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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 May 31, 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.
Yes [X] No [ ]
As of June 14, 2000, there were 3,345,549 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--
May 31, 2000 and August 31, 1999............................... 3
Condensed Consolidated Statements of Operations for the
Nine Month Periods Ended May 31, 2000 and May 31, 1999......... 4
Condensed Consolidated Statements of Operations for the
Three Month Periods Ended May 31, 2000 and May 31, 1999........ 5
Condensed Consolidated Statements of Cash Flows for the
Nine Month Periods Ended May 31, 2000 and May 31, 1999......... 6
Notes to Condensed Consolidated Financial Statements--
May 31, 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............................................. 12
ITEM 2. Change in Securities.......................................... 12
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
2
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WAVETECH INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MAY 31, 2000 AND AUGUST 31, 1999
<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
ASSETS 2000 1999
------------ ------------
(unaudited) (Note 1)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,012,509 $ 889,620
Prepaid expenses and other assets 9,733 8,529
Accounts receivable 1,371 0
------------ ------------
Total current assets 3,023,613 898,149
Property and equipment, net accumulated depreciation
$799,700 and $643,771 1,435,062 363,559
License fee, net of amortization of $820,518 and $9,524 8,854,250 190,476
Note receivable from affiliate 1,384,000 100,000
Note receivable from shareholder/director 32,000
Deposits and other assets 13,026 22,211
------------ ------------
Total assets $ 14,741,951 $ 1,574,395
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 272,736 $ 243,029
Notes payable, current portion 0 13,000
Capital lease obligation 3,130 23,680
Dividends payable 25,479 0
Unearned revenue 761 0
------------ ------------
Total current liabilities 302,106 279,709
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, zero and 600 shares issued
and outstanding (liquidation value zero and $600,000) 0 1
Series B preferred stock, 6% cumulative, par value $.001
per share; 10,000,000 shares authorized, 1,000 shares issued
and outstanding (liquidation value $5,000,000) 5 0
Common stock, par value $.001 per share; 50,000,000 shares
authorized, 3,318,881 and 3,021,288 shares issued and outstanding 3,319 3,021
Additional paid in capital 26,528,742 8,757,946
Accumulated deficit (12,092,221) (7,467,861)
------------ ------------
Total stockholders' equity 14,439,845 1,293,107
------------ ------------
Total liabilities and stockholders' equity $ 14,741,951 $ 1,574,395
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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WAVETECH INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTH PERIODS ENDED MAY 31, 2000 AND MAY 31, 1999
2000 1999
----------- -----------
(unaudited) (unaudited)
Revenues $ 6,940 $ 9,173
Expenses:
Cost of sales (exclusive of depreciation and
amortization shown separately below) 24,101 8,793
General and administrative 1,120,626 501,140
Depreciation and amortization 966,922 95,148
----------- -----------
Total expenses 2,111,649 605,081
Net loss from operations (2,104,709) (595,908)
Other income (expense):
Interest income 41,565 59,242
Interest expense (62,928) (7,472)
Merger expenses 0 (118,500)
Miscellaneous income 476 0
Rental income 22,500 27,000
Preferred stock conversion penalty (99,484) (108,000)
Settlement costs 0 (15,000)
Exchange loss (68) 0
----------- -----------
Total other income (expense) (97,939) (162,730)
Net loss before preferred dividends (2,202,648) (758,638)
Cumulative preferred dividends declared
and beneficial conversion deemed dividend 2,412,713 27,300
----------- -----------
Net loss available to common shareholders $(4,615,361) $ (785,938)
=========== ===========
Net loss per common share, basic and diluted $ (1.45) $ (0.25)
=========== ===========
Weighted average number of shares outstanding,
basic and diluted 3,179,863 3,082,553
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See Notes to Condensed Consolidated Financial Statements.
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WAVETECH INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIODS ENDED MAY 31, 2000 AND MAY 31, 1999
2000 1999
----------- -----------
(unaudited) (unaudited)
Revenues $ 6,479 $ 3,683
Expenses:
Cost of sales (exclusive of depreciation and
amortization shown separately below) 16,735 1,454
General and administrative 576,014 165,839
Depreciation and amortization 405,511 42,541
----------- -----------
Total expenses 998,260 209,834
Net loss from operations (991,781) (206,151)
Other income (expense):
Interest income 21,450 15,808
Interest expense (28,687) (2,020)
Merger expenses 0 (17,274)
Miscellaneous income 6 0
Rental income 4,500 9,000
Preferred stock conversion penalty (27,484) (36,000)
Exchange loss (68) 0
----------- -----------
Total other income (expense) (30,283) (30,486)
Net loss before preferred dividends (1,022,064) (236,637)
Cumulative preferred dividends declared and
conversion dividends 2,405,940 9,200
----------- -----------
Net loss available to common shareholders $(3,428,004) $ (245,837)
=========== ===========
Net loss per common share, basic and diluted $ (1.04) $ (0.10)
=========== ===========
Weighted average number of shares outstanding,
basic and diluted 3,306,120 2,574,777
=========== ===========
See Notes to Condensed Consolidated Financial Statements.
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WAVETECH INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE-MONTH PERIODS ENDED MAY 31, 2000 AND MAY 31, 1999
<TABLE>
<CAPTION>
2000 1999
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
Operating activities:
Net loss $(2,202,648) $ (758,638)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 966,922 95,148
Preferred stock conversion penalty 99,484 108,000
Changes in assets and liabilities:
Decrease (increase) in accounts receivable and
other assets 7,815 (1,722)
Increase (decrease) in accounts payable and
accrued expenses 37,968 200,592
(Increase) decrease in prepaid expenses (1,204) 0
(Decrease) in accrued interest payable 0 (4,538)
----------- -----------
Net cash used in operating activities (1,091,663) (361,158)
Investing activities:
Purchase of property and equipment (548,200) (252,444)
Advances to affiliate (1,284,000) 0
Payment for acquisition of licensing rights 0 (200,000)
Decrease (increase) in other long term assets 0 5,000
(Increase) decrease in notes receivable to
shareholder/director (32,000) 0
----------- -----------
Net cash used in investing activities (1,864,200) (447,444)
Financing activities:
Increase (decrease) in notes payable (13,000) 0
Principal payments on capital lease obligation (22,129) (33,732)
Dividends paid in cash on preferred stock 0 (18,400)
Sale of common stock 5,113,881 8,750
----------- -----------
Net cash used in financing activities 5,078,752 (43,382)
Net increase (decrease) in cash 2,122,889 (851,984)
Cash and cash equivalents, beginning of period 889,620 2,202,573
----------- -----------
Cash and cash equivalents, end of period $ 3,012,509 $ 1,350,589
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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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 nine-month period ended May 31,
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 nine-month period ended May 31,
1999, has been reclassified to conform to the presentation used for the
nine-month period ended May 31, 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 potentially dilutive
securities (preferred stock, stock options and warrants) is anti-dilutive
(decreases 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 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.
On August 6, 1999, the Company established a loan facility in favor of Softalk,
Inc. Under this facility, the Company has agreed to loan Softalk up to $2
million, bearing an interest rate of prime (as announced by Citibank in New
York, New York) plus one percent (1%). As of May 31, 2000, the outstanding
principal balance on this credit facility was $1,384,000. 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.
The number of shares of Softalk capital stock which may be issued to the Company
for repayment of the full $2 million would be equal to ten percent (10%) of the
value of Softalk at the time of repayment. If the outstanding principal balance
is less than $2 million, then the number of shares of Softalk capital stock
issued to the Company would be calculated on a pro-rated basis.
Management believes that its $1,384,000 of advances to Softalk are
recoverable, if not repaid, through conversion of such advances into equity
of Softalk. Should such a conversion occur, the Company would own 6.92% of
Softalk (based upon the $1,384,000) advances through May 31, 2000).
Management believes that as of May 31, 2000, Softalk as a whole is worth at
least $20,000,000 given that their equity holding in Wavetech is currently
valued in excess of $30 million and combined with their intellectual
property, code, new products and patents pending, their value would increase
on a minimum basis to over $40 million. The Company believes the real value
in Softalk is in its intellectual property, code, patents pending and the
revenue potential of the products it has commercialized over the past year
through royalties from Wavetech and other potential licensees. Within the
last year, Softalk was offered $10 million for a fifty percent (50%)
interest in the company, which was turned down.
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On March 1, 2000, the Company executed a promissory note for $32,000 payable to
Rosnani Atan, a director, officer and shareholder of Softalk and a contract
employee and member of the Board of Directors of Wavetech. The note is payable
in equal installments of $4,356.55 on each of June 1, September 1, December 1
and March 1 over the next two years. The note bears interest at the rate of
seven and three quarters percent (7.75%), which is prime less one percent, as
adjusted June 1, September 1, December 1 and March 1 of each year in advance.
NOTE 4 -- SERIES B PREFERRED STOCK ISSUANCE
On May 1, 2000, the Company completed a $5,000,000 private placement of Series B
Preferred Stock and common stock purchase warrants (the "Warrant") with an
accredited investor. The financing consisted of 1,000 shares of Series B
Preferred Stock and a Warrant to purchase 160,000 shares of common stock. The
Series B Preferred Stock carries a dividend of 6% and a conversion price equal
to the lower of 80% of the average closing bid prices of the Company's common
stock for the three lowest trading days of the 10 consecutive trading days
immediately preceding the conversion date or 110% of the average closing bid
prices of the Company's common stock for the five trading days prior to the date
of issuance of the Series B Preferred Stock. The Warrant has a term of three
years and is exercisable at a price of $0.01 for all 160,000 shares of common
stock. The Company also issued a warrant to purchase 43,371 shares of common
stock to the placement agent in the private placement (the "Agent Warrant"). The
Agent Warrant has a term of three years and a per share exercise price of $8.07.
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 nine-month period ended May 31, 2000, the Company completed
development of its website, billing system and integration of its database
management software for its web-enabled long distance service, Bestnetcall. The
Company beta tested the Bestnetcall service from February until April 2000 at
select customers. On April 17, 2000, Bestnetcall was made available to the
public through the Company's website www.bestnetcall.com. In May 2000, the
Company began direct marketing initiatives to businesses with international
locations and/or clientele, and also placed strategic advertisements in various
publications.
Effective November 13, 1999, the Company acquired through its wholly owned
subsidiary, Interpretel (Canada), the existing and future Softalk contracts with
customers, distributors and suppliers, as well as a first-right-of-refusal with
respect to the sale of Softalk or any of its intellectual property, software and
patents (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 "Class A Shares"). Each Class A Share is exchangeable, at the option of
Softalk, for one share of Wavetech common stock at any time. As of the date of
this Report, such Class A 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
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 as follows: 3,246,753 at a per share exercise price of
$3.25, 1,000,000 at a per share exercise price of $5.00 and the remaining
1,000,000 at a per share exercise price of $10.00.
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The Company also granted Softalk the right to designate two directors to the
five-person Board of Directors of Wavetech, the parent of Interpretel (Canada).
Similarly, Softalk also has granted Wavetech the right to designate one director
to the three member 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, as amended, 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.
Between April 1999 and April 2000, the Company developed its Bestnetcall
service, utilizing the Licensed Technology, and launched the service on April
17, 2000. The Company's business strategy is now focused exclusively on
marketing Bestnetcall to businesses with international locations and/or
clientele pursuant to the License Agreement. The Company is in the process of
developing enhancements to the service which will include conference calling and
an improved graphical user interface and desktop version.
FEATURES AND CAPABILITIES OF THE COMPANY'S SERVICE
Bestnetcall allows companies and individuals to initiate long distance telephone
calls utilizing the Company's website, www.bestnetcall.com, from anywhere in the
world and to complete such telephone calls at substantially reduced rates. Users
of the Bestnetcall service are able to enroll, place calls, pay for service and
access customer service real-time on the Internet by accessing the Company's
website. Bestnetcall does not require the purchase of special hardware or
software by the customer and uses their existing telephone equipment. Users only
need access to the Internet.
Bestnetcall also offers real-time billing to all users and accepts various
payment methods, including pre-paid or post-paid credit card payments and
invoicing options. 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, client billing codes,
world-time country and city code lookups and real time talk with customer
service via the website. Account administrators may add or delete users, view
users calling activity and create reports detailing call activity.
RESULTS OF OPERATIONS
NINE MONTHS ENDED MAY 31, 2000 COMPARED TO NINE MONTHS ENDED MAY 31,1999
REVENUES. The Company had revenues of $6,940 for the nine-month period ended May
31, 2000, as compared to $9,173 for the prior fiscal period. Current period
revenues were derived from beta testing and customer usage of the Bestnetcall
services. Prior year revenues were from the sale of various calling card
services, such as long distance and voice and fax mail services.
COST OF SALES. Cost of sales increased to $24,101 for the nine-month period
ended May 31, 2000, from $8,793 for the nine months ended May 31, 1999. These
costs consisted of long distance costs from carriers for the Bestnetcall
service. Cost of sales for the previous period were costs associated with the
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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 $1,120,626 for the nine months ended May 31, 2000, from $501,140
for the prior fiscal period. Marketing and advertising fees increased to
$177,845 from zero in the previous year due to costs associated with creation of
web pages and marketing efforts of Bestnetcall. Insurance expense increased by
$34,313 from zero due to adding Directors and Officers' liability insurance.
Travel expenses increased $42,328 to $55,193 due to travel necessary to complete
the Company's agreements with Softalk. Payroll expense increased by $59,136 due
to the hiring of additional staff.
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization expenses
increased to $966,922 for the nine months ended May 31, 2000, from $95,148 for
the nine months ended May 31, 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 $41,565 for the nine months ended
May 31, 2000, from $59,242 for the nine months ended May 31, 1999. All of the
Company's interest income during the quarter was from its money market fund. The
decrease was attributable to a lower average balance in this account.
INTEREST EXPENSE. Interest expense increased to $62,928 for the nine months
ended May 31, 2000, from $7,472 for the nine months ended May 31, 1999. The
increase in interest expense was related to a short-term $2,000,000 promissory
note executed on December 21, 1999. The principal and accrued interest on this
note were repaid on May 4, 2000.
MERGER EXPENSES. The Company had zero costs related to merger expenses for the
current period as compared to $118,500 for the nine months ended May 31, 1999.
The costs in 1999 were the 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. This sublease agreement ended on May 15, 2000.
PREFERRED STOCK CONVERSION PENALTY. The Company incurred monthly liquidated
damages to the holder of its Series A Convertible Preferred Stock ("the Series A
Preferred Stock") equal to 2% of the purchase price of the Preferred Stock for
each month in the quarter. On May 11, 2000, the remaining shares of Series A
Preferred Stock were converted into common stock. All shares due for accrued
penalties payable were issued on May 15, 2000.
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 May 31, 2000.
PREFERRED DECLARED AND DEEMED DIVIDENDS. Preferred dividends increased to
$2,412,713 for the nine months ended May 31, 2000, from $27,300 for the nine
months ended May 31, 1999. An increase of $25,479 was due to dividends payable
on the 5,000 outstanding shares of Series B Preferred Stock. Dividends
accumulate, with respect to the outstanding shares of the Series B Preferred
Stock, at a rate of six percent (6%) per annum, and may be paid in cash or in
shares of common stock of the Company, at the Company's option. Dividends for
the Series A Preferred Stock were $21,234 for the nine months ended May 31,
2000. Dividends accumulate, with respect to the Series A Preferred Stock, at a
rate of six percent (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. All
remaining shares of Series A Preferred Stock were converted into common stock on
May 11, 2000. All shares for accrued dividends payable for the Series A
Preferred Stock were issued on May 15, 2000. On May 1, 2000, the Company
completed a $5,000,000 private placement of Series B Preferred Stock and common
stock purchase warrants with an accredited investor. Assuming the conversion of
the Series B Preferred Stock on May 1, 2000, such shares would have been
convertible into an aggregate of 1,000,000 shares of common stock based on a
conversion ratio, and result in a beneficial conversion deemed dividend of
approximately $2.4 million in May of 2000.
THREE MONTHS ENDED MAY 31, 2000 COMPARED TO THREE MONTHS ENDED MAY 31, 1999
REVENUES. The Company had revenues of $6,479 for the three-month period ended
May 31, 2000, as compared to $3,683 for the prior fiscal period. Current period
revenues were derived from beta testing and customer usage of the Bestnetcall
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services. Prior year revenues were from the sale of various calling card
services, such as long distance and voice and fax mail services.
COST OF SALES. Cost of sales increased to $16,735 for the three-month period
ended May 31, 2000 from $1,454 for the three months ended May 31, 1999. These
costs consisted of long distance costs from carriers for the 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 $576,014 for the three months ended May 31, 2000, from $165,839 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 additional staff.
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. Marketing and advertising fees increased to $153,076 from zero in the
previous fiscal period due to costs associated with creation of web pages and
marketing efforts of the Bestnetcall service.
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization expenses
increased to $405,511 for the three months ended May 31, 2000, from $42,541 for
the three months ended May 31, 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 increased to $21,450 for the three months ended
May 31, 2000, from $15,808 for the three months ended May 31, 1999. All of the
Company's interest income during the quarter was from its money market fund.
INTEREST EXPENSE. Interest expense increased to $28,687 for the three months
ended May 31, 2000, from $2,020 for the three months ended May 31, 1999. The
increase in interest expense was related to a short-term $2,000,000 promissory
note executed on December 21, 1999. The principal and accrued interest on this
note were repaid on May 4, 2000.
MERGER EXPENSES. The Company had zero costs related to merger expenses for the
current period as compared to $17,274 for the three months ended May 31, 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. This sublease agreement ended on May 15, 2000.
PREFERRED STOCK CONVERSION PENALTY. The Company incurred monthly liquidated
damages to the holder of its Series A Preferred Stock equal to 2% of the
purchase price of the Preferred Stock for each month in the quarter. On May 11,
2000, the remaining shares of Series A Preferred Stock were converted into
common stock. All shares due for accrued penalties payable were issued on May
15, 2000.
PREFERRED DECLARED AND DEEMED DIVIDENDS. Preferred dividends increased to
$2,405,940 for the three months ended May 31, 2000, from $9,200 for the three
months ended May 31, 1999. An increase of $25,479 was due to dividends payable
on the 5,000 outstanding shares of Series B Preferred Stock. Dividends
accumulate, with respect to the outstanding shares of the Series B Preferred
Stock, at a rate of six percent (6%) per annum, and may be paid in cash or in
shares of common stock of the Company, at the Company's option. Dividends for
the Series A Preferred Stock were $5,461 for the three months ended May 31,
2000. Dividends accumulate, with respect to the Series A Preferred Stock, at a
rate of six percent (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. All
remaining shares of Series A Preferred Stock were converted into common stock on
May 11, 2000. All shares for accrued dividends payable for the Series A
Preferred Stock were issued on May 15, 2000. On May 1, 2000, the Company
completed a $5,000,000 private placement of Series B Preferred Stock and common
stock purchase warrants with an accredited investor. Assuming the conversion of
the Series B Preferred Stock on May 1, 2000, such shares would have been
convertible into an aggregate of 1,000,000 shares of common stock based on a
conversion ratio, and result in a beneficial conversion deemed dividend of
approximately $2.4 million in May of 2000.
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LIQUIDITY AND CAPITAL RESOURCES
At May 31, 2000, the Company had cash of $3,012,509. 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 May 1, 2000, the Company completed a $5,000,000 private placement of Series B
Preferred Stock and common stock purchase warrants (the "Warrant") with an
accredited investor. The financing consisted of 1,000 shares of Series B
Preferred Stock and a Warrant to purchase 160,000 shares of common stock. The
Series B Preferred Stock carries a dividend of 6% and a conversion price equal
to the lower of 80% of the average closing bid prices of the Company's common
stock for the three lowest trading days of the 10 consecutive trading days
immediately preceding the conversion date or 110% of the average closing bid
prices of the Company's common stock for the five trading days prior to the date
of issuance of the Series B Preferred Stock. The Warrant has a term of three
years and is exercisable at a price of $0.01 for all 160,000 shares of common
stock. The Company also issued a warrant to purchase 43,371 shares of common
stock to the placement agent in the private placement (the "Agent Warrant"). The
Agent Warrant has a term of three years and a per share exercise price of $8.07.
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 $2,000,000
(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.
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 as follows: 3,246,753
shares at a per share exercise price of $3.25, 1,000,000 shares at a per share
exercise price of $5.00 and the remaining 1,000,000 shares at 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 at $10,000,000 and
are presently exchangeable, at the option of Softalk, on a one-for-one basis 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.
On May 1, 2000, the Company completed a $5,000,000 private placement of Series B
Preferred Stock and common stock purchase warrants (the "Warrant") with an
accredited investor. The financing consisted of 1,000 shares of Series B
Preferred Stock and a warrant to purchase 160,000 shares of common stock. The
Preferred Stock carries a dividend of 6% and a conversion price equal to the
lower of 80% of the average closing bid prices of the Company's common stock for
the three lowest trading days of the 10 consecutive trading days immediately
preceding the conversion date or 110% of the average closing bid prices of the
Company's common stock for the five trading days prior to the date of issuance
of the Preferred Stock. The warrant has a term of three years and is exercisable
at a price of $0.01 for all 160,000 shares of common stock.
The Company also issued a warrant to purchase 43,371 shares of common stock to
the placement agent in the private placement (the "Agent Warrant"). The Agent
Warrant has a term of three years and a per share exercise price of $8.07.
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In connection with the issuance of the Series B Preferred Stock and Warrant, the
Company has granted the holder certain registration rights pursuant to a
Registration Rights Agreement.
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
On May 16, 2000, the Company filed an 8-K to report the completion of
the $5,000,000 private placement of Series B Preferred Stock and common
stock purchase warrants with an accredited investor.
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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: July 21, 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)
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