As filed with the Securities and Exchange Commission on July 27, 2000
Registration No. 333-39378
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
AMENDMENT NO. 1
TO
FORM S-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
WAVETECH INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Nevada 86-0916826
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
5210 East Williams Circle, Suite 200, Tucson, Arizona 85711
(520) 750-9093
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Gerald I. Quinn
Wavetech International, Inc.
5210 East Williams Circle, Suite 200, Tucson, Arizona 85711
(520) 750-9093
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Gregory R. Hall, Esq.
Squire, Sanders & Dempsey L.L.P.
Two Renaissance Square
40 North Central Avenue, Suite 2700
Phoenix, Arizona 85004
(602) 528-4000
APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC: As soon as practicable after
the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462 (b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==================================================================================================
Proposed Maximum Proposed Maximum
Title of Securities Amount to be Offering Price Per Aggregate Amount of
to be Registered Registered (1) Unit (2) Offering Price (2) Registration Fee
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock,
par value $0.001 2,318,786 $7.06 $16,370,629 $4,321.85
==================================================================================================
</TABLE>
(1) Includes (i) up to 956,022 shares of Common Stock to be issued upon
conversion of Series B Convertible Preferred Stock, (ii) up to 203,371 shares of
Common Stock to be issued upon exercise of warrants and (iii) an indeterminate
number of additional shares of Common Stock as may from time to time be issuable
upon conversion of the Series B Convertible Preferred Stock and exercise of the
warrants by reason of stock splits, stock dividends and similar transactions,
which shares are registered hereunder pursuant to Rule 416 under the Securities
Act of 1933, as amended.
(2) Estimated solely for the purpose of calculating the registration fee
required by Section 6(b) of the Securities Act of 1933, as amended, pursuant to
Rules 457(c) and 457(h) under the Securities Act, on the basis of the average of
the high and low prices for shares of Common Stock as reported by the Nasdaq
Over the Counter Bulletin Board on June 12, 2000.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SELLING SECURITYHOLDER MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED JULY 27, 2000
PROSPECTUS
2,318,786 SHARES
WAVETECH INTERNATIONAL, INC. COMMON STOCK
This prospectus relates to registering for resale shares of common stock
underlying Warrants and Series B Preferred Stock previously issued by Wavetech
International, Inc. in connection with a private placement of our Warrants and
Series B Preferred Stock.
We will not receive any proceeds from the sale of the shares. If all the
warrants we issued under the private placement are exercised, we will receive up
to $350,000 of the warrant exercise price.
The selling shareholders identified in this prospectus, or their pledgees,
donees, transferees or other successors-in-interest, may offer the shares from
time to time through public or private transactions at prevailing market prices
or at privately negotiated prices.
Our common stock is traded on the NASDAQ Over-the-Counter Bulletin Board
under the symbol "ITEL." On May 30, 2000, the closing sale price of our common
stock was $6.8125.
Investing in our common stock involves a high degree of risk. See "Risk
Factors" on page 18.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is _______, 2000.
<PAGE>
We have not authorized any person to provide you with information different
from that contained or incorporated by reference in this prospectus. The selling
shareholders are offering to sell, and seeking offers to buy, shares of our
common stock only in jurisdictions where offers and sales are permitted. The
information contained in this prospectus is accurate only as of the date of this
prospectus, regardless of the time of delivery of this prospectus or of any sale
of common stock.
TABLE OF CONTENTS
Page
----
Where You Can Find More Information 2
Incorporation of Documents by Reference 2
Summary 3
The Offering 17
Risk Factors 18
Use of Proceeds 24
Market for Common Equity and Related Stockholder Matters 24
Selling Shareholders 25
Determination of Offering Price 26
Plan of Distribution 26
Description of Securities 28
Legal Matters 31
Experts 31
Information with Respect to the Registrant 31
Disclosure of Commission Position on Indemnification for
Securities Act Liabilities 31
<PAGE>
Wavetech International, Inc.
5210 East Williams Circle, Suite 200
Tucson, Arizona 85711
Telephone: (520) 750-9093
THE OFFERING
In our May 1, 2000 private placement we issued 1,000 shares of our Series B
Convertible Preferred Stock and warrants to purchase 203,371 shares of our
common stock. Assuming we received notice of conversion on June 13, 2000, the
Series B Convertible Preferred Stock are convertible into 956,022 shares of our
common stock. The investor in the private placement received 1,000 shares of
preferred stock and a warrant to purchase 160,000 shares of common stock. A
warrant to purchase 43,371 shares of common stock was issued to the placement
agent that assisted the Company in completing the private placement. Pursuant to
a Registration Rights Agreement dated May 1, 2000, we are registering the resale
of the common stock underlying the preferred stock and warrants. The total
number of shares of common stock covered by this prospectus is 2,318,786. The
investor and placement agent are collectively referred to in this prospectus as
selling shareholders. They can use this prospectus to sell to other purchasers
some or all of the shares of common stock they will receive by converting the
preferred stock to common stock and exercising their warrants. The selling
shareholders may sell the common stock in ordinary broker's transactions,
directly to market brokers in our common stock, in private transactions or any
other method of distribution described under the section in this prospectus
entitled "Plan of Distribution."
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file reports and other information with the U.S. Securities and Exchange
Commission. You may read and copy any document that we file at the SEC's public
reference facilities at 450 Fifth Street N.W., Room 1024, Washington, D.C.
20549. Please call the SEC at 1-800-732-0330 for more information about its
public reference facilities. Our SEC filings are also available to you free of
charge at the SEC's web site at http://www.sec.gov.
Copies of publicly available documents that we have filed with the SEC can
also be inspected and copied at the offices of the National Association of
Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
This prospectus is a part of the registration statement that we filed on
Form S-2 with the SEC. The registration statement contains more information than
this prospectus about us and our common stock, including exhibits and schedules.
You should refer to the registration statement for additional information about
us and the common stock being offered in this prospectus. Statements that we
make in this prospectus relating to any documents filed as an exhibit to the
registration statement or any document incorporated by reference into the
registration statement may not be complete and you should review the referenced
document itself for a complete understanding of its terms.
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with them. This means that we can disclose information to you by referring you
to those documents. The documents that have been incorporated by reference are
an important part of the prospectus, and you should review that information in
order to understand the nature of any investment by you in the common stock.
Information contained in this prospectus automatically updates and supersedes
previously filed information. We are incorporating by reference the documents
listed below and all of our filings pursuant to the Exchange Act after the date
of filing the initial registration statement and prior to the effectiveness of
the registration statement.
* our annual report on Form 10-KSB for the fiscal year ended August 31,
1999;
* our quarterly reports on Form 10-QSB for the quarterly periods ended
November 30, 1999, February 29, 2000 and May 31, 2000;
* our current report on Form 8-K dated May 1, 2000;
* the description of our common stock included in our Registration
Statement on Form 8-A, filed March 11, 1987.
If you would like a copy, at no cost, of any of these documents, please
write or call us at:
Wavetech International, Inc.
5210 East Williams Circle, Suite 200
Tucson, Arizona 85711
Attn: Corporate Secretary
Telephone: (520) 750-9093
You should only rely upon the information included in or incorporated by
reference into this prospectus or in any prospectus supplement that is delivered
to you. We have not authorized anyone to provide you with additional or
different information. You should not assume that the information included in or
incorporated by reference into this prospectus or any prospectus supplement is
accurate as of any date later than the date on the front of the prospectus or
prospectus supplement.
2
<PAGE>
SUMMARY
THIS SUMMARY SHOULD BE READ BY YOU TOGETHER WITH THE MORE DETAILED
INFORMATION IN OTHER SECTIONS OF THIS PROSPECTUS. YOU SHOULD ALSO CAREFULLY
CONSIDER THE FACTORS DESCRIBED UNDER "RISK FACTORS" AT PAGE 18 OF THIS
PROSPECTUS. THROUGHOUT THIS PROSPECTUS, WE REFER TO WAVETECH INTERNATIONAL, INC.
AS "WAVETECH," "COMPANY," "WE," "OUR," "OURS," AND "US."
THE COMPANY
Founded on July 10, 1986, Wavetech International, Inc. is a Nevada
corporation which develops, prepares, markets and sells interactive
communication systems to reflect or target the needs of a specific audience.
Our principal executive offices are located at 5210 East Williams Circle,
Suite 200, Tucson, Arizona 85711. Our telephone number is (520) 750-9093.
Wavetech wholly owns its three subsidiaries, Interpretel, Inc., Interpretel
(Canada) Inc. and Telplex International Communications, Inc.
OUR OPERATIONS
Although the Company was founded in 1986, we did not begin our operations
until 1995. From 1995 until June 1999, the Company developed proprietary
software for customized calling card services and created an infrastructure to
market and distribute its product and services. During this period, the
Company's efforts were primarily focused on hiring management and other key
personnel, raising capital, procuring governmental authorizations and space in
central offices, acquiring equipment and facilities, developing, acquiring and
integrating billing and database systems. We marketed these systems to the
business traveler and to large organizations or companies with a membership
base. In the late 1990's, due to the wide scale deployment of cellular
telephones with messaging capability, the market for business related calling
card services greatly diminished. In June 1999, we discontinued our calling card
services. Since then, we have focused substantially all of our efforts and
resources on developing our Bestnetcall web-enabled long distance service.
On April 23, 1999, we entered into a licensing agreement with Softalk,
Inc., a technology company based in Ontario, Canada. Softalk develops
proprietary Internet Protocol-based telecommunication technologies. Softalk's
technology allows people to initiate long distance calls from anywhere in the
world by accessing a specific Internet website. International telephone calls
may be made at substantially reduced rates from those offered by the Public
Switched Telephone Network (PSTN), i.e., telephone calls made via traditional
long distance carriers. This licensing agreement granted certain marketing and
customer service rights to Wavetech.
The licensing agreement was later amended and restated on July 30, 1999, to
grant us exclusive rights to distribute, market, service, sell and sublicense
Softalk's services and products to commercial accounts and a worldwide
non-exclusive license for individual accounts. We also have the exclusive right
to provide billing and customer support services for all customer accounts.
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<PAGE>
Subsequent to entering into the licensing agreement, the Company engaged in
the build-out of telecommunication facilities in Toronto, Canada, including
deployment of high-capacity switches, Internet servers, and completion of
specialized software used for data management, billing and customer service
requirements.
Our brand name for our web-enabled long distance service is Bestnetcall,
which was first made available to the public on April 17, 2000. We are presently
focusing our resources on marketing Bestnetcall to selected companies with
international locations and/or clients.
Users of our Bestnetcall service are able to enroll, place calls, pay for
service and access customer service real-time on the Internet by accessing our
website at www.bestnetcall.com. 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 and an available phone line.
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. Call detail records may be printed or
exported to Word or Excel applications. The Bestnetcall service also includes
convenient speed dialing, personalized directories, client billing codes,
world-time country/city code lookup 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.
MARKETING AND SALES STRATEGY
We intend to offer our Bestnetcall service through both direct sales and
indirect sales channels. Our initial target markets will include:
* Governments
* Business and Industry
* Commercial Development Companies
* Telecom Carriers
* Internet Service Providers (ISPs)
* Browser Based Services (Internet Explorer, Yahoo, Amazon.com, etc.)
* Affinity Groups
* Other Organizations (charities, religious organizations, schools,
alumni associations, etc.)
These marketing efforts will be targeted at international long distance
users in a number of key geographic areas in the world. The Company's marketing
priorities will be focused primarily on the following geographic regions:
* Caribbean
* North America
* Asia Pacific
* Central & South America
* Europe
* Middle East
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DIRECT SALES
We intend to employ the following marketing and sales strategy to generate
revenue and obtain and increase customer usage:
* Direct Mail and E-mail Solicitations - We intend to send testimonial
advertisements to prequalified potential users. These advertisements
will refer or link the recipient to www.bestnetcall.com and extend an
offer to subscribe to the Bestnetcall service. Recipients will be
invited to use the service or request more information. These direct
mail or e-mail solicitations will be carried out on a continuous basis
by an in-house staff of direct marketing specialists located in our
Tucson, Arizona offices.
* Telemarketing - Telemarketing operations will be initiated out of our
Tucson, Arizona offices targeted at specific market segments. We
believe Tucson is an ideal center for customer service and
telemarketing due to its relatively low wages and inexpensive space.
There also is an abundance of experienced telemarketing personnel and,
with the 40,000 student University of Arizona located in Tucson, we
have access to individuals who speak many different languages to place
calls to areas outside the United States.
* Media Advertising and Promotion - The Company intends to place
advertisements in key print and electronic media targeted at specific
market segments. These advertisements will be designed to elicit
direct responses and/or activations. Incentives will be included in
the advertisements. Testimonials by key customers representing
different market segments will be used to advocate the use of our
service and encourage a visit to our Bestnetcall web site.
* Public Relations Activities - The Company intends to hire an
experienced corporate communications and public relations specialist
to work with an international public relations firm and the media in
the development of a comprehensive global communications program which
will feature print articles in industry and trade specific
publications, local print media and feature editorial support.
INDIRECT SALES
Indirect sales efforts will be centered around the following four types of
organizations:
* Carriers - The Bestnetcall internet telephony services will be made
available to carriers such as Local Exchange Carriers (LEC), Competing
Local Exchange Carriers (CLEC), foreign carriers, pager companies,
Internet Service Providers (ISP), cell phone companies and wireless
carriers for resale to their clients. These types of indirect sales
organizations will be solicited through direct mail, e-mail,
telemarketing initiatives, fax and direct sales calls by Company
personnel.
5
<PAGE>
* Professional Service Firms - Accounting firms, consultants, and legal
firms will be solicited to use the service and provide Bestnetcall to
their clients as a means of saving money on international long
distance calls.
* Retailers - We intend to approach large retailers to offer our
services to their credit card holders as a value-added service. These
relationships are revenue sharing initiatives with the retail
organization receiving a negotiated percentage of gross revenue
generated by our services.
* Agent/Distributors - Organizations with large client or member bases
who may be a user of our services will also be encouraged to offer the
services to their clients or members. Computer companies, commercial
property development companies, banks, associations, affinity groups,
etc. will be offered the ability to participate in a revenue sharing
program with us by offering Bestnetcall to their customers or members.
Revenue sharing is expected to be between 5% and 10% of net revenue.
PROJECT MANAGERS
We intend to hire four project managers to sell, maintain and service major
accounts. The managers will primarily focus their efforts on encouraging use and
sales by carrier groups, professional organization retailers and agent
distributors.
INDUSTRY BACKGROUND AND MARKET DEMAND
According to industry sources, telecommunication service providers' global
revenue is expected to reach US$975 billion in the year 2000. A number of
industry studies have mapped international telephone traffic patterns. Current
forecasts call for a total of 106 billion minutes of international telephone
traffic in the year 2000. Valued at a normal price of US$0.25 per minute, this
would represent a global market of approximately US$26.5 billion, although the
Company believes the real market value will likely be two to three times that
number.
The primary reasons for the continued use of telephone company lines versus
the alternatives found in satellite, Internet and cable systems include:
* Speed of communication
* Quality of communication
* Reliability of communication
* Ease of operation
The global telecommunications industry has been highly regulated. However,
over the past several years, North America has enjoyed significant deregulation,
which has resulted in a highly competitive long distance service industry. The
U.S. and Canada have among the lowest telephone rates in the world and the U.S.
has emerged as the lowest cost supplier of long distance rates. U.S.
deregulation has resulted in sizeable reductions in the wholesale cost of long
distance services available to long distance resellers.
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<PAGE>
Although declining rates have been symbolic in the U.S. and Canadian long
distance markets, we believe international rates from and to other countries
have been slow to decline for two major reasons:
* Management of foreign telephone companies (TelCo) have been reluctant
to reduce their rates given their monopoly-like status.
* Foreign governments appear to be reluctant to take on the strong TelCo
unions.
In the long term, the Company believes it is unlikely that these high rates
can be maintained as new technologies render the TelCo monopolies ineffective.
Such new technologies have evolved around the emergence of the Internet as
a mass communications and commerce medium. As a result, the Internet has emerged
as an attractive medium for advertising and e-commerce. Jupiter Communications,
a provider of research on Internet commerce, estimates that Internet advertising
will grow from $1.9 billion in 1998 to $7.7 billion in 2002. Forrester Research,
Inc., an independent Internet research firm that analyzes the impact of the
Internet and emerging technologies on business strategy, projects that
business-to-business Internet advertising will expand from $290 million in 1998
to $2.6 billion in 2002.
Along with the impressive overall growth of the Internet,
business-to-business usage is also growing rapidly, as businesses are
increasingly leveraging the Internet's ability to reach highly targeted
audiences globally, deliver personalized content and open new distribution
channels. Forrester forecasts that business-to-business e-commerce will grow to
$17 billion in 2002.
Traditionally, companies have employed a variety of well-recognized media
in business-to-business advertising, information delivery and communications to
identify, qualify and facilitate commerce opportunities. Of the media serving
the business-to-business community, a number of companies have started Internet
telephony operations in the last few years. The intense competition in the
telecommunications market, together with the growth of e-commerce, has further
necessitated a movement towards exploring new methods for decreasing costs and,
accordingly, has resulted into the genesis of Internet telephony.
Since the Internet, like PSTNs, is comprised of many networks, the benefits
of economies of scale are already imbued in the system. According to Frost &
Sullivan, an international marketing and consulting company that monitors
information and telecommunications markets, the new international standards are
expected to result in significant growth in the Internet telephony market in the
near future. Frost & Sullivan projects that the Pacific Rim, Europe and
so-called "Rest-of the-World" markets will account for 73% of the total Internet
telephony market by 2002. We believe these projections support the Company's
market strategy of targeting businesses outside of North America or North
American businesses with offices worldwide.
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WAVETECH'S SOLUTION
Under its licenses from Softalk, the Company intends to provide commercial
voice quality Internet-based long distance services to corporate and residential
subscribers. The Company's web-based solution offers subscribers access to low
cost long distance rates by using the Internet as the means to launch calls and
to view billing within seconds after completing a call.
This technology blends the best of current systems using commercial PSTN
for voice quality and the Internet for control and access. Bestnetcall provides
a user anywhere in the world access to the U.S. telecom infrastructure while not
infringing upon international telecom agreements.
Users making calls from the Caribbean to the U.S. would operate over the
same network as users from the U.S. making calls to the Caribbean, thus
eliminating the middle retailers. This ensures the lowest pricing structure on a
long-term basis.
The Company provides customers access to its network, using international,
standards-based Internet and telephony architecture deployed through its point
of presence (POP), in Toronto, Canada. Additional POPs are planned for
deployment in major cities in North America, Asia and Europe.
BESTNETCALL
Our Bestnetcall service is an Internet-enabled toll quality long distance
and call management service targeted primarily to businesses. Using a web
browser, subscribers may place calls by entering their location telephone number
and the destination telephone number. A data packet is transmitted over the
Internet to our web server, which in turn communicates with a switching matrix.
The switching matrix launches a call through the PSTN back to the subscriber's
telephone and then launches a call to the destination number. Both calls are
then bridged and the two calls are connected.
By using our Bestnetcall service, North American subscribers can save an
average of 50 - 75% over traditional international long distance costs.
Subscribers outside North America can save an average of 75 - 90% over
traditional long distance costs charged by their local carriers. Set forth below
is a diagram which illustates how Bestnetcall works.
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[BESTNETCALL.COM LOGO]
Toronto POP
Web Switch
Server ----------- Matrix
(UUNet) (Leased Line)
| |
| |
Internet PSTN
(data) (voice)
| | |
| | |
| | |
www.bestnetcall.com Origination Call Destination Call
(US) (UK)
Figure 1: Bestnetcall - Call Infrastructure
BESTNETCALL - VERSION 1.5
The current version of Bestnetcall was specifically designed for corporate
users to make and manage international and long-distance calls. Bestnetcall
provides a comprehensive suite of call management features residing on the
subscriber's desktop. Current active features include:
* Custom directories - Users are given two directories, one for storing
origination numbers and the second for storing destination numbers.
There is no limit to the number of telephone numbers that can be
populated in the two directories. The Company is currently creating a
customized directory that can be automatically populated by a
LAN-based, company/department-wide directories, such as from Lotus
Notes, , Microsoft Outlook and other contact management applications.
* Personal speed dial - To simplify dialing frequently called numbers,
the subscriber may configure a speed dial which provides one click
dialing.
* Billing codes - Each telephone call may be charged to specific client
or accounting codes defined by the subscriber. This allows easy
segregation of calls by business, department, client or personal use.
All billing codes are tagged to call detail that is viewable in
real-time statements from the Bestnetcall web site.
* Real-time statements - The subscriber may, at any time, view online,
and up-to-the-second call detail record for the current day, current
month and previous month. Each call detail record includes time, date,
duration, rate, total cost, destination number and origination number
of the calls. Call records may be viewed by billing codes. Statements
may be printed or exported to standard office applications including
Word and Excel. Account administrators can view, print and export call
detail records for all users tied to their account.
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* World time - The subscriber may view, on demand, the current local
time for cities worldwide.
* Worldwide city and country codes - To aid dialing international
telephone numbers, the subscriber may check for a list of city and
country codes worldwide.
* Rates - The subscriber may, at anytime, look-up Bestnetcall's current
rates on a worldwide basis.
* Account editing - Subscribers may edit their account online, including
changing payment options or adding additional users.
BESTNETCALL - ENHANCEMENTS
We are currently developing enhancements that will be integrated on a
scheduled basis. These include enhancements to both our web site and product
features. Product enhancements under development include conference calling and
an improved graphical user interface and desktop version.
Conference calling will allow users the ability to connect up to 64 parties
on a single call, using their personal computer to initiate the calls.
Conference calls may be launched immediately or they can be scheduled in
advance. Scheduled calls will automatically be placed at the specified time and
date. All conference calls will display their status to the conference
administrator via the Bestnetcall website and offer substantial rate reductions
compared to conventional conference call services provided by the major long
distance providers.
An improved graphical user interface will give the user access to more
information, as well as provide much quicker load times, which is critical where
Internet connections are slow.
A desktop application is under development that is designed for networked
office users without a dedicated Internet connection, or where Internet
connections are very slow. The desktop application resides on the user's
personal computer and uses small-packet transmission to quickly initiate calls.
This feature further saves time by not requiring launch of a browser, web-site
navigation or log-in.
BESTNETCALL - FUTURE PRODUCT STRATEGY
According to industry sources approximately 22 million personal computers
are in use in North America for Internet access. Such sources predicted that
within two years, an additional 23 million non-personal computer devices will be
used to access the Internet. Recognizing this trend, our product team is
presently working on developing variations of Bestnetcall that use alternative
access modalities, including the following:
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* Two Way Paging - We are developing applications for two-way paging to
launch calls transmitting packets from paging networks to the
Company's web server and switching matrix.
* Wireless Personal Digital Assistant (PDA) - Designed for micro-web
browsers, such as employed by the Palm VII, we are developing
applications where users can launch Bestnetcall telephone calls or
conference calls at any time using their wireless PDA.
* Internet Devices - Bestnetcall services will be designed for
non-personal computer Internet devices, such as set-top boxes (WebTV),
Smart Phones (iPhone), and appliances (I-Opener).
Any device that can access the Internet can be enabled by the Company to provide
access to Bestnetcall services. No assurance can be given that the Company will
be able to successfully develop or, if developed, commercially exploit any of
the above-referenced devices.
NETWORK TOPOLOGY
PHASE I - INITIAL DEPLOYMENT
The Company's network is currently deployed in a central office (CO)
facility located in Toronto, Canada. Using an open architecture platform, the
system is designed to initially support 20 million minutes of voice traffic per
month. Full network monitoring and diagnostics are employed on a 24 x 7 basis.
The Company's web server is hosted by UUNet, residing on their OC3
backbone, the largest in North America. The current configuration will support
25,000 simultaneous hits and is fully scalable. UUNet has 24 x 7 support and
backup power supplied by on site battery and off site generators to ensure
system survivability.
The Company's switching matrix is located in the CO facility with direct
T-1 connectivity to the wholesale PSTN network. The initial deployment of 1,000
ports is configured for rapid expansion of up to 10,000 ports. We work closely
with the Softalk telecom and network engineers and their software development
team to monitor and maintain the system in Toronto, Canada.
PHASE II - EXPANDING POINTS OF PRESENCE
We are planning on expanding our network worldwide. Additional locations
will be deployed in key strategic locations to facilitate web, voice and data
traffic. These additional locations will provide network redundancy and least
cost routing (LCR) for voice traffic.
Our second location is currently being set up in New York at 60 Hudson
Street, as the East Coast's principal gateway for international
telecommunication traffic. The New York location will be initially configured
with a port switching matrix similar to the one deployed in Toronto that can be
expanded up to 10,000 ports.
11
<PAGE>
The New York switching matrix will be inter-connected to several
international PSTN carriers, where the Company will offer least cost routing
(LCR) for all voice calls originating in North America.
Following New York, we intend to expand to Los Angeles at 1 Wilshire
Boulevard, as the West Coast's gateway for international telecommunication
traffic. The equipment and facility will be similar to that of our Toronto and
New York offices.
We are currently working with UUNet's network engineering team to deploy
another web host server in Europe to provide web-site access redundancy.
Additional server deployment is planned for other major Asian and European
gateways.
PHASE III - VIRTUAL PRIVATE NETWORK
As voice traffic increases, we plan on deploying gateway servers to better
facilitate growing international traffic between certain locations. This
strategy will allow the Company to install a Virtual Private Network (VPN) along
these high-traffic routes to reduce costs for voice traffic. Employing dedicated
data circuits between these gateways, the voice calls will be compressed and
transmitted using data packets significantly reducing the cost of routing over
normal PSTN channels.
The global VPN network can be either public or private networks, consisting
of T-1 / fractional T-1, Frame Relay / Fractional Frame Relay and IP (Internet)
as well as ISDN lines.
TRANSACTIONS WITH SOFTALK
LICENSE AGREEMENT. On October 25, 1999, the Company and Softalk amended
their license agreement to grant the Company and its subsidiaries a worldwide
exclusive license to distribute, market, service, sell and sublicense Softalk's
existing or thereafter developed or acquired services and products to commercial
accounts, and a worldwide nonexclusive license to distribute, market, service,
sell and sublicense Softalk's existing or thereafter developed or acquired
services and products to individual customer accounts. In exchange for the
license amendments, the Company issued Softalk five-year warrants to purchase up
to 5,246,753 shares of Common Stock; 3,246,753 of which have an exercise price
of $3.25 per share, 1,000,000 have an exercise price of $5.00 per share, and the
remaining 1,000,000 have an exercise price of $10.00 per share.
PURCHASE AGREEMENT. On November 13, 1999, the Company, through its
subsidiary Interpretel (Canada) Inc., purchased all existing products and
accounts of Softalk in exchange for 4,329,004 shares of Class A non-voting
preferred stock of Interpretel (Canada) Inc. Under this Agreement, Softalk
granted Wavetech a right to be the first to be offered the possibility of
purchasing Softalk, its intellectual property, software and/or patents, should
such an offer occur. The shares issued under this Agreement are exchangeable on
a one-for-one basis for shares of the Company's common stock at any time. The
issuance of the shares of Interpretel (Canada) Inc. was valued at $10,000,000,
the value of the Company's common shares (into which the Interpretel (Canada)
Inc. shares can be converted). As of the date of this prospectus, the
Interpretel (Canada) Inc. preferred shares are exchangeable for approximately
56% of the issued and outstanding shares of Wavetech common stock.
12
<PAGE>
LOCK-UP AGREEMENT. Softalk holds 4,329,004 shares of Class A non-voting
preferred stock of Interpretel (Canada) Inc. On May 1, 2000, as part of the
private placement of Series B Convertible Preferred Stock of the Company,
Softalk agreed not to sell, offer, transfer or exchange the Interpretel shares
until May 1, 2001, unless Softalk is given consent to do so by the investor
involved in the private placement.
CROSS CORPORATE CONTROL. Softalk has the right to designate two directors
to the Board of Directors of the Company. As of the date of this prospectus,
Softalk has designated Rosnani Atan and Alexander Christopher Lang to serve on
Wavetech's five person Board of Directors. Wavetech also has been granted the
right to appoint one director to the three person Board of Directors of Softalk.
Wavetech's director designee is Gerald I. Quinn, the Company's Chief Executive
Officer.
LOAN FACILITY. On August 6, 1999, the Company agreed to loan Softalk up to
$2 million at a prime interest rate plus 1%. As of May 31, 2000, the outstanding
balance of the loan was $1,384,000. Under the terms of this loan, Softalk may
pay back the loan principle plus interest on or before August 6, 2000, or
convert any amounts outstanding, plus interest, on the loan into shares of
Softalk common stock in full satisfaction of money owed to the Company under the
loan.
13
<PAGE>
WAVETECH INTERNATIONAL, INC.
Summary Financial Data
The following table summarizes the financial data for our business.
<TABLE>
<CAPTION>
Year Ended August 31 Nine Months Ended May 31
------------------------------------------- --------------------------
1997 1998 1999 1999 2000
----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue $ 719,142 $ 157,838 $ 13,580 $ 9,173 $ 6,940
Cost of revenue 679,930 85,082 9,468 8,793 24,101
Selling, general and administration 1,584,747 794,004 691,479 501,140 1,120,626
Depreciation & Amortization 211,786 156,965 146,977 95,148 966,922
----------- ----------- ----------- ---------- -----------
Total cost and expenses 2,476,463 1,036,051 847,924 605,081 2,111,649
Loss from operations (1,757,321) (878,213) (834,344) (595,908) (2,104,709)
Other Income and Expenses:
Interest income 8,500 6,565 70,519 59,242 41,565
Rental income 0 8,833 36,000 27,000 22,500
Misc income 0 0 0 0 476
Interest expense (26,893) (45,182) (8,995) (7,472) (62,928)
License agreement termination
Income 0 236,906 0 0 0
Loss on sale of investment in Switch 0 (216,165) 0 0 0
Debt conversion expense 0 (92,894) 0 0 0
Proposed merger costs 0 (236,737) (118,450) (118,500) 0
Write-off of intangibles & other
assets 0 0 (36,125) 0 0
Preferred stock conversion penalty 0 0 (144,000) (108,000) (99,484)
Other misc expenses 0 0 (15,000) (15,000) (68)
----------- ----------- ----------- ---------- -----------
Total Other Income and Expenses (18,393) (338,674) (216,051) (162,730) (97,939)
----------- ----------- ----------- ---------- -----------
Net loss before preferred dividends $(1,775,714) $(1,216,887) $(1,050,395) $ (758,638) (2,202,648)
Cumulative preferred dividends
declared and preferred stock
conversion benefit 0 135,994 36,500 27,300 2,412,713
----------- ----------- ----------- ---------- -----------
Net loss available to common
shareholders $(1,775,714) $(1,352,881) $(1,086,895) $ (785,938) $(4,615,361)
Net loss per share, basic & diluted $ (0.12) $ (0.51) $ (0.37) $ (0.25) $ (1.45)
Weighted average shares of
outstanding, basic & diluted 14,455,167 2,663,257 2,904,693 3,082,553 3,179,863
</TABLE>
The following table is a summary of our balance sheet at May 31, 2000.
August 31, 1999 May 31, 2000
--------------- ------------
Balance Sheet Data:
Cash and equivalents $ 889,620 $ 3,012,509
Working capital $ 618,440 $ 2,721,507
Total assets $ 1,574,395 $ 14,741,951
Total liabilities $ 281,288 $ 302,106
Stockholders' equity $ 1,293,107 $ 14,439,845
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and the related notes included
elsewhere in this prospectus. The selected consolidated statement of operations
data for the years ended August 31, 1995, 1996, 1997, 1998 and 1999 are derived
from our audited financial statements not included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Year Ended August 31 Nine Months Ended May 31
------------------------------------------------------------------- --------------------------
1995 1996 1997 1998 1999 1999 2000
----------- ----------- ------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue $ 24,468 $ 19,895 $ 719,142 $ 157,838 $ 13,580 $ 9,173 $ 6,940
Cost of revenue 679,930 85,082 9,468 8,793 24,101
Development 201,224 297,935 0 0 0 0 0
Selling, general and
administration 855,756 1,603,356 1,584,747 794,004 691,479 501,140 1,120,626
Depreciation &
Amortization 211,786 156,965 146,977 95,148 966,922
----------- ----------- ------------ ----------- ----------- ----------- ------------
Total cost and expenses 1,056,980 1,901,291 2,476,463 1,036,051 847,924 605,081 2,111,649
Loss from operations (1,032,512) (1,881,396) (1,757,321) (878,213) (834,344) (595,908) (2,104,709)
Other Income and
Expenses:
Interest income 0 32,777 8,500 6,565 70,519 59,242 41,565
Rental income 0 0 0 8,833 36,000 27,000 22,500
Misc income 0 0 0 0 0 0 476
Interest expense (22,587) (11,585) (26,893) (45,182) (8,995) (7,472) (62,928)
License agreement
termination income 0 0 0 236,906 0 0 0
Loss on sale of
investment in Switch 0 0 0 (216,165) 0 0 0
Debt conversion expense 0 0 0 (92,894) 0 0 0
Proposed merger costs 0 0 0 (236,737) (118,450) (118,500) 0
Write-off of intangibles
& other assets 0 0 0 0 (36,125) 0 0
Preferred stock
conversion penalty 0 0 0 0 (144,000) (108,000) (99,484)
Other misc expenses 0 0 0 0 (15,000) (15,000) (68)
----------- ----------- ------------ ----------- ----------- ----------- ------------
Total Other Income and
Expenses (22,587) 21,192 (18,393) (338,674) (216,051) (162,730) (97,939)
----------- ----------- ------------ ----------- ----------- ----------- ------------
Net loss before
preferred dividends $(1,055,099) $(1,860,204) $(1,775,714) $(1,216,887) $(1,050,395) $ (758,638) $ (2,202,648)
Cumulative preferred
dividends declared and
preferred stock
conversion benefit 0 0 0 135,994 36,500 27,300 2,412,713
----------- ----------- ------------ ----------- ----------- ----------- ------------
Net loss available to
common shareholders $(1,055,099) $(1,860,204) $(1,775,714) $(1,352,881) $(1,086,895) $ (785,938) $ (4,615,361)
Net loss per share,
basic & diluted $ (0.22) $ (0.17) $ (0.12) $ (0.51) $ (0.37) $ (0.25) $ (1.45)
Weighted average shares
of outstanding, basic &
diluted 4,830,803 11,200,401 14,455,167 2,663,257 2,904,693 3,082,553 3,179,863
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
At August 31 Nine Months Ended May 31
-------------------------------------------------------------------- --------------------------
1995 1996 1997 1998 1999 1999 2000
----------- ----------- ------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash & Cash Equivalents $ 285,793 $ 857,488 $ 13,329 $ 2,202,573 $ 889,620 $ 1,350,589 $ 3,012,509
Working Capital (362,479) 665,483 (650,761) 1,863,442 618,440 870,656 2,721,507
Total Assets 810,131 4,580,239 2,840,796 2,542,171 1,574,395 3,465,890 14,741,951
Total Liabilities 652,620 1,070,529 828,981 389,219 281,288 510,443 302,106
Accumulated Deficit (1,392,167) (3,252,371) (5,028,085) (6,380,966) (7,467,861) (7,166,902) (12,092,221)
Stockholders' Equity 157,511 3,509,710 2,011,815 2,152,952 1,293,107 2,955,447 14,439,845
</TABLE>
16
<PAGE>
THE OFFERING
Securities Offered by the
selling shareholders................ In our May 1, 2000 private placement we
issued 1,000 shares of our Series B
Convertible Preferred Stock and warrants
to purchase 203,371 shares of our common
stock. The Series B Convertible
Preferred Stock are convertible into
956,022 shares of our common stock,
assuming we received notice of
conversion of the preferred stock on
June 13, 2000. A description of the
terms of the Series B Convertible
Preferred Stock, and investor and
placement warrants is included in this
prospectus under "Description of
Securities."
Common Stock Outstanding............ As of May 30, 2000, there were an
aggregate of 3,318,881 shares
outstanding.
Use of Proceeds..................... We will not receive any of the proceeds
of sales of common stock by the selling
shareholders.
Risk Factors........................ The shares of common stock offered
hereby involve a high degree of risk.
See "Risk Factors."
Nasdaq Bulletin Board Symbol........ ITEL
17
<PAGE>
RISK FACTORS
BEFORE BUYING ANY OF THE SHARES OF COMMON STOCK BEING OFFERED BY THIS
PROSPECTUS, YOU SHOULD CAREFULLY READ AND CONSIDER EACH OF THE RISK FACTORS WE
HAVE DESCRIBED IN THIS SECTION. YOU SHOULD BE PREPARED TO ACCEPT ALL OF THESE
RISKS, INCLUDING THE RISK THAT YOU MAY LOSE YOUR ENTIRE INVESTMENT, BEFORE YOU
MAKE A DECISION TO BUY ANY OF THE SHARES OF COMMON STOCK.
This prospectus contains forward-looking statements that involve risks and
uncertainties. These statements may include the Company's plans to grow its
Internet-based communications businesses, to expand the range of services
offered by the Company, to increase the number of customers and revenues using
the Company's services and the minutes of use and price per minute of use of the
traffic booked through the Company's websites and network, to otherwise expand
its business activities in new cities and foreign countries, to retain key
personnel or otherwise to implement its strategy as well as the Company's
beliefs regarding consumer acceptance of the Internet as a means of commerce and
the use of the Internet as a source of advertising. Such statements include
statements regarding the belief or current expectation of the Company's
management and are necessarily based on management's current understanding of
the markets and industries in which the Company operates. That understanding
could change or could prove to be inconsistent with actual developments. The
Company's actual results could differ materially from the results discussed in
this prospectus, including those anticipated in or implied by any
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed below, as well as those discussed elsewhere
in this prospectus.
THE COMPANY'S BESTNETCALL SERVICE IS IN ITS EARLY STAGES OF DEVELOPMENT AND,
WITH LIMITED OPERATING HISTORY, IT IS DIFFICULT TO PREDICT THE ACCEPTANCE AND
GROWTH OF THE COMPANY AND ITS BESTNETCALL SERVICE.
The Company has operated at a loss for the last six years. The Bestnetcall
service is a new product for the Company and therefore has no operating history
upon which an evaluation of the Company and its prospects can be based. The
Company's prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in their early stages of
development, particularly companies in new and rapidly evolving markets such as
those in which the Company competes. Such risks include, but are not limited to,
evolving and unpredictable business models, management of growth, the Company's
ability to anticipate and adapt to development markets, acceptance by Internet
users, businesses and business customers of the Company's services and the
ability of the Company to establish relationships with additional strategic
partners. To address these risks the Company must, among other things, attract
and retain an audience of frequent users of its services in its target markets,
maintain its business customer base, attract a significant number of new
Internet telephony business customers in target markets, expand its sales of
voice, fax and value-added telecom services through Bestnetcall, respond to
competitive developments, continue to form and maintain relationships with
telecom carrier partners, continue to attract, retain and motivate qualified
personnel, provide superior customer service, and continue to develop and
upgrade its technologies and commercialize its services incorporating such
technologies. There can be no assurance that the Company will be successful in
addressing such risks, and a failure to do so could have a material adverse
effect on the Company's business, financial condition and results of operations.
18
<PAGE>
IF THE MARKET FOR INTERNET TELEPHONY AND NEW SERVICES DOES NOT DEVELOP AS THE
COMPANY EXPECTS, OR DEVELOPS MORE SLOWLY THAN EXPECTED, THE COMPANY'S BUSINESS,
FINANCIAL CONDITION AND RESULTS OF OPERATIONS WILL BE MATERIALLY ADVERSELY
AFFECTED.
The growth of the Company's business depends on attracting customers to
enroll and use the Bestnetcall service for long distance calling. If the volume
of voice traffic fails to increase, or decreases, the Company's business,
financial condition and future prospects will be materially adversely affected.
No assurance can be made that end-users will purchase services from the Company
or that the Company's customers will maintain a demand for the Company's
services.
THE QUALITY OF THE COMPANY'S SERVICES AND THE COMPANY'S CAPACITY TO TRANSMIT
INTERNATIONAL VOICE AND FAX CALLS DEPENDS LARGELY ON THIRD PARTIES, WHOSE
FAILURE TO ADEQUATELY DELIVER SUCH SERVICES COULD MATERIALLY ADVERSELY AFFECT
THE COMPANY'S BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
A FAILURE BY PARTIES THAT MAINTAIN PHONE AND DATA LINES TO SERVICE SUCH LINES OR
AN INCREASE IN THE PRICE FOR MAINTAINING PHONE AND DATA LINES MAY DISRUPT THE
COMPANY'S BUSINESS.
The Company's business strategy depends on the availability of the Internet
to transmit data packets for voice and fax calls. The Company also relies on
third parties who provide traditional phone lines. Some of these third parties
are national telephone carriers. They may increase their charges for using these
lines at any time and decrease the Company's profitability. They may also fail
to properly maintain their lines and disrupt the Company's ability to provide
service to the Company's customers. Any failure by these third parties to
maintain these lines and networks that leads to a material disruption of the
Company's ability to complete calls over the Internet would have a material
adverse affect on the Company's business, financial condition and results of
operations. No assurances can be made that the Company will be able to continue
purchasing such services from these third parties on acceptable terms, if at
all. If the Company is unable to purchase the necessary services to maintain and
expand the Company's network as currently configured, the Company's business,
financial condition and results of operations would be materially adversely
affected.
LOCAL COMMUNICATIONS SERVICE PROVIDERS MAY NOT BE ABLE TO PROVIDE EFFICIENT
PHONE AND DATA LINES, IF AT ALL, PREVENTING OR REDUCING THE CALLS TRANSMITTED
THROUGH THE COMPANY'S BESTNETCALL SERVICE.
The Company intends to develop relationships with local communications
service providers in many countries, some of whom own the equipment that
translates voice to data in that country. The Company relies upon these third
parties to both provide lines over which the Company completes calls and to
increase their capacity when necessary as the volume of the Company's traffic
increases. There is a risk that these third parties may be slow, or fail, to
provide lines, which would affect the Company's ability to complete calls to
those destinations. There can be no assurance that the Company will establish
and/or continue relationships with these local service providers on acceptable
terms, if at all.
19
<PAGE>
Because the Company relies upon these relationships with local service providers
to expand into additional countries, there can be no assurance that they will be
able to increase the number of countries to which the Company provides service.
The Company may not be able to enter into enough relationships with local
service providers in foreign locations to handle the increase in the volume of
calls from the Company's customers. Finally, any technical difficulties that
these providers suffer would affect the Company's ability to transmit calls to
those locations. Incurring some or all of the foregoing difficulties would have
a material adverse affect on the Company's business, financial condition and
results of operations.
THE COMPANY DEPENDS ON STRATEGIC RELATIONSHIPS AND THERE CAN BE NO ASSURANCE
THAT SUCH RELATIONSHIPS WILL BE MAINTAINED.
The Company depends on strategic relationships to continually develop the
technology it has licensed from Softalk and to expand the Company's distribution
channels. In particular, the Company depends in large part on the Company's
joint product development efforts with Softalk. Softalk or other strategic
relationship partners may choose not to renew existing arrangements on
commercially acceptable terms, if at all. The Company's loss of this key
strategic relationship, or the failure to develop new relationships in the
future, would have a material adverse effect on the Company's business,
financial condition and results of operations.
THE TELECOMMUNICATIONS INDUSTRY IS SUBJECT TO DOMESTIC GOVERNMENTAL REGULATION
AND LEGAL UNCERTAINTIES WHICH, IF INCREASED OR CHANGED, COULD MATERIALLY
ADVERSELY AFFECT THE COMPANY'S BUSINESS.
While the Federal Communications Commission has tentatively decided that
information service providers, including Internet telephony providers, are not
telecommunications carriers for regulatory purposes, various companies have
challenged that decision. Congress continues to review the conclusions of the
FCC, and the FCC could impose greater or lesser regulation on the Company's
industry. The FCC is currently considering, for example, whether to impose
surcharges or other regulations upon certain providers of Internet telephony,
primarily those which provide Internet telephone services to end-users located
within the United States. The imposition of such surcharges or the regulation of
Internet telephony providers could increase the cost of doing business over the
Internet and materially adversely affect on the Company's business, financial
condition and results of operations.
Aspects of the Company's operations may be, or become, subject to state or
federal regulations governing universal service funding, disclosure of
confidential communications, copyright and excise taxes. There can be no
assurance that government agencies will not increasingly regulate Internet
related services. Increased regulation of the Internet may slow its growth. Such
regulation may also negatively impact the cost of doing business over the
Internet and materially adversely affect the Company's business, financial
condition and results of operations.
20
<PAGE>
THE TELECOMMUNICATIONS INDUSTRY IS SUBJECT TO INTERNATIONAL GOVERNMENTAL
REGULATION AND LEGAL UNCERTAINTIES WHICH COULD MATERIALLY ADVERSELY AFFECT THE
COMPANY'S BUSINESS.
The Company intends on marketing its service to international long distance
callers. Because it will be conducting business internationally, the Company is
subject to certain direct or indirect risks. These risks would include
unexpected changes in regulatory requirements for the Internet and/or Internet
telephony; foreign currency fluctuations, which could increase or decrease
operating expenses and increase or decrease revenue; foreign taxation; and the
burdens of complying with a variety of foreign laws, trade standards, tariffs
and trade barriers.
The Company may also be subject to general geopolitical risks, such as
political and economic instability and changes in diplomatic and trade
relationships. Adverse conditions internationally could materially adversely
affect the Company's business, financial condition and results of operations.
THE COMPANY ANTICIPATES CONTINUED OPERATING LOSSES AS A RESULT OF EXPENDING
SIGNIFICANT FINANCIAL RESOURCES ON ITS BESTNETCALL SERVICE.
At February 29, 2000, the Company had an accumulated deficit of $8,664,216.
Prior years' financial information has no particular bearing on future years'
results because the focus of the Company has changed from calling card services
to Internet telephony.
The Company believes that its future profitability and success will depend
in large part on its ability to generate sufficient revenues from Bestnetcall
revenues and websites to businesses. Revenues are also anticipated from the
licensing of its technology and business systems to partners setting up Internet
telephony services in partner-led foreign markets. The profitability and success
of the Company will depend on its ability to maintain existing relationships and
enter into new relationships with Post Telephone & Telegraph ("PTT")
administrations and other carriers for which it sells Internet telephony
services and to obtain or retain for Wavetech the right to sell Internet
telephony services and related value-added telecom services online, its ability
to effectively maintain existing relationships with its multinational partners,
its ability to successfully enter into new strategic relationships for
distribution and increased usage of the Bestnetcall and Internet telephony
services and its ability to generate sufficient online traffic and sales volume.
Accordingly, the Company expects to expend significant financial and management
resources on the roll-out of the Internet telephony service, and on site and
content development on its Bestnetcall websites, integration of the Internet
telephony and Bestnetcall services, strategic relationships, technology and
operating infrastructure. As a result, the Company expects to incur significant
additional losses and continued negative cash flow from operations for the
foreseeable future. There can be no assurance that the Company's revenues will
increase or even continue at their current levels or that the Company will
achieve or maintain profitability or generate cash from operations in future
periods. In view of the rapidly evolving nature of the Company's business, the
limited operating history of both Internet telephony and Bestnetcall and the
risks associated with integrating these businesses, the Company believes that
period-to-period comparisons of operating results are not meaningful and should
not be relied upon as an indication of future performance.
21
<PAGE>
CONFLICTS OF INTEREST MAY ARISE WHICH MATERIALLY ADVERSELY AFFECT THE COMPANY,
ITS BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Conflicts of interest may arise between the Company, including Bestnetcall,
on the one hand, and its affiliates, including Softalk, on the other hand, in
areas relating to past, ongoing and future relationships, including the
Bestnetcall License Agreement, corporate opportunities, indemnity arrangements,
tax and intellectual property matters, potential acquisitions or financing
transactions, sales of other dispositions by Wavetech principals. These
conflicts also may include disagreements regarding the Bestnetcall License
Agreement, including with respect to possible amendments to, or modifications or
waivers of provisions of such agreement. Such amendments, modifications or
waivers may adversely affect the Company's business, financial condition and
results of operations. Ownership interests of directors or officers in the
Company's Common Stock, or serving as both a director/officer of the Company and
a director/officer/employee of Softalk, could create or appear to create
potential conflicts of interest when directors and officers are faced with
decisions that could have different implications for the Company and Softalk.
Two of the members of the Company's Board of Directors are also directors,
officers or employees of Softalk.
OUR FAILURE TO MANAGE THE GROWTH OF OUR BUSINESS COULD MATERIALLY ADVERSELY
AFFECT OUR BUSINESS, FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS.
Our potential growth may place significant demands upon our personnel,
management and financial resources. In order to manage this growth, we may have
to hire additional personnel and develop additional management infrastructure.
There is no assurance that people with the necessary skills and experience will
be available as needed or on terms favorable to us. There is no assurance that
our current and planned personnel, systems, procedures and controls will be
adequate to support our future operations, that we will be able to attract,
hire, train, retain, motivate and manage necessary personnel, or that our
management will be able to identify, manage and exploit potential strategic
relationships and market opportunities. If we are unable to effectively manage
any potential growth, our business and financial condition could be adversely
affected.
WE MAY NOT BE COMPETITIVE INTERNATIONALLY OR BE ABLE TO SATISFY REGULATORY
REQUIREMENTS WHEN WE EXPAND GLOBALLY.
A significant aspect of our growth strategy is to expand our business
internationally, through the Internet. Such expansion will place additional
burdens upon our management, personnel and financial resources and may cause us
to incur losses. We will also face different and additional competition in these
international markets. In addition, international expansion has certain unique
risks, such as regulatory requirements, legal uncertainty regarding liability,
tariffs and other trade barriers, difficulties in staffing and managing foreign
operations, longer payment cycles, political instability and potentially adverse
tax implications. To the extent we expand our business internationally, we will
also become subject to risks associated with international monetary exchange
fluctuations. Any one of these risks could impair our ability to expand
internationally as well as have a material adverse effect upon our overall
business operations, growth and financial condition.
22
<PAGE>
ON-LINE SECURITY BREACHES OR FAILURES MAY MATERIALLY ADVERSELY AFFECT THE
COMPANY.
In order to successfully provide services over the Internet, it is
necessary that we be able to ensure the secure transmission of confidential
customer information over public telecommunications networks. We employ certain
technology in order to protect such information, including customer credit card
information. However, there is no assurance that such information will not be
intercepted illegally. Advances in cryptography or other developments that could
compromise the security of confidential customer information could have a direct
negative impact upon our electronic commerce business. In addition, the
perception by consumers that communicating over the Internet is not secure, even
if unfounded, means that fewer consumers are likely to make communicate through
that medium. Finally, any breach in security, whether or not a result of our
acts or omissions, may cause us to be the subject of litigation, which could be
very time-consuming and expensive to defend.
THE PRICE OF OUR COMMON STOCK IS EXTREMELY VOLATILE AND MAY DECREASE IN VALUE.
The market price of our common stock has been highly volatile. Occurrences
that could cause the trading price of our common stock to fluctuate dramatically
in the future include:
* fluctuations in our operating results
* analyst reports, media stories, Internet chat room discussions, news
broadcasts and interviews
* general economic conditions
* decreases in the rates we are able to negotiate with our customers
The stock market has from time to time experienced extreme price and volume
fluctuations that have particularly affected the market price for companies that
do some or all of their business on the Internet.
OUR OUTSTANDING SHARES MAY BE DILUTED RESULTING IN LESS PERCENTAGE OF SHARES
HELD BY EACH SHAREHOLDER AND A LOWER MARKET PRICE PER SHARE OF OUR COMMON STOCK.
The market price of our common stock may decrease as more shares of common
stock become available for trading due to the conversion of the Series B
Convertible Preferred Stock into and the exercise of the warrants to purchase
common stock. The participation of the shareholders in our Company also may be
reduced through the issuance of new common stock.
THE FORWARD-LOOKING STATEMENTS IN THIS PROSPECTUS MAY NOT COME TRUE AND ACTUAL
RESULTS COULD MATERIALLY DIFFER FROM THE ANTICIPATED RESULTS.
This prospectus and the documents incorporated by reference, contain
forward-looking statements that involve risks and uncertainties. We use words
such as "believe," "expect," "anticipate," "plan" or similar words to identify
forward-looking statements. Forward-looking statements are made based upon our
belief as of the date that such statements are made. These forward-looking
statements are based largely on our current expectations and are subject to a
number of risks and uncertainties, many of which are beyond our control. You
should not place undue reliance on these forward-looking statements, which apply
only as of the date of this prospectus. Our actual results could differ
materially from those anticipated in these forward-looking statements for many
reasons, including the risks faced by us described above and elsewhere in this
prospectus.
23
<PAGE>
USE OF PROCEEDS
The selling shareholders will receive the net proceeds from the sale of
their shares of common stock. However, we will receive up to $351,600 upon
payment of the exercise price for the common stock underlying the warrants if
all of the warrants are exercised. We will use all of these proceeds for working
capital for our operations.
MARKET FOR COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock was quoted on the Nasdaq SmallCap Market
until May 4, 1999, and then on the OTC:BB from June 28, 1999 to the present. The
high and low bid prices of the Company's Common Stock as reported from September
1, 1997 through August 31, 1999 by fiscal quarters (i.e., 1st Quarter =
September 1 through November 30) were as follows, as adjusted for a one-for-six
reverse split effective December 18, 1998:
HIGH LOW
FISCAL YEAR ENDED: ---- ---
August 31, 1998
First Quarter 3.625 2.25
Second Quarter 2.8125 2.4375
Third Quarter 4.125 3.375
Fourth Quarter 4.3125 1.3125
FISCAL YEAR ENDED:
August 31, 1999
First Quarter 3.5625 1.5
Second Quarter 3.5625 2.0
Third Quarter 2.9375 0.125
Fourth Quarter 2.625 0.5
FISCAL YEAR ENDING:
August 31,2000
First Quarter 4.25 1.46875
Second Quarter 10.25 4.125
Third Quarter 9.50 5.0
(through May 31, 2000)
The bid and the asked price of the Company's Common Stock on June 12,
2000, were $6.625 and $6.8125, respectively.
As of June 30, 2000, the Company had 76 shareholders of record of its
Common Stock. Of the 76 shareholders, there are 4 brokers that beneficially own
the stock in a "nominee" or "street" name.
The Company has never declared any cash dividends and currently plans
to retain future earnings, if any, for its business operations.
NASDAQ DELISTING. The Company's Common Stock was delisted from the
NASDAQ Small Cap Market on May 4, 1999, due to the fact that the Company was not
in compliance with Nasdaq's $1.00 minimum bid price requirement. Since June 28,
1999, the Company's Common Stock has been traded on the OTC Bulletin Board under
the symbol "ITEL."
24
<PAGE>
SELLING SHAREHOLDERS
The shares being offered by the selling shareholders were issued pursuant
to the Securities Purchase Agreement. We are registering the shares in order to
permit the selling shareholders to offer these shares for resale from time to
time.
The following table provides information as of May 30, 2000, with respect
to the common stock beneficially owned by each selling shareholder. None of
these selling shareholders has a material relationship with us. We believe that
the selling shareholders named in the following table have sole voting and
investment power with respect to the respective shares of common stock set forth
opposite their names. The shares of common stock offered by this prospectus may
be offered from time to time by the selling shareholders named below or their
nominees.
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Prior to the Owned After the
Offering Number Offering
--------------------- of Shares -------------------
Name Number Percent(1) Offered Number Percent(2)
---- ------ ---------- ------- ------ ----------
<S> <C> <C> <C> <C> <C>
Ceder Avenue LLC (3) 1,160,000 35 1,160,000 0 0
Corporate Center
Windward One, West Bay Road
P.O. Box 31106 SMB
Grand Cayman, Cayman Islands
Thomson Kernaghan & Co. Limited (4) 43,371 1 43,371 0 0
365 Bay Street, Tenth Floor
Toronto, Ontario
Canada M5H 2V2
Roth Capital Partners, Inc.
600 California Street, 14th Floor
San Francisco, CA 94108 20,000 1 20,000 0 0
</TABLE>
----------
(1) Percentages are based upon 3,318,881 shares of the Company's common stock
outstanding as of May 30, 2000.
(2) Because the selling stockholder may offer all or some of the shares
pursuant to this offering, we can not estimate the number of shares that
will be held by the selling stockholder after completion of the offering.
For purposes of this table, we have assumed that, after the completion of
the offering, none of the shares covered by this prospectus will be held by
the selling stockholder.
(3) Includes (i) 1,000,000 shares of commons stock initially issuable upon
conversion of the preferred stock, assuming the Company received a written
notice of conversion on May 1, 2000 and (ii) 160,000 shares of common stock
issuable upon exercise of the warrant issued to Cedar Avenue LLC.
(4) Thomson Kernaghan & Co. Limited acted as a placement agent in connection
with the May 1, 2000, private placement of the Company. The number of
shares beneficially owned by Thomson Kernaghan & Co. Limited includes
43,371 shares of common stock issuable upon exercise of the warrant issued
to Thomson Kernaghan & Co. Limited.
25
<PAGE>
DETERMINATION OF OFFERING PRICE
Because this prospectus relates only to the resale of common stock issuable
upon conversion of the Series B Convertible Preferred Stock and upon exercise of
the warrants, we did not determine an offering price. The selling shareholders
will individually determine the offering price of the common stock. The selling
shareholders may use this prospectus from time to time to sell their common
stock. The price at which the common stock is sold may be based on market prices
prevailing at the time of sale, at prices relating to such prevailing market
prices, or at negotiated prices.
PLAN OF DISTRIBUTION
In connection with our issuance to the selling shareholders of Series B
Convertible Preferred Stock and warrants, we provided to them certain
registration rights and have subsequently filed a registration statement on Form
S-2 with the SEC. That registration statement covers the resale of the common
stock from time to time on the Nasdaq Over the Counter Bulletin Board or other
national securities exchange or automated quotation system upon which our common
stock is then traded or in privately negotiated transactions. This prospectus
forms part of that registration statement. We have also agreed to prepare and
file any amendments and supplements to the registration statement as may be
necessary to keep it effective until this prospectus is no longer required for
the selling shareholders to sell their shares of common stock and to indemnify
and hold the selling shareholders harmless against certain liabilities under the
Securities Act that could arise in connection with the selling shareholders'
sale of their shares. We have agreed to pay all reasonable fees and expenses
incident to the filing of the registration statement.
The selling shareholders may sell the shares of common stock described in
this prospectus directly or through underwriters, broker-dealers or agents. The
selling shareholders may also transfer, devise or gift their shares by other
means not described in this prospectus. As a result, pledgees, donees,
transferees or other successors in interest that receive such shares as a gift,
partnership distribution or other non-sale related transfer may offer shares of
common stock. In addition, if any shares covered by this prospectus qualify for
sale pursuant to Rule 144 under the Securities Act, the selling shareholders may
sell such shares under Rule 144 rather than pursuant to this prospectus.
26
<PAGE>
The selling shareholders may sell shares of common stock from time to time
in one or more transactions:
* at fixed prices that may be changed,
* at market prices prevailing at the time of sale, or
* at prices related to such prevailing market prices or at negotiated
prices.
The selling shareholders may offer their shares of common stock in one or
more of the following transactions:
* on any national securities exchange or quotation service on which the
common stock may be listed or quoted at the time of sale, including
the Nasdaq Over the Counter Bulletin Board,
* in the over-the-counter market,
* in privately negotiated transactions,
* through options,
* by pledge to secure debts and other obligations,
* by a combination of the above methods of sale, or
* to cover short sales made pursuant to this prospectus.
In effecting sales, brokers or dealers engaged by the selling shareholders
may arrange for other brokers or dealers to participate in the resales. The
selling shareholders may enter into hedging transactions with broker-dealers,
and in connection with those transactions, broker-dealers may engage in short
sales of the shares. The selling shareholders also may sell shares short and
deliver the shares to close out such short positions. The selling shareholders
also may enter into option or other transactions with broker-dealers that
require the delivery to the broker-dealer of the shares, which the broker-dealer
may resell pursuant to this prospectus. The selling shareholders also may pledge
the shares to a broker or dealer, and upon a default, the broker or dealer may
effect sales of the pledged shares pursuant to this prospectus.
In order to comply with the securities laws of certain states, the selling
shareholders must offer or sell the shares only through registered or licensed
brokers or dealers. In addition, in certain states, the selling shareholders
cannot offer or sell the shares unless the shares have been registered or
qualified for sale in the applicable state or an exemption from the registration
or qualification requirement is available and is complied with.
The SEC may deem the selling shareholders and any underwriters,
broker-dealers or agents that participate in the distribution of the shares of
common stock to be "underwriters" within the meaning of the Securities Act. The
27
<PAGE>
SEC may deem any profits on the resale of the shares of common stock and any
compensation received by any underwriter, broker-dealer or agent to be
underwriting discounts and commission under the Securities Act.
Under the Exchange Act, any person engaged in the distribution of the
shares of common stock may not simultaneously engage in market-making activities
with respect to the common stock for five business days prior to the start of
the distribution. In addition, each selling shareholder and any other person
participating in a distribution will be subject to the Exchange Act, which may
limit the timing of purchases and sales of common stock by the selling
shareholder or any such other person.
DESCRIPTION OF SECURITIES
COMMON STOCK
For a description of our common stock see our Registration Statement on
Form 8-A filed with the SEC on March 11, 1987.
SERIES B CONVERTIBLE PREFERRED STOCK
Pursuant to a Securities Purchase Agreement dated May 1, 2000, we issued
1,000 shares of Series B Convertible Preferred Stock, $.001 par value, to the
investor in the private placement. Each share of Series B Convertible Preferred
Stock may be converted by the holder, in whole or in part, into the number of
fully-paid and non-assessable shares of common stock determined in accordance
with the following formula: $5,000 divided by the lesser of
* 110% of the average of the last closing bid price for the common stock
as reported by Bloomberg, L.P., for the five trading days before May
1, 2000, or
* 80% of the average of the last closing bid price for the common stock
as reported by Bloomberg, L.P., for the three lowest trading days out
of the 10 consecutive trading days before the selling shareholder
provides written notice of its desire to convert its shares.
The Preferred Stock automatically converts into shares of common stock on
May 1, 2002 if not converted prior to that time. One hundred ten percent of the
average closing bid price for the common stock for the five trading days prior
to May 1, 2000 is $8.074 (110% x $7.34). Assuming the Company received a written
notice of conversion from the selling shareholder on May 1, 2000, 80% of the
average closing bid price for the three lowest trading days of the 10 trading
days prior to May 1, 2000, would be $5.00 (80% x $6.25). The lower of the two
prices is $5.00, which, divided into $5,000, will result in the issuance of
1,000 shares of common stock for every one share of Series B Preferred Stock.
Holders of Series B Preferred Stock may receive out of any assets legally
available, cumulative dividends at an annual rate per share equal to 6% of the
liquidation preference of the stock with priority over a payment of any dividend
on any other class or series of stock except for the Company's Series A
Preferred Stock. The dividends accrue daily regardless of whether they are
earned or declared.
28
<PAGE>
Except as required by law, the holders of Series B Preferred Stock will not
be entitled to vote on any matter relating to the business or affairs of the
Company or for any other purpose.
The Series B Preferred Stock has a liquidation preference of $5,000 per
share plus accrued but unpaid dividends. If the Company liquidates wholly or
partially, dissolves or winds up, either voluntarily or involuntarily, the
holders of Series B Preferred shares will be paid in cash out of the surplus
funds or of the assets distributed. If the cash is insufficient to pay the
holders of Series B Preferred Stock in full, then the assets will be given first
to the holders of the Series B Preferred shareholders.
If the Company does not deliver the shares representing the common stock
issuable upon conversion of the Series B Preferred Stock within five (5) days
after the Company receives the written notice of the holder's desire to convert
its shares, the Company must pay, on demand, liquidated damages for failing to
deliver the converted shares. The liquidated damages begin to accrue on the 6th
business day after the Company receives the written conversion notice from the
Selling Shareholder. The following is the schedule for liquidated damages.
Late Payment for Each $10,000 of
Preferred Stock Liquidation
No. of Business Days Late Being Converted
------------------------- ---------------
1 $100
2 $200
3 $300
4 $400
5 $500
>5 $500 + $200 for each Business Day late
beyond 5 Business Days from
the delivery date
WARRANTS
INVESTMENT WARRANT
Pursuant to the Securities Purchase Agreement dated May 1, 2000, we issued
a warrant to the investor in the private placement. The warrant expires on May
1, 2003.
EXERCISE OF WARRANT
The warrant may be exercised at any time after issuance.
EXERCISE PRICE
The exercise price of the warrant is one-cent ($.01) for all 160,000 shares
of common stock represented by the warrant.
29
<PAGE>
CASHLESS EXERCISE OPTION
The warrant holder may designate a "cashless exercise option." This option
entitles the warrant holders to elect to receive fewer shares of common stock
without paying the cash exercise price. The number of shares to be determined by
a formula based on the total number of shares to which the warrant holder is
entitled, the current market value of the common stock and the applicable
exercise price of the warrant.
Upon any sale of all or substantially all our assets, or a
recapitalization, reorganization, reclassification, consideration, merger with
or into another Company, in which we are not the surviving entity, we will
obtain from the acquiring person or entity a written agreement whereby the other
corporation will assume all of our obligations under this warrant.
PLACEMENT AGENT WARRANT
In connection with services performed as a placement agent in the private
placement on May 1, 2000, we issued a warrant to the Placement Agent. The
Warrant expires on May 1, 2003.
EXERCISE OF WARRANT.
The Placement Agent Warrant may be exercised at any time after issuance.
EXERCISE PRICE.
The exercise price of the Warrant is 110% of the average closing bid price
as reported by Bloomberg, L.P. of the common stock for the 5 trading days before
May 1, 2000.
CASHLESS EXERCISE OPTION.
The Placement Agent is entitled to a "cashless exercise option." This
option allows the agent to receive fewer shares of common stock without paying
the exercise price. The amount of shares to be issued is determined by a formula
based on the number of shares to which the agent is entitled under the warrant,
the current market value of the common stock and the exercise price of the
warrant.
REGISTRATION RIGHTS OF THE SELLING SHAREHOLDERS
The Company has agreed to file with the SEC a shelf registration statement
(of which this prospectus is a part) covering resales by holders of the common
stock issuable upon conversion of the Series B Preferred Stock and the common
stock issuable upon exercise of the warrants within 45 days after the date of
original issuance of the Series B Convertible Preferred Stock. The Company has
30
<PAGE>
agreed to use reasonable efforts to cause the shelf registration statement to
become effective as promptly as is practicable and to keep the shelf
registration statement effective until the earlier of (1) the sale pursuant to
the shelf registration statement of all the securities registered thereunder and
(2) the expiration of the holding period applicable to such securities pursuant
to Rule 144(k) under the Securities Act or any successor provision.
The Company has agreed to pay predetermined liquidated damages to those
holders of common stock issued upon conversion of the preferred stock or upon
exercise of the warrants if the registration statement was not timely filed or
if the prospectus is unavailable. A holder who sells the common stock issued
upon conversion of the preferred stock or upon exercise of the warrants pursuant
to the shelf registration statement generally will be required to be named as a
selling stockholder in the related prospectus, deliver a prospectus to
purchasers and be bound by those provisions of the registration rights agreement
that are applicable to the holder (including certain indemnification
provisions). The Company will pay all expenses of the shelf registration
statement, provide to each registered holder copies of the prospectus, notify
each registered holder when the shelf registration statement has become
effective and take certain other actions as are required to permit, subject to
the foregoing, unrestricted resales of the preferred stock or the common stock.
LEGAL MATTERS
Certain legal matters have been passed upon for us by Squire, Sanders &
Dempsey L.L.P., Phoenix, Arizona.
EXPERTS
The consolidated financial statements of Wavetech International, Inc.
included in Wavetech International, Inc.'s Annual Report (Form 10-KSB) for the
year ended August 31, 1999, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein and incorporated
herein by reference. Such financial statements have been incorporated herein by
reference and included herein, respectively, in reliance upon such reports given
on the authority of such firm as experts in accounting and auditing.
INFORMATION WITH RESPECT TO THE REGISTRANT
This prospectus is being delivered with a copy of our Form 10-KSB for the
fiscal year ended August 31, 1999 and our Forms 10-QSB for the quarterly periods
ended November 30, 1999, February 29, 2000 and May 31, 2000.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that in the
opinion of the Securities Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
31
<PAGE>
Wavetech International, Inc.
Financial Statements
Year ended August 31, 1999 and the three and nine months ended May 31, 2000
CONTENTS
Report of Independent Auditors............................................. F-1
Consolidated Balance Sheet................................................. F-2
Consolidated Statements of Operations...................................... F-3
Consolidated Statements of Changes in Stockholders' Equity................. F-4
Consolidated Statements of Cash Flows...................................... F-5
Notes to Consolidated Financial Statements................................. F-6
Unaudited Balance Sheet.................................................... F-17
Unaudited Consolidated Statements of Operations (Nine Month Period)........ F-18
Unaudited Consolidated Statements of Operations (Three Month Period)....... F-19
Unaudited Consolidated Statements of Cash Flows............................ F-20
Notes to Unaudited Consolidated Financial Statements....................... F-21
<PAGE>
Report of Independent Auditors
Board of Directors
Wavetech International, Inc.
We have audited the accompanying consolidated balance sheet of Wavetech
International, Inc. as of August 31, 1999, and the related consolidated
statements of operations, stockholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The financial statements of Wavetech
International, Inc. for the year ended August 31, 1998 were audited by other
auditors whose report dated November 6, 1998, expressed an unqualified opinion
on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free from material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1999 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Wavetech
International, Inc. as of August 31, 1999, and the consolidated results of its
operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Tucson, Arizona
October 18, 1999,
except for Note 11, as to which the date is
November 13, 1999
F-1
<PAGE>
Wavetech International, Inc.
Consolidated Balance Sheet
August 31, 1999
Assets
Current assets:
Cash and cash equivalents $ 889,620
Prepaid expenses and other assets 8,529
-----------
Total current assets 898,149
Property and equipment, net 363,559
License fee, net of amortization of $9,524 190,476
Note receivable from affiliate 100,000
Deposits and other assets 22,211
-----------
Total assets $ 1,574,395
===========
Liabilities and stockholders' equity Current liabilities:
Accounts payable and accrued expenses $ 243,029
Notes payable to officer 13,000
Capital lease obligations, current portion 23,680
-----------
Total current liabilities 279,709
Capital lease obligation, net of current portion 1,579
Commitments
Stockholders' equity:
Series A preferred stock, 6% cumulative, par value $.001
per share; 10,000,000 shares authorized, 600 shares issued
and outstanding (liquidation value $600,000) 1
Common stock, par value $.001 per share; 50,000,000 shares
authorized, 3,021,288 shares issued and outstanding 3,021
Additional paid-in capital 8,757,946
Accumulated deficit (7,467,861)
-----------
Total stockholders' equity 1,293,107
-----------
Total liabilities and stockholders' equity $ 1,574,395
===========
See notes to consolidated financial statements.
F-2
<PAGE>
Wavetech International, Inc.
Consolidated Statements of Operations
For the years ended August 31, 1999 and 1998
1999 1998
----------- -----------
Revenues $ 13,580 $ 157,838
Expenses:
Cost of sales (exclusive of depreciation
and amortization shown separately below) 9,468 85,082
General and administrative 691,479 794,004
Depreciation and amortization expense 146,977 156,965
----------- -----------
Total expenses 847,924 1,036,051
----------- -----------
Net loss from operations (834,344) (878,213)
Other income (expense):
Interest income 70,519 6,565
Rental income 36,000 8,833
Interest expense (8,995) (45,182)
License agreement termination income -- 236,906
Loss on sale of investment in Switch -- (216,165)
Debt conversion expense -- (92,894)
Costs incurred in connection with
unconsummated merger (118,450) (236,737)
Write-off of intangible and other assets (36,125) --
Preferred stock conversion penalty (144,000) --
Other expenses (15,000) --
----------- -----------
Total other income (expense) (216,051) (338,674)
Net loss before preferred dividends (1,050,395) (1,216,887)
Cumulative preferred dividends declared and
preferred stock conversion benefit 36,500 135,994
----------- -----------
Net loss available to common shareholders $(1,086,895) $(1,352,881)
=========== ===========
Net loss per common share, basic and diluted $ (.37) $ (.51)
Weighted average number of shares outstanding,
basic and diluted 2,904,693 2,663,257
See notes to consolidated financial statements.
F-3
<PAGE>
Wavetech International, Inc.
Consolidated Statements of Changes in Stockholders' Equity
For the years ended August 31, 1999 and 1998
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
--------------- ------------------ Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Total
------ ------ ------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, September 1, 1997 -- $ -- 15,076,807 $ 15,077 $7,024,823 $(5,028,085) $ 2,011,815
Common stock issued for payroll
and services -- -- 476,069 476 155,754 -- 156,230
Warrants exercised -- -- 380,280 380 222,123 -- 222,503
Conversion of debt into common stock -- -- 1,061,731 1,062 370,511 -- 371,573
Debt conversion expense -- -- -- -- 92,894 -- 92,894
Sale of Series A Preferred Stock 600 1 -- -- 527,923 -- 527,924
Preferred stock conversion benefit -- -- -- -- 122,894 -- 122,894
Preferred stock dividend -- -- -- -- -- (135,994) (135,994)
Net loss -- -- -- -- -- (1,216,887) (1,216,887)
--- ---- --------- -------- ---------- ----------- -----------
Balances, August 31, 1998 600 1 16,994,887 16,995 8,516,922 (6,380,966) 2,152,952
Net loss -- -- -- -- -- (1,050,395) (1,050,395)
Conversion of debt into common stock -- -- 156,250 156 49,844 -- 50,000
Reverse 1-for-6 stock split -- -- (14,292,473) (14,292) 14,292 -- --
Preferred stock dividends -- -- 27,798 28 24,272 (36,500) (12,200)
Preferred stock conversion penalty -- -- 128,993 129 143,871 -- 144,000
Stock options exercised -- -- 5,833 5 8,745 -- 8,750
--- ---- --------- -------- ---------- ----------- -----------
Balances, August 31, 1999 600 $ 1 3,021,288 $ 3,021 $8,757,946 $(7,467,861) $ 1,293,107
=== ==== ========= ======== ========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
Wavetech International, Inc.
Consolidated Statements of Cash Flows
For the years ended August 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Operating activities:
Net loss $(1,050,395) $(1,216,887)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 146,977 156,965
Common stock issued for services and accrued interest -- 168,732
Debt conversion expense -- 92,894
Loss on disposition of Switch shares -- 216,165
Bad debt provision 18,276 --
Write-off of intangible and other assets 36,125 --
Preferred stock conversion penalty 144,000 --
Changes in assets and liabilities:
(Increase) decrease in prepaid expenses and other
current assets (1,983) 11,175
Decrease in deposits and other assets 7,872 --
Decrease in accounts payable and accrued expenses (12,216) (151,426)
Decrease in unearned revenue -- (146,429)
----------- -----------
Net cash used in operating activities (711,344) (868,811)
Investing activities:
Purchase of property and equipment (252,445) (1,985)
Decrease in other assets -- 5,550
Issuance of notes receivable (100,000) --
Purchase of licensing agreements (200,000) --
Proceeds from sale of investment in Switch -- 2,100,000
----------- -----------
Net cash (used in) provided by investing
activities (552,445) 2,103,565
Financing activities:
Proceeds from notes payable -- 580,000
Payments on notes payable -- (330,000)
Payments on capital lease obligations (45,714) (39,037)
Proceeds from common stock issued 8,750 222,503
Proceeds from preferred stock issued -- 527,924
Dividends paid in cash on preferred stock (12,200) (6,900)
----------- -----------
Net cash (used in) provided by financing activities (49,164) 954,490
Net (decrease) increase in cash and cash equivalents (1,312,953) 2,189,244
Cash and cash equivalents, beginning of year 2,202,573 13,329
----------- -----------
Cash and cash equivalents, end of year $ 889,620 $ 2,202,573
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
Wavetech International, Inc.
Notes to Consolidated Financial Statements
August 31, 1999
1. ORGANIZATION
Wavetech International, Inc. (the Company) is currently conducting minimal
operations while actively pursuing to implement its business strategy of
providing Internet telephony services. The Company has recorded net operating
losses in each of the previous six years and does not anticipate realization of
full operations until its strategy is fully implemented.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries, Interpretel, Inc. (Interpretel), Interpretel
Canada Inc. and Telplex International Communications, Inc. All significant
intercompany accounts and transactions have been eliminated.
On March 8, 1995, the Company entered into an agreement with Interpretel
pursuant to which the Company agreed to issue 6,000,000 (pre-split) shares of
its common stock in exchange for 100% of the outstanding 1,532,140 shares of
common stock of Interpretel. The transaction resulted in the former shareholders
of Interpretel owning approximately 80% of the outstanding shares of the
Company. In accordance with Accounting Principles Board Opinion No. 16 "Business
Combinations," the acquisition was accounted for as a reverse acquisition with
Interpretel deemed to be the acquiring entity of the Company. The common shares
issued in connection with the acquisition were assigned no value because the
Company had no assets or liabilities at the date of the acquisition.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid instruments with a maturity of three
months or less when purchased (money market accounts and certificates of
deposit) to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost and depreciated over the estimated
useful lives of the related assets, as follows:
Furniture and fixtures 7 years
Computer equipment 5 years
Software 5 years
F-6
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The costs of maintenance, repairs and minor renewals are charged to expense in
the year incurred. Expenditures that increase the useful lives of the asset are
capitalized. When items are retired or disposed of, the cost and accumulated
depreciation are removed from the accounts and any gain or loss is included in
income.
LICENSE FEES
Fees to license certain communications software are recorded at cost and
amortized over the seven year life of the underlying agreement.
INCOME TAXES
Income taxes are determined using the liability method. This method gives
consideration to the future tax consequences associated with temporary
differences between the carrying amounts of assets and liabilities for financial
statement purposes and the amounts used for income tax purposes.
CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS
At August 31, 1999, the Company maintained the majority of its cash balances in
bank accounts insured by the FDIC.
The carrying amounts for cash and cash equivalents, notes receivable, accounts
payable and notes payable approximate fair value because of the short maturity
of these instruments. The Company does not hold or issue financial instruments
for trading purposes.
REVENUE RECOGNITION
Revenue from the sale of licensing agreements is recognized over the term of the
agreement. Revenue from the installation of equipment is recognized when
delivered. Revenue from the resale of minutes is recorded when the minutes are
used by the customer. Cost of sales includes expenses directly related to the
operation and maintenance of the telephony platform. Depreciation and
amortization expense is separately stated.
STOCK-BASED COMPENSATION
The Company accounts for its employee stock-based compensation arrangements
under the provisions of APB No. 25, Accounting for Stock Issued to Employees.
Stock Options are granted to employees and directors under its Stock Option Plan
with an exercise price equal to fair value at the date of grant and accordingly
recognizes no compensation expense in connection with such grants.
F-7
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET LOSS PER COMMON SHARE
Diluted loss per share is equal to basic loss per share for all periods
presented as the effect of all applicable securities (preferred stock, stock
options and warrants; see Note 6) is anti-dilutive (decrease the loss per share
amount). References to share and per share amounts have been restated to reflect
a one-for-six stock split effective December 18, 1998 unless otherwise noted.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
RECLASSIFICATIONS
The 1998 financial statements have been reclassified to conform to the 1999
presentations.
3. PROPERTY AND EQUIPMENT
Property and equipment is composed of the following at August 31, 1999:
Furniture and fixtures $ 170,415
Computer equipment 618,807
Software 218,108
-----------
Total property and equipment, at cost 1,007,330
Less: accumulated depreciation and amortization (643,771)
-----------
$ 363,559
===========
Amortization expense related to assets held under capital leases was $23,847 and
$36,139 in 1999 and 1998 respectively.
4. NOTE PAYABLE
Note payable to officer at August 31, 1999 consists of an unsecured note payable
to an officer and shareholder of the Company, due on demand, interest payable at
15%.
On October 12, 1998, a note payable for $50,000, plus accrued interest, to an
unrelated entity was converted into 156,250 (pre-split) shares of Common Stock.
The conversion price was based on the average of the high and low price on the
date of the letter of agreement for repayment of this note payable. Interest
paid on notes payable and capital lease obligations amounted to $6,317 and
$30,282 in 1999 and 1998, respectively.
F-8
<PAGE>
5. LEASES
The Company has entered into capital lease arrangements for office furniture and
equipment and operating lease arrangements for office space.
Future lease commitments at August 31, 1999 are as follows:
Capital Operating
Leases Leases
--------- --------
2000 $ 24,874 $110,659
2001 1,615 116,262
2002 -- 29,416
--------- --------
26,489 $256,337
========
Less amounts representing interest 1,230
---------
Present value of net minimum lease payments $ 25,259
Less current portion (23,680)
---------
$ 1,579
=========
Total rent expense under operating leases in 1999 and 1998 was $128,270 and
$121,000, respectively.
6. STOCKHOLDERS EQUITY
PREFERRED STOCK: The Company issued 600 shares of Series A Convertible Preferred
Stock in 1998 at $1,000 per share. The 6% Preferred stockholders are entitled to
receive annual cumulative dividends of $60 per share per annum, accrued daily
and payable quarterly in arrears on March 31, June 30, September 30 and December
31 of each year, in preference and priority to any payment to any other class or
series of stock of the Corporation. In 1999, a portion of these dividends were
settled by the issuance of common shares. Series A Preferred stockholders do not
have any voting rights.
The Preferred Stock is convertible at the option of the Company at any time on
at least ten days advance notice once the shares issuable upon conversion are
registered for resale by an effective registration statement. The conversion
price is the lesser of five dollars and twenty-five cents ($5.25) or
eighty-three percent (83%) of the average of the closing bid prices of the
Common Stock as reported by NASDAQ during the five (5) consecutive trading days
preceding the conversion date (but not including such date). However, all
outstanding shares of Preferred Stock shall be automatically converted into
common stock in April 2000 at the conversion price as set forth in the
subscription agreement. A beneficial conversion feature of $122,894 resulted in
a charge to retained earnings in 1998.
F-9
<PAGE>
6. STOCKHOLDERS EQUITY (CONTINUED)
The Preferred stock is redeemable at the option of the Company after the date on
which a registration statement under the Securities Act has been declared
effective; provided the Company has given at least 5 days written notice. If any
conversion of preferred shares in aggregate cause the Company to issue in excess
of 20% of common shares outstanding and issued, the Company shall redeem such
number of preferred shares as is necessary to limit the issuance of the common
shares to 20% unless shareholder approval has been obtained to issue in excess
of 20% of the outstanding and issued common shares. If redemption occurs, the
Company must remit within 5 days of notice in the form of a cashiers check
$1,250 per preferred share plus all accrued and unpaid dividends.
The holder of Preferred Stock may elect to convert such shares into Common
Stock, at the conversion price described above, upon written notice to the
Company. Such common shares are to be converted pursuant to an effective
registration statement. Should the Company fail to register such common shares
to allow for conversion as noted above, the Company is required to pay monthly
liquidated damages to the Preferred Stock holder equal to 2% of the purchase
price of the Preferred Stock. The Company expensed $144,000 and issued 128,993
shares of Common Stock in 1999 in liquidated damage payments.
COMMON STOCK: The Company issued in 1998 348,187 (pre-split) shares of common
stock for consulting services pursuant to various agreements valued at $130,477.
The value assigned to the common stock was based on the fair market value of the
common stock on the date that the liability was incurred. The value of the
consulting services was charged to expense during the period incurred.
The Company issued 54,557 (pre-split) deferred shares of common stock under the
1997 Stock Incentive Plan in 1998 to meet payroll expenses in the amount of
$25,753. The value assigned to the common stock was based on the fair market
value on the date of issue.
The Company issued 73,325 (pre-split) shares of common stock in 1998 in
satisfaction for services valued at $29,000 performed in 1997. The value
assigned to the common stock was charged to expense in 1997 based on the fair
market values of the common stock.
During the quarter ended May 31, 1998, the Company offered to all warrant
holders with warrants expiring May 31, 1998 and an exercise price of $1.00
(pre-split) per share, the following option: for a specific eleven day period,
the right to exercise their warrants for $0.585 (pre-split) per common share
(the fair market value on the date of the warrant exchange offer). The warrants
were initially issued with convertible notes that matured during the year ended
F-10
<PAGE>
6. STOCKHOLDERS EQUITY (CONTINUED)
August 31, 1996 and were converted into common shares at the face value of the
notes plus accrued interest. A total of 380,280 (pre-split) out of 784,781
(pre-split) warrants were exercised under this offer and the balance of 404,501
(pre-split) warrants expired on May 31, 1998. The Company received $222,503 for
the warrants. The Company recorded the exercise of the warrants as an increase
to additional paid-in-capital and common stock.
In October of 1997, the Company received proceeds of $250,000 from the issuance
of convertible notes payable. The notes were issued with attached warrants to
purchase an aggregate of 40,000 (pre-split) shares of the Company's common
stock. Each of the warrants is convertible at any time prior to October 24, 1999
by the holder thereof at an exercise price of $0.46 (pre-split) per share. The
warrants are granted at fair market value of the common stock on the date of the
grant. The warrants are valued at $18,400. These warrants remained outstanding
at August 31, 1998. The notes accrued interest at a rate of 12% per annum and
principal and accrued interest thereon were payable on or before April 24, 1998.
On November 30, 1997, $200,000 in notes payable along with accrued interest of
$2,067 were converted into 577,424 (pre-split) shares of common stock. A
beneficial conversion feature of $92,894 was charged to expense in the period of
the conversion. The balance of $50,000 payable at August 31, 1998 was converted
into 156,250 (pre-split) shares in 1999 (Note 4). An aggregate of $100,000 of
these notes payable was held by the wife and son of a director of the Company,
who received 288,096 (pre-split) shares of the Company's common stock upon
conversion.
On November 30, 1997, the Company converted $165,335 in existing notes payable
plus accrued interest of $4,171 to 484,307 (pre-split) shares of common stock.
The conversion price was based on the fair market value of the common stock on
the date of the conversion.
The following summarizes warrant activity in 1999:
Exercise
Number Price
-------- --------------
Outstanding, September 1, 1998 382,500 $2.64 - $10.50
Expired (34,167) $2.64 - $10.50
-------- --------------
Outstanding, August 31, 1999 348,333 $2.76 - $ 9.00
======== ==============
F-11
<PAGE>
6. STOCKHOLDERS EQUITY (CONTINUED)
STOCK INCENTIVE PLAN: The Company is authorized to issue up to 766,667 shares of
common stock under its 1997 Stock Incentive Plan. Shares may be issued as
incentive stock options, deferred shares or restricted shares. The options are
granted at the fair market value of the common stock on the date of the grant;
options have terms of up to ten years. The Company also grants non-statutory
options.
The fair value of these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions: risk-free interest rate of 5.60%, dividend yield of 0%, volatility
factor of the expected market price of the Company's common stock of 2.334, and
a weighted-average expected life of the options of 2 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's stock options have characteristics significantly different from
those traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its stock options.
SFAS No. 123 requires the Company to present pro forma disclosure for options
granted subsequent to 1995. These disclosures are not indicative of future
amounts, as options granted prior to 1995 have not been included as provided by
SFAS No. 123. For purposes of pro forma disclosure, the estimated fair value of
stock options was amortized to expense over the vesting period. Pro forma net
loss and loss per share are as follows:
1999 1998
----------- -----------
Net loss available to common
stockholders, as reported $(1,086,895) $(1,352,881)
Pro forma compensation expense for
stock options (249,557) (17,000)
----------- -----------
Pro forma net loss available to
common stockholders (1,336,452) (1,369,881)
----------- -----------
Pro forma loss per share available
to common stockholders $ (.43) $ (.51)
=========== ===========
F-12
<PAGE>
6. STOCKHOLDERS EQUITY (CONTINUED)
A summary of the Company's stock option activity (including non-statutory
options) is as follows:
Weighted
Number of Option Exercise
Options Price Price
Granted Per Share Per Share
------- --------- ---------
Outstanding, September 1, 1997 375,000 $2.25 - 6.00 $ 4.17
Granted 11,667 2.40 2.40
Canceled (100,000) 3.96 3.96
---------- ------------ ------
Outstanding, August 31, 1998 286,667 $2.25 - 6.00 $ 4.17
Granted 1,896,667 1.00 - 3.00 1.06
Exercised (5,833) 1.5 1.5
Canceled (133,333) 1.00 - 3.96 2.14
---------- ------------ ------
Outstanding, August 31, 1999 2,044,168 $1.00 - 6.00 $ 1.43
========== ============ ======
The remaining contractual life of options outstanding at August 31, 1999 was 9.6
years. Options for the purchase of 266,667 and 360,833 shares were immediately
exercisable at August 31, 1999 and 1998 with a weighted-average price of $3.33
and $4.31 per share.
The weighted average fair values of stock options granted during 1999 and 1998
for which the exercise price was equal to the fair market value of the stock
were $.96 and $0.40 per share, respectively.
7. INCOME TAXES
At August 31, 1999, the Company has federal net operating loss carryforwards
totaling approximately $11,000,000 and state net operating loss carryforwards of
approximately $7,100,000. The federal and state net operating loss carryforwards
expire in various amounts beginning in 2011 for federal purposes and 2000 for
state purposes. Certain of the Company's net operating loss carryforwards may be
subject to annual restrictions limiting their utilization in accordance with
Internal Revenue Code Section 382, which include limitations based on changes in
control. In addition, approximately $3,200,000 of net operating loss
carryforwards are further limited to activities in a trade or business in which
the Company is not presently involved. Additionally, the Company has capital
loss carryforwards of approximately $216,000 which will expire in 2004 unless
offset by capital gains. No tax benefit has been recorded in the financial
statements since realization of these loss carryforwards does not appear likely.
F-13
<PAGE>
7. INCOME TAXES (CONTINUED)
The income tax benefit for the years ended August 31 is comprised of the
following amounts:
1999 1998
--------- ---------
Current $ -- $ --
Deferred:
Federal (359,000) (453,000)
State (55,000) (19,000)
--------- ---------
(414,000) (472,000)
Valuation allowance 414,000 472,000
--------- ---------
$ -- $ --
========= =========
The Company's tax benefit differs from the benefit calculated using the federal
statutory income tax rate for the following reasons:
1999 1998
---- ----
Statutory tax rate 34.0% 35.0%
State income taxes 5.3% 9.0%
Amortization of organization costs -- (7.0%)
Change in valuation allowance (39.3%) (37.0%)
---- ----
Effective tax rate 0.0% 0.0%
==== ====
The components of the net deferred tax asset are as follows:
1999 1998
----------- -----------
Deferred tax asset:
Amortization of Intangibles $ 33,000 $ 70,000
Net Capital Loss 85,000 --
Net operating loss carryforward 3,756,000 3,390,000
----------- -----------
3,874,000 3,460,000
Valuation allowance (3,874,000) (3,460,000)
----------- -----------
$ -- $ --
=========== ===========
Income taxes of $50 and $200 were paid in 1999 and 1998, respectively.
F-14
<PAGE>
7. INCOME TAXES (CONTINUED)
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes, requires a valuation allowance to reduce the deferred tax assets if,
based on the weight of the evidence, it is more likely than not that some or all
of the deferred tax assets will not be realized. After consideration of all the
evidence, both positive and negative, management has determined that a
$3,874,000 valuation allowance at August 31, 1999 is necessary to reduce the
deferred tax assets to the amount that will more likely than not be realized.
The change in the valuation allowance for the current year is $414,000.
8. INVESTMENT IN SWITCH TELECOMMUNICATIONS PTY LIMITED
During August 1996 the Company entered into an agreement with Switch
Telecommunications Pty Limited (Switch) to exchange an equity interest in the
Company for an equity interest in Switch. The equity interests consist of
outstanding common stock of the respective companies. The Company received five
shares of Switch common stock representing 5% of the issued and outstanding
common stock, in exchange for 257,352 shares of the Company's stock. On June 30,
1998, an agreement was reached between the Company and Switch which set forth
the terms and conditions of a one year put option for the shares of common stock
of Switch which are owned by the Company. On August 25, 1998, the Company
exercised the put option thereby selling its entire interest in Switch for
$2,100,000. The sale resulted in recognition of a net loss on the investment of
$216,165.
Switch purchased a three-year warrant to purchase up to 333,333 shares of the
Company's common stock at a price of $9 per share. The warrants expire January
17, 2000. Consideration of $20,000 was received for the warrants.
The Company entered into an Equipment and Software Turnkey Agreement with Switch
during August, 1996. This agreement sets forth the terms of fees and services
between Interpretel and Switch. The agreement provides for the purchase of an
Interpretel system and licensing for its use in Australia, New Zealand, the
subcontinent of India and Asia (excluding Korea and Japan). The initial term of
the license was seven years. In the agreement, Switch contracted to purchase an
Interpretel System consisting of a computer platform and related software. The
agreement also provided for a licensing fee in the amount of $500,000 to be paid
to Interpretel over a three-year period. The Company received $200,000 of the
licensing fee during the year ended August 31, 1997. Effective June 30, 1998, an
agreement was reached between the Company and Switch terminating the license
agreement. Switch agreed to pay the Company $150,000 in consideration of the
termination of the agreement. The payment was received on July 10, 1998. In
consideration of the termination of the licensing agreement, the Company agreed
to release Switch from any other obligations including the gross revenue fee. In
F-15
<PAGE>
8. INVESTMENT IN SWITCH TELECOMMUNICATIONS PTY LIMITED (CONTINUED)
connection with the termination of the licensing fee, the Company recognized
$86,906 in unamortized deferred revenue and $150,000 termination payment for a
total of $236,906 in license fee termination income.
9. RELATED PARTY TRANSACTIONS
The Company executed a loan agreement on August 6, 1999 with a company owned by
certain of the Company's board members. The agreement, under which $100,000 was
advanced at August 31, 1999 in the form of a note receivable, gives the borrower
the option to convert the outstanding principal into shares of such company in a
specified amount. Borrowings under the loan agreement bear interest at prime
plus 1%.
10. LOSS ON ASSET IMPAIRMENT
The Company determined in the fourth quarter of fiscal 1999 that certain fixed
and intangible assets no longer were of value to the Company. Accordingly, such
assets and the related accumulated depreciation and amortization (net book value
of $36,125) were written off.
11. SUBSEQUENT EVENTS
The Company amended its license agreement with Softalk, Inc. (Softalk) on
October 25, 1999. The amended agreement is 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. The Company issued five-year warrants to
purchase the Company's common stock in connection with this amendment as
follows: 3,246,753 exercisable at $3.25; 1,000,000 at $5.00; and 1,000,000 at
$10.00.
On November 13, 1999, the Company purchased certain assets (products and
accounts) from Softalk in exchange for 4,329,004 shares of Class A voting
preferred stock of Interpretel Canada Inc. (the Class A shares). The Class A
shares are exchangeable on a one-for-one basis into the Company's common shares
at any time. The Class A shares must at all times represent at least 15% of the
voting shares and 15% of the fair market value of Interpretel Canada.
F-16
<PAGE>
Wavetech International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
May 31, 2000 and August 31, 1999
<TABLE>
<CAPTION>
May 31, August 31,
2000 1999
------------ ------------
ASSETS (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, 1000 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.
F-17
<PAGE>
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
=========== ===========
See Notes to Condensed Consolidated Financial Statements.
F-18
<PAGE>
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)
----------- -----------
Total other income (expense) (30,283) (30,486)
Net loss before preferred dividends (1,022,064) (236,637)
Cumulative preferred dividends declared 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.
F-19
<PAGE>
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.
F-20
<PAGE>
Wavetech International, Inc and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
May 31, 2000
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 ("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.
F-21
<PAGE>
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.
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 the Company. 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.
F-22
<PAGE>
PART II TO FORM S-2
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth our estimated costs and expenses in
connection with the offering other than commissions and discounts, if any.
SEC Registration Fee $ 4,321.85
Legal Fees and Expenses 30,000.00
Accounting Fees and Expenses 5,000.00
Printing and Engraving Expenses 1,000.00
Miscellaneous 10,000.00
----------
Total $50,321.85
==========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Articles 11 and 12 of our Articles of Incorporation provide as follows:
1. To the fullest extent permitted by the laws of the State of Nevada, as
4the same exist or may hereinafter be amended, no director or officer of the
Corporation shall be personally liable to the Corporation or its shareholders
for monetary damages for breach of fiduciary duty as a director or officer,
provided, however, that nothing contained herein shall eliminate or limit the
liability of a director or officer of the Corporation to the extent provided by
applicable laws (i) for acts or omissions which involve intentional misconduct,
fraud or knowing violation of law or (ii) for authorizing the payment of
dividends in violation of Nevada Revised Statutes Section 78.300. The limitation
of liability provided herein shall continue after a director or officer has
ceased to occupy such position as to acts or omissions occurring during such
director's or officer's term or terms of office. No repeal, amendment or
modification of this Article, whether direct or indirect, shall eliminate or
reduce its effect with respect to any act or omission of a director or officer
of the Corporation occurring prior to such repeal, amendment or modification.
2. The Corporation shall indemnify, defend and hold harmless any person who
incurs expenses, claims, damages or liability by reason of the fact that he or
she is, or was, an officer, director, employee or agent of the Corporation, to
the fullest extent allowed pursuant to Nevada law.
II-1
<PAGE>
ITEM 16. EXHIBITS
Exhibit Page Number or
Number Description Method of Filing
------ ----------- ----------------
4.1 Certificate of Designations, Rights, Preferences *
and Limitations of the Series B Convertible
Preferred Stock
4.2 Form of Warrant issued to investor in private *
placement
4.3 Form of Warrant issued to Thomson Kernaghan & Co. *
Limited as Placement Agent in the private placement
5 Opinion re: legality of the securities being **
registered
10.1 Securities Purchase Agreement between the Company *
and the investor in the private placement
10.2 Registration Rights Agreement among the Company,
the Investor and the Placement Agent *
23.1 Consent of Independent Auditors Filed herewith
23.2 Consent of Counsel See Exhibit 5
24 Powers of Attorney ***
----------
* Previously filed as an exhibit to the Company's Form 8-K filed May 16, 2000
(File No. 637704)
** Previously filed as an exhibit to the Company's Form S-2 (File No.
333-39378)
*** Previously filed as part of the Signature Page of the Company's Form S-2
(File No. 333-39378)
ITEM 17. UNDERTAKINGS
1. The undersigned Registrant hereby undertakes to file, during any period
in which offers or sales are being made, a post-effective amendment to this
registration statement:
(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.
(b) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement;
provided, however, that paragraphs (a) and (b) shall not apply if such
information is contained in periodic reports filed by the Registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference into this Registration Statement.
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
II-2
<PAGE>
2. The undersigned Registrant hereby undertakes that, for the purpose of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
3. The undersigned Registrant hereby undertakes to remove from registration
by means of a post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
4. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference into this
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
5. The undersigned Registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
6. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the undersigned Registrant pursuant to the foregoing provisions, or otherwise,
the undersigned Registrant has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Tucson, State of Arizona, on July 27, 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)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Gerald I. Quinn Chairman of the Board, President
-------------------------- and Chief Executive Officer July 27, 2000
(Principal Executive Officer)
/s/ Gerald I. Quinn Chief Financial Officer (Principal July 27, 2000
-------------------------- Financial and Accounting Officer)
* Vice President, Product July 27, 2000
-------------------------- Development
Richard P. Freeman
* Director July 27, 2000
--------------------------
John P. Clements
* Director July 27, 2000
--------------------------
Alexander C. Lang
* Director July 27, 2000
--------------------------
Rosnani Atan
* By /s/ Gerald I. Quinn
---------------------
Attorney in Fact
II-4
<PAGE>
EXHIBIT INDEX
Exhibit Page Number or
Number Description Method of Filing
------ ----------- ----------------
4.1 Certificate of Designations, Rights, Preferences *
and Limitations of the Series B Convertible
Preferred Stock
4.2 Form of Warrant issued to investor in private *
placement
4.3 Form of Warrant issued to Thomson Kernaghan & Co. *
Limited as Placement Agent in the private placement
5 Opinion re: legality of the securities being
registered **
10.1 Securities Purchase Agreement between the Company *
and the investor in the private placement
10.2 Registration Rights Agreement among the Company,
the Investor and the Placement Agent *
23.1 Consent of Independent Auditors Filed herewith
23.2 Consent of Counsel See Exhibit 5
24 Powers of Attorney ***
----------
* Previously filed as an exhibit to the Company's Form 8-K filed May 16, 2000
(File No. 637704)
** Previously filed as an exhibit to the Company's Form S-2 (File No.
333-39378)
*** Previously filed as part of the Signature Page of the Company's Form S-2
(File No. 333-39378)
