... 4
Condensed Consolidated Statements of Operations for the Three
Month Periods Ended February 29, 2000 and February 28, 1999..... 5
Condensed Consolidated Statements of Cash Flows for the Six
Month Periods Ended February 29, 2000 and February 28, 1999..... 6
Notes to Condensed Consolidated Financial Statements--
February 29, 2000............................................... 7
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................... 8
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings............................................... 13
ITEM 2. Change in Securities............................................ 13
ITEM 3. Defaults upon Senior Securities................................. 13
ITEM 4. Submission of Matters to a Vote of Security Holders............. 13
ITEM 5. Other Information............................................... 13
ITEM 6. Exhibits and Reports on Form 8-K................................ 13
SIGNATURES................................................................... 14
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WAVETECH INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
FEBRUARY 29, 2000 AND AUGUST 31, 1999
<TABLE>
<CAPTION>
February 29 August 31
ASSETS 2000 1999
------------ ------------
(unaudited) (Note 1)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,416,880 $ 889,620
Prepaid expenses and other assets 9,804 8,529
------------ ------------
Total current assets 1,426,684 898,149
Property and equipment, net accumulated
depreciation $ 739,717 and $ 643,771 1,144,832 363,559
License fee, net of amortization of $474,990 and $9,524 9,199,777 190,476
Note receivable from affiliate 984,000 100,000
Deposits and other assets 11,386 22,211
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Total assets $ 12,766,679 $ 1,574,395
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 269,401 $ 243,029
Notes payable, current portion 2,000,000 13,000
Capital lease obligation 5,107 23,680
Dividends payable 4,784 0
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Total current liabilities 2,279,292 279,709
Capital lease obligation, net of current portion 0 1,579
Stockholders' equity:
Series A preferred stock, 6% cumulative, par value
$.001 per share; 10,000,000 shares authorized,
485 and 600 shares issued and outstanding
(liquidation value $485,000 and $600,000) 1 1
Common stock, par value $.001 per share; 50,000,000
shares authorized, 3,180,866 and 3,021,288 shares
issued and outstanding 3,181 3,021
Additional paid in capital 19,148,421 8,757,946
Accumulated deficit (8,664,216) (7,467,861)
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Total stockholders' equity 10,487,387 1,293,107
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Total liabilities and stockholders' equity $ 12,766,679 $ 1,574,395
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</TABLE>
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WAVETECH INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTH PERIODS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
2000 1999
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(unaudited) (unaudited)
Revenues $ 463 $ 5,489
Expenses:
Cost of sales (exclusive of depreciation and
amortization shown separately below) 7,366 7,339
General and administrative 544,612 335,351
Depreciation and amortization 561,411 52,607
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Total expenses 1,113,389 395,297
Net loss from operations (1,112,926) (389,808)
Other income (expense):
Interest income 20,115 43,434
Interest expense (34,241) (5,450)
Merger expenses 0 (101,176)
Miscellaneous income 470 0
Rental income 18,000 18,000
Preferred stock conversion penalty (72,000) (72,000)
Settlement Costs 0 (15,000)
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Total other income (expense) (67,656) (132,192)
Net loss before preferred dividends (1,180,582) (522,000)
Cumulative preferred dividends declared 15,773 18,100
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Net loss available to common shareholders $(1,196,355) $ (540,100)
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Net loss per common share, basic and diluted $ (0.39) $ (0.18)
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Weighted average number of shares
outstanding, basic and diluted 3,109,040 2,932,346
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WAVETECH INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIODS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
2000 1999
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(unaudited) (unaudited)
Revenues $ 463 $ 2,213
Expenses:
Cost of sales (exclusive of depreciation and
amortization shown separately below) 6,566 2,814
General and administrative 274,554 162,878
Depreciation and amortization 395,770 26,304
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Total expenses 676,890 191,996
Net loss from operations (676,427) (189,783)
Oter income (expense):
Interest income 13,643 19,377
Interest expense (33,421) (2,139)
Merger expenses 0 (90,144)
Miscellaneous income 10 0
Rental income 9,000 9,000
Preferred stock conversion penalty (36,000) (72,000)
Settlement Costs 0 (15,000)
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Total other income (expense) (46,768) (150,906)
Net loss before preferred dividends (723,195) (340,689)
Cumulative preferred dividends declared 7,380 9,000
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Net loss available to common shareholders $ (730,575) $ (346,689)
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Net loss per common share, basic and diluted $ (0.23) $ (0.15)
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Weighted average number of shares
outstanding, basic and diluted 3,150,576 2,286,104
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WAVETECH INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX-MONTH PERIODS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
<TABLE>
<CAPTION>
2000 1999
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
Operating activities:
Net Loss $(1,180,582) $ (522,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 561,411 52,607
Preferred stock conversion penalty 72,000 72,000
Changes in assets and liabilities:
Decrease (increase) in accounts receivable and other assets 10,825 0
Increase (decrease) in accounts payable and
accrued expenses 33,873 (26,233)
Decrease (increase) in prepaid expenses (1,275) (1,722)
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Net cash used in operating activities (503,748) (425,348)
Investing activities:
Purchase of property and equipment (197,986) 0
(Increase) decrease in notes receivable to affiliate (884,000) 0
Decrease in other long term assets 0 5,000
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Net cash used in investing activities (1,081,986) 5,000
Financing activities:
Increase (decrease) in notes payable 1,987,000 0
Principal payments on capital lease obligation (20,152) (21,703)
Dividends paid in cash on preferred stock 0 (18,400)
Sale of Common Stock 146,146 0
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Net cash used in financing activities 2,112,994 (40,103)
Net increase (decrease) in cash 527,260 (460,451)
Cash and cash equivalents, beginning of period $ 889,620 $ 2,202,573
----------- -----------
Cash and cash equivalents, end of period $ 1,416,880 $ 1,742,122
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</TABLE>
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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. Operating results for the six-month period ended February
29, 2000 are not necessarily indicative of the results that may be expected for
the fiscal year ending August 31, 2000. The balance sheet at August 31, 1999 has
been derived from the audited financial statements at that date but does not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. For further
information, refer to the Company's financial statements for the year ended
August 31, 1999, included in its Form 10-KSB for such fiscal period.
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. The Statement of Operations for the six-month period ended February
28, 1999, has been reclassified to conform to the presentation used for the
six-month period ended February 29, 2000.
NOTE 2 -- PER SHARE DATA
Basic earnings (loss) per common share equals diluted earnings (loss) per common
share for all periods presented as the effect of all applicable securities
(preferred stock, stock options and warrants) is anti-dilutive (decrease the
loss per share amount). On December 18, 1998, the Company effected a one-for-six
reverse stock split; all share and per share information have been restated
retroactively to show the effect of this stock split.
NOTE 3 -- TRANSACTIONS WITH SOFTALK, INC.
The Company amended its license with Softalk, Inc. ("Softalk"), an Ontario
corporation, on October 25, 1999. As amended, the license agreement grants to
the Company a worldwide, exclusive license to distribute, market, service, sell
and sublicense any and all of Softalk's services and products to commercial
accounts and a worldwide non-exclusive license for individual accounts. In
connection with the license amendment, the Company issued five-year warrants to
purchase the Company's common stock ("the Common Stock") as follows: 3,246,753
exercisable at $3.25 per share; 1,000,000 at $5.00 per share; and 1,000,000 at
$10.00 per share (collectively, the "Warrants"). The issuance of the Warrants
was recorded at an estimated fair value of $154,000 as of the date of the
license amendment.
On November 13, 1999, the Company, through its subsidiary Interpretel (Canada)
Inc. ("Interpretel (Canada)"), entered into an agreement with Softalk, with
respect to the purchase of certain Softalk assets (products and accounts) in
exchange for 4,329,004 shares of Class A non-voting preferred stock of
Interpretel (Canada) (the "Class A shares"). Under the terms of the agreement,
Softalk also granted Interpretel (Canada) a right-of-first-refusal with respect
to the sale of Softalk or any of its intellectual property, software and
patents. The Class A shares are exchangeable on a one-for-one basis for shares
of the Company's Common Stock at any time. The issuance of the Class A shares
was recorded at $10,000,000, the fair value of the Company's Common Shares (into
which the Class A shares can be converted), as of the transaction date.
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On August 6, 1999 the Company established a loan facility in favor of Softalk,
Inc. Under this facility, the Company will loan Softalk a total amount of up to
$2 million, bearing an interest rate of prime (as announced by Citibank in New
York, New York) plus 1%. As of February 29, 2000, the outstanding principal
balance on this credit facility was $984,000. Softalk may, at its option and at
any time, convert any amount of outstanding Principal plus interest accrued
thereon into shares of Softalk capital stock in lieu of and in full satisfaction
of repayment of the principal and interest owed to Wavetech.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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 OF 1993, AS AMENDED, AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THESE STATEMENTS RELATE TO FUTURE
EVENTS, INCLUDING 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 OBLIGATION TO UPDATE ANY FORWARD-LOOKING STATEMENTS CONTAINED IN
THIS REPORT.
OPERATIONS OVERVIEW
During the three-month period ended February 29, 2000, the Company focused
substantially all of its resources on completing the development of its billing
system and integration of its database management software for its Bestnetcall
web-enabled long distance service. The Company began beta testing the
Bestnetcall service in February 2000 to select customers.
Effective November 13, 1999, the Company acquired through its wholly owned
subsidiary, Interpretel (Canada), any existing and future Softalk contracts with
customers, distributors and suppliers, as well as first-right-of-refusal on the
purchase of Softalk, its intellectual property, software code and any patents
owned by Softalk (the "Acquisition"). The Acquisition was consummated in
accordance with the terms of a Purchase Agreement between the Company,
Interpretel (Canada) and Softalk, dated as of October 25, 1999. The aggregate
consideration paid by the Company in connection with the Acquisition was
$10,000,000, consisting of 4,329,004 shares of non-voting Class A Preferred
Stock of Interpretel (Canada) (the "Interpretel Preferred Shares"). Each
Interpretel Preferred Share is exchangeable, at the option of Softalk, for one
share of Wavetech Common Stock. As of the date of this Report, such Interpretel
Preferred shares are exchangeable for approximately 58% of the issued and
outstanding shares of Wavetech Common Stock. The aggregate consideration paid in
the Acquisition was determined through arm's length negotiations between
representatives of the Company and Softalk. Neither the Company nor, to the
knowledge of the Company, any affiliate, director or officer of the Company had
any material relationship with Softalk, except for the existing relationship
between the two companies as reflected by that certain Amended and Restated
License Agreement, dated as of July 30, 1999. See "Business of Issuer and
Subsidiaries" below.
In a separate transaction, the Company and Softalk agreed to amend their
existing Amended and Restated License Agreement, effective October 25, 1999, to
grant Wavetech and its subsidiaries a worldwide exclusive license to distribute,
market, service, sell and sublicense any and all of Softalk's services and
products (whether now existing or hereafter developed or acquired by Softalk) to
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commercial accounts, and a worldwide nonexclusive license to distribute, market,
service, sale and sublicense any and all of Softalk's services and products
(whether now existing or hereafter developed or acquired by Softalk) to
individual customer accounts. In consideration of such Amendment, the Company
issued to Softalk five-year warrants to purchase an aggregate of 5,246,753
shares of Common Stock, 3,246,753 of which have a per share exercise price of
$3.25, 1,000,000 have a per share exercise price of $5.00 and the remaining
1,000,000 have a per share exercise price of $10.00.
The Company also granted Softalk the right to designate two directors to the
Board of Directors of Wavetech, the parent of Interpretel (Canada). Conversely,
Softalk also has granted Wavetech the right to designate one director to the
Softalk Board of Directors. Softalk, as a private company, intends to continue
to develop software and, as required under the agreements between Wavetech and
Softalk, provide technical support to Interpretel (Canada) and Wavetech.
Interpretel (Canada) and Wavetech will provide customer support, billing
services and marketing for Softalk's software products globally on an exclusive
basis to commercial accounts and on a non-exclusive basis to individual consumer
accounts.
BUSINESS OF ISSUER AND SUBSIDIARIES
OVERVIEW
From 1995 until June 1999, the Company created customized calling card services
through the application of "intelligent" call-processing technology and
proprietary software targeted to the business traveler. The Company marketed
these systems to large organizations or companies for their membership base.
With the wide scale deployment of cellular telephones with messaging capability,
the market for business related calling card services greatly diminished. In
June 1999, the Company discontinued its calling card services.
On April 23, 1999, the Company entered into a license agreement with Softalk
(the "License Agreement"), a Toronto, Ontario-based developer of proprietary
Internet Protocol-based ("IP-based") telecommunication technologies (the
"Licensed Technology"). The Licensed Technology enables personal computer users
who access the World Wide Web to make long distance telephone calls at
substantially reduced rates from those offered over the Public Switched
Telephone Network ("PSTN"). The License Agreement grants the Company
non-exclusive rights to market and resell Softalk's patent-pending technology
and, in addition, grants the Company the exclusive right to provide billing and
customer support services for all accounts.
The Company's business strategy is now focused exclusively on marketing the
web-enabled long distance service pursuant to the License Agreement. Bestnetcall
is the Company's brand name for this service. The Company is in the process of
completing final modifications to the customer service, billing and online
enrollment components for the Bestnetcall service. Beta testing is anticipated
to continue until mid-April 2000 at which time the Company anticipates a limited
introduction of the service to select clients on a global basis, followed by a
complete rollout of the service.
FEATURES AND CAPABILITIES OF THE COMPANY'S SERVICE
Bestnetcall allows companies and individuals to initiate long distance calling
telephone calls utilizing the Company's World Wide Website, www.bestnetcall.com,
from anywhere in the world and to complete such telephone calls at substantially
reduced rates. The Company believes that the Licensed Technology provides the
platform for developing 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 addition to the traditional PSTN.
The Company's Bestnetcall service uses existing telephone equipment and does not
require the purchase of hardware or software by the customer; users only need
access to the Internet and an available phone line. Bestnetcall also offers
real-time billing to all users. Following completion of a telephone call, the
total cost for that call may be viewed on the caller's online account.
Bestnetcall also offers convenient speed dialing, personalized directories and
client billing code capabilities.
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RESULTS OF OPERATIONS
SIX MONTHS ENDED FEBRUARY 29, 2000 COMPARED TO SIX MONTHS ENDED
FEBRUARY 28, 1999
REVENUES. The Company had revenues of $463 for the six-month period ended
February 29, 2000, as compared to $5,489 for the prior fiscal period. The
Company focused all of its resources on the development of its new Bestnetcall
service. Revenues generated were attributable to the beta testing of the
Company's Bestnetcall service.
COST OF SALES. Cost of sales increased to $7,366 for the six-month period ended
February 29, 2000 from $7,339 for the six months ended February 28, 1999. Such
costs consisted of expenses incurred in testing the new Bestnetcall service.
Cost of sales for the previous period were costs associated with the sale of
various calling card services, such as long distance and voice and fax mail
services.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $544,612 for the six months ended February 29, 2000, from $335,351
for the prior fiscal period. Marketing and advertising fees increased to $24,768
from zero in the previous year due to costs associated with creation of web
pages for Bestnetcall. Insurance expense increased by $22,875 from zero due to
adding Directors and Officers' liability insurance. Travel expenses increased
$32,107 to $40,648 due to travel necessary to complete the Company's agreements
with Softalk. Payroll expense increased by $54,505 due to the hiring of a sales
person.
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization expenses
increased to $561,411 for the six months ended February 29, 2000, from $52,607
for the six months ended February 28, 1999. This increase was due to
amortization on the higher level of license fees and depreciation for the
additional purchases of equipment, software and computer hardware.
INTEREST INCOME. Interest income decreased to $20,115 for the six months ended
February 29, 2000, from $43,434 for the six months ended February 28, 1999. All
of the Company's interest income during the quarter was from its money market
fund. The decrease was attributable to a lower balance in this account.
INTEREST EXPENSE. Interest expense increased to $34,241 for the six months ended
February 29, 2000, from $5,450 for the six months ended February 28, 1999. The
increase in interest expense was related to a short-term $2,000,000 promissory
note executed on December 21, 1999.
MERGER EXPENSES. The Company had zero costs related to merger expenses for the
current period as compared to $101,176 for the six months ended February 28,
1999. The costs in 1999 were a result of the proposed but terminated merger with
DCI Telecommunications, Inc.
RENTAL INCOME. Effective May 13, 1998, the Company began subletting
approximately 2,000 square feet of its office space for $3,000 per month on a
month-to-month basis.
PREFERRED STOCK CONVERSION PENALTY. The Company incurred monthly liquidated
damages to the Preferred Stock holder equal to 2% of the purchase price of the
Preferred Stock for each month in the quarter.
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 represented a one-time expense and, therefore, there are no similar
expenses for the quarter ended February 29, 2000.
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PREFERRED DIVIDENDS. Preferred dividends decreased to $15,773 for the six months
ended February 29, 2000, from $18,100 for the six months ended February 28,
1999. The decrease was due to a lower number of outstanding shares of Series A
Convertible Preferred Stock; certain shares were converted into Common Stock on
September 1, 1999 and December 10, 1999. Dividends accumulate, with respect to
outstanding shares of the Preferred Stock, at a rate of 6% per annum, 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 elected to
pay the dividends in stock.
THREE MONTHS ENDED FEBRUARY 29, 2000 COMPARED TO THREE MONTHS ENDED
FEBRUARY 28, 1999
REVENUES. The Company had revenues of $463 for the three-month period ended
February 29, 2000, as compared to $2,213 for the prior fiscal period. The
Company focused all of its resources on the development of its new Bestnetcall
service. Revenues generated were attributable to the beta testing of the
Company's Bestnetcall service.
COST OF SALES. Cost of sales increased to $6,566 for the three-month period
ended February 29, 2000 from $2,814 for the three months ended February 28,
1999. Such costs consisted of expenses incurred in testing the new Bestnetcall
service. Cost of sales for the previous period were costs associated with the
sale of various calling card services, such as long distance and voice and fax
mail services.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $274,554 for the three months ended February 29, 2000, from
$162,878 for the prior fiscal period. Professional fees increased by $44,681 to
$53,179 due to increased consultations required and fees for a fairness opinion.
Payroll expense increased by $33,553 to $97,836 due to the hiring of a sales
person. Travel expenses increased $22,095 to $25,671 due to travel necessary to
monitor development and integration of the Bestnetcall system. Insurance expense
increased by $11,438 from zero due to adding Directors and Officers' liability
insurance.
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization expenses
increased to $395,770 for the three months ended February 29, 2000, from $26,304
for the three months ended February 28, 1999. This increase was due to
amortization on the higher level of license fees and depreciation for the
additional purchases of equipment, software and computer hardware.
INTEREST INCOME. Interest income decreased to $13,643 for the three months ended
February 29, 2000, from $19,377 for the three months ended February 28, 1999.
All of the Company's interest income during the quarter was from its money
market fund. The decrease was attributable to a lower balance in this account.
INTEREST EXPENSE. Interest expense increased to $33,421 for the three months
ended February 29, 2000, from $2,139 for the three months ended February 28,
1999. The increase in interest expense was related to a short-term $2,000,000
promissory note executed on December 21, 1999.
MERGER EXPENSES. The Company had zero costs related to merger expenses for the
current period as compared to $90,144 for the three months ended February 28,
1999. The costs in 1999 were a result of the proposed but terminated merger with
DCI Telecommunications, Inc.
RENTAL INCOME. Effective May 13, 1998, the Company began subletting
approximately 2,000 square feet of its office space for $3,000 per month on a
month-to-month basis.
PREFERRED STOCK CONVERSION PENALTY. The Company incurred monthly liquidated
damages to the Preferred Stock holder equal to 2% of the purchase price of the
Preferred Stock for each month in the quarter.
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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.
This cost represented a one-time expense and, therefore, there are no similar
expenses for the quarter ended February 29, 2000.
PREFERRED DIVIDENDS. Preferred dividends decreased to $7,380 for the three
months ended February 29, 2000, from $9,000 for the three months ended February
28, 1999. The decrease was due to a lower number of outstanding shares of Series
A Convertible Preferred Stock; certain shares were converted into Common Stock
on September 1, 1999 and December 10, 1999. Dividends accumulate, with respect
to outstanding shares of the Preferred Stock, at a rate of 6% per annum, 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 elected to
pay the dividends in stock.
LIQUIDITY AND CAPITAL RESOURCES
At February 29, 2000, the Company had cash of $1,416,880. 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. On December 21, 1999, the Company executed a promissory note with a
private lender for $2,000,000, which is due on June 11, 2000. The Company is
currently negotiating additional financing but there can be no assurances that
the Company will be able to obtain additional financing, or that such financing,
if available, will be on terms acceptable to the Company. In the event such
financing is not obtained, the Company's cash flows from operations and its
available capital will be insufficient to meet its current operating expenses or
to repay the $2 million loan. Accordingly, the Company's financial condition
could require that the Company seek the protection of applicable reorganization
laws in order to avoid or delay actions by its creditors which could materially
adversely affect or cause the cessation of the Company's operations. In the
event the Company defaults on the $2 million loan, under the terms of the
promissory note, Softalk will also become obligated on the note and will be
required to grant a license to the lender on substantially the same terms as the
Amended and Restated License Agreement dated July 30, 1999 between Softalk and
Wavetech.
Pursuant to a Letter Agreement by and between Wavetech and Softalk dated August
6, 1999, the Company agreed to loan Softalk up to an aggregate of US $2 million
(the "Principal Amount"), from time to time, but no later than August 6, 2000.
Softalk must repay the Principal Amount outstanding and the accrued interest
thereon on the anniversary of each payment date. At its election, Softalk may
repay the amount due in either cash or by converting the amount due into shares
of Softalk capital stock.
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
The Company did not experience significant operational problems on January 1,
2000 and does not anticipate problems in the future related to the year 2000
issue. The cost and effect on financial results of Year 2000 compliance did not
have a significant impact on operations.
12
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On October 25, 1999, the Company issued to Softalk five-year warrants to
purchase an aggregate of 5,246,753 shares of Common Stock, 3,246,753 of which
have a per share exercise price of $3.25, 1,000,000 have a per share exercise
price of $5.00 and the remaining 1,000,000 have a per share exercise price of
$10.00.
On November 13 1999, the Company, through its wholly owned subsidiary,
Interpretel (Canada), completed the private placement of 4,329,004 shares of
non-voting Class A Preferred Stock of Interpretel (Canada) in consideration for
certain assets of Softalk. The preferred shares were valued of $10,000,000 and
are presently exchangeable, at the option of Softalk, for an aggregate of
4,329,004 shares of the Company's Common Stock. The private placement was
completed pursuant to an exemption from the registration requirements of the
Securities Act of 1933, as amended, and Regulation D promulgated thereunder.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
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.
13
<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: April 14, 2000 WAVETECH INTERNATIONAL, INC.
By: /s/ Gerald I. Quinn
------------------------------------
Gerald I. Quinn
President and Chief Executive Officer
By: /s/ Gerald I. Quinn
-------------------------------------
Gerald I. Quinn
Chief Financial Officer
(Principal Accounting Officer)
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENTS OF OPERATIONS, ENDED
FEBRUARY 29, 2000 AND IS QUALIFIED IN ITS ENTIRED BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-2000
<PERIOD-START> SEP-01-1999
<PERIOD-END> FEB-29-2000
<CASH> 1,416,880
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,426,684
<PP&E> 1,884,549
<DEPRECIATION> (739,717)
<TOTAL-ASSETS> 12,766,679
<CURRENT-LIABILITIES> 2,279,292
<BONDS> 0
0
1
<COMMON> 3,181
<OTHER-SE> 10,484,205
<TOTAL-LIABILITY-AND-EQUITY> 12,766,679
<SALES> 463
<TOTAL-REVENUES> 463
<CGS> 7,366
<TOTAL-COSTS> 7,366
<OTHER-EXPENSES> 1,106,023
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,241
<INCOME-PRETAX> (1,180,582)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,180,582)
<EPS-BASIC> (0.39)
<EPS-DILUTED> (0.39)
</TABLE>
