U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
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|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to __________
Commission file number 0-23199
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WIN-GATE EQUITY GROUP, INC.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Florida 65-0669842
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
100 N. Biscayne Blvd., Suite 2500, Miami, Florida 33132
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(Address of Principal Executive Offices)
(305) 371-3300
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(Issuer's Telephone Number, Including Area Code)
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(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes No X
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At June 30, 2000 there were ____________ shares of the issuer's Common Stock
outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
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WIN-GATE EQUITY GROUP, INC.
INDEX
PAGE NUMBER
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet
Statement of Income for the
three months ended _________ to ____________
Statement of Changes in Stockholders' Equity
for the period from ___________ to ____________
Statements of Cash Flow for the
three months ended ________________
Notes to Financial Statements
Item 2. Management's Plan of Operation
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBIT 27.1
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PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements.
Win-Gate Equity Corporation
Consolidated Balance Sheet for Period Ending June 30, 2000
Unaudited Draft
Jun 30, '00
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ASSETS
Current Assets
Total Checking/Savings 438,764
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Accounts Receivable
Accounts Receivable 339,894
Accounts Receivable - Other 3,750
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Total Accounts Receivable 343,644
Other Current Assets
Deposits to Vendors 601,242
Prepaids 143,855
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Total Other Current Assets 745,097
Total Current Assets 1,088,741
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Total Fixed Assets 10,875,833
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Other Assets
Total Goodwill 1,976,465
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TOTAL ASSETS 14,379,803
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LIABILITIES & EQUITY
Liabilities
Current Liabilities
Total Accounts Payable 4,146,196
Other Current Liabilities 596,931
Notes Payable - Short Term 667,000
Vendor Financing - S/T 1,583,814
Customer Deposits 767,406
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Total Current Liabilities 7,761,347
Long Term Liabilities
GNB Convertible Debt 5,000,000
Vendor Financing - L/T 6,072,106
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Total Long Term Liabilities 11,072,106
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Total Liabilities 18,833,453
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Equity
Capital Stock 18,150
Additional Paid-In Capital 3,436,422
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Total Capital Stock 3,454,572
Retained Earnings (4,865,063)
Net Income (3,043,159)
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Total Equity (4,453,650)
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TOTAL LIABILITIES & EQUITY 14,379,803
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Win-Gate Equity Corporation
Income Statement - First Quarter, 2001
April 1, 2000 -- June 30, 2000
Unaudited Draft
Apr - Jun '00
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Ordinary Income/Expense
Income
Sales Revenue
Arbitrage Sales 165,802
Carrier Sales 302,119
Sales Revenue - Other (1,554)
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Total Sales Revenue 466,367
Satellite Segment Revenue 34,200
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Total Income 500,567
Cost of Goods Sold
Arbitrage Fees 105,761
Network Services 481,450
Satellite Transmission 478,701
Service Commissions 35,506
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Total COGS 1,101,418
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Gross Profit (600,850)
Expense
Automobile Expense 5,282
Bank Service Charges 2,269
Depreciation Expense 0
Goodwill Amortization 94,453
Depreciation Expense - Other 489,003
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Total Depreciation Expense 583,456
Employee Benefits
Medical Insurance 16,323
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Total Employee Benefits 16,323
Equipment Rental 1,307
Insurance
Disability Insurance 2,186
Other Liability Insurance 13,557
Property & Casualty 15,418
Workman's Compensation 2,015
Insurance - Other 4,000
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Total Insurance 37,176
Interest Expense
Finance Charge 1,617
Loan Interest 174,035
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Total Interest Expense 175,653
Licenses and Permits 890
Mail - Overnight 5,758
Miscellaneous (1,376)
Network Equipment 7,311
Network Operations - Unclassifi 20,355
Office Expense 6,391
Office Supplies 3,666
Postage and Delivery 2,846
Printing and Reproduction 833
Professional Fees
Accounting 134,511
Consulting 93,411
Investment 80,258
Legal Fees 309,136
Payroll Service Bureau 748
Public Relations 72,800
Recruiting (3,000)
Sales & Marketing 62,551
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Total Professional Fees 750,415
Rent - foreign sites 32,159
Rent - USA
Bldg. Lease 132,756
Co-Location Rack Space 28,500
Parking 4,256
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Total Rent - USA 165,512
Repairs
Building Repairs 1,196
Computer Repairs 1,319
Equipment Repairs 95
Switch Tools & Misc 270
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Total Repairs 2,880
Salaries & Wages
Accrued Salaries & Wages (43,086)
Contract Labor 3,945
FLA P/R Tax 1,981
Marketing & Sales 113,923
Network Tech 99,457
NJ P/R Tax Expense 450
NY P/R Tax Expense 896
Officers & Executives 114,619
Operations 63,419
Payroll Tax Expense 34,570
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Total Salaries & Wages 390,174
Tax -- Personal Property 60,436
Telephone 30,114
Telephone - Cell 22,232
Travel & Ent
Airfare 35,026
Entertainment 4,694
Ground Travel 13,698
Lodging 13,740
Meals 7,429
Meals - Local 6,957
Phones 987
Travel 46,123
Travel & Ent - Other 10,883
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Total Travel & Ent 139,537
Utilities
Gas and Electric 551
Water 39
Utilities - Other 500
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Total Utilities 1,090
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Total Expense 2,462,687
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Net Ordinary Income (3,063,538)
Other Income/Expense
Other Income
Interest Income 20,379
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Total Other Income 20,379
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Net Other Income 20,379
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Net Income (3,043,159)
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<PAGE>
Item 2. Management's Plan of Operation.
The following discussion and analysis should be read in conjunction
with, and is qualified in its entirety by, the Financial Statements included
elsewhere herein. Historical results are not necessarily indicative of trends in
operating results for any future period.
Certain statements in this Form 10-QSB are "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), Section 21E of the Securities and Exchange Act of 1934, as
amended (the "Exchange Act"), and the Private Securities Litigation Reform Act
of 1995 and involve known and unknown risks, uncertainties and other factors
that may cause our actual results, performance or achievements to be materially
different from the results, performance or achievements expressed or implied by
the forward-looking statements. Forward-looking statements, which involve
assumptions and describe our future plans, strategies and expectations, are
generally identifiable by use of the words "may," "will," "should," "expect,"
"anticipate," "estimate," "believe," "intend," or "project" or the negative of
these words or other variations on these words or comparable terminology. This
report contains forward-looking statements that address, among other things, our
financing plans, regulatory environments in which we operate or plan to operate,
trends affecting our financial condition or results of operations, the impact of
competition, the start-up of certain operations and acquisition opportunities.
These statements may be found under"Management's Plan of Operation," as well as
in this Form 10-QSB generally. Factors, risks and uncertainties that could cause
actual results to differ materially from those in the forward-looking statements
herein include (the "Cautionary Statements"), without limitation: the Company's
ability to raise capital; the Company's ability to execute its business strategy
in a very competitive environment; the Company's degree of financial leverage;
risks associated with acquisitions and the integration thereof; risks associated
with rapidly developing technology and providing services over the Internet;
regulatory considerations and risks related to international economies; risks
related to market acceptance of and demand for the Company's products and
services; continued relations with and pricing dependence on third party
suppliers; the impact of competitive services and pricing; and other risks
referenced from time to time in the Company's filings with the Securities and
Exchange Commission. All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by the Cautionary Statements. The Company does not
undertake any obligations to release publicly any revisions to such
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
General
The Company was initially organized under the laws of the State of
Florida on May 17, 1996 in order to seek and effect a merger, acquire the assets
or the capital stock of existing businesses or
<PAGE>
other similar business combinations. Prior to its transaction with the
Globaltron stockholders where Globaltron became a wholly-owned subsidiary of
Win-Gate in exchange for Win-Gate shares, the Company had not been engaged in
active operations since its organization.
Going Concern
The accompanying consolidated financial statements and financial
information have been prepared assuming that the Company will continue as a
going concern. The Company's continuation as a going concern is dependent upon
its ability to (a) generate sufficient cash flow to meet its obligations on a
timely basis, (b) obtain significant additional financing, and (c) ultimately
sustain profitability.
Plan of Operation
As a result of the Globaltron transaction, the Company entered into the
international facilities-based telecommunications business. The Company intends
to build a facilities-based international grade network outside the traditional
settlement process to offer its customers low cost, highly reliable
connectivity. The Company has initially focused on carrier wholesale termination
by leveraging off of its current strategic agreements, U.S. carrier contracts,
and network build-out. As the Company's foreign operations become established,
higher margin foreign traffic call origination is anticipated to increase.
Additionally, the Company intends to introduce a complete package of enhanced
virtual services, prepaid calling card programs, international private lines,
and Internet telephony during the calendar year 2000.
For the year 2000, the Company's operational and strategic objectives
include the following:
-> Enter select deregulating international markets
-> Acquire or joint venture with other telecommunications related
providers
-> Aggregate carrier traffic to forge strategic operating
agreements
-> Focus on foreign market traffic origination
-> Build a portfolio of value added services
-> Establish a reliable, fully redundant, technologically
advanced network
-> Invest in network infrastructure
For the 12 months ending March 31, 2001, the Company intends to begin
or expand operations in various locations in Europe, Central and South America,
and the Caribbean. The Company has signed definitive agreements to enter the
Competitive Local Exchange Carrier (CLEC) business in a 5-country area of South
America. Initial operations are anticipated to begin in Peru and Colombia in the
last quarter of calendar year 2000, and continue with build-out over the
following 3 years.
The development of the Company's business and the construction,
acquisition and expansion of its networks require significant capital
expenditures, a substantial portion of which are incurred before realization of
revenues. These expenditures, together with the associated early operating
expenses, result in negative cash flow until an adequate customer base is
established. However, as the Company's customer base grows, the Company expects
that incremental revenues can be
<PAGE>
generated with decreasing incremental operating expenses. The Company has made
specific strategic decisions to build high capacity networks with broad market
coverage, which initially increases its level of capital expenditures and
operating losses. However, the Company believes that over the long term this
strategy will enhance the Company's financial performance by increasing the
traffic flow over its network.
There can be no assurance that the Company will be able to identify,
attract, finance or consummate its operational and strategic objectives (all of
which are heavily dependent upon, among other things, the Company's ability to
obtain additional financing).
The Company intends in the future to capitalize on the expanding and
rapidly evolving telecommunications and Internet services environment in Latin
America. As such, the Company's goal is to become a leading facilities-based
provider of integrated communications services to both businesses and
residential customers in Latin America. The Company's strategy is to:
o Deploy Flexible Networks. For the provision of local access
services in Latin America the Company intends to deploy a
range of network access systems using primarily wireless local
loop (WLL) technology. Wireless local loop systems provide
several competitive advantages over conventional wireline
technologies, because they utilize radio spectrum to provide
last-mile access to subscribers. The WLL technology reduces
network costs, deployment time, and operating expenses, in
addition to providing flexibility to the operator in
addressing changes in demand. The Company believes its WLL
network strategy will enable it to cost effectively match its
service offerings with the requirements of its customers. The
Company has selected its vendors for the WLL technology for
the Andean Region.
o Enter Select Deregulating Latin American Markets. The Company
is focused on newly liberalized Latin American markets in
which it can secure favorable, market- operating agreements
and licenses that allow the Company to establish a local
market presence through the acquisition of LMDS/WLL spectrum
and broadband wireless access. In certain markets on the verge
of local market deregulation the Company has pursued strategic
relationships with licensed foreign carriers to establish
market position and a competitive cost advantage. At the time
of market liberalization the Company believes it will be
better positioned to leverage its established strategic
relationships to secure opportunities for local market entry.
o Aggressively Build Market Share in Target Markets. The Company
plans to aggressively build market share in its target
markets. In Colombia, this strategy will be fostered by the
Company's unique "first mover" positioning for the provision
of fixed wireless services. The Company intends to focus on
the underserved small and medium sized businesses and high
usage residential customers and offer higher- quality services
at competitive prices. The Company intends to work to build
brand recognition in the Andean Region through a broad-based
mass marketing and advertising campaign. The Company
anticipates to achieve additional market positioning due to
customer dissatisfaction with the incumbent communications
<PAGE>
providers. The Company believes that its fixed wireless
infrastructure will provide higher quality service offerings
not available over the incumbent's wireline networks.
o Invest in US Backbone and International Transport Network for
Lowest Cost Competitive Positioning. The Company has allocated
the majority of its network infrastructure investment to date
to building out its IP/ATM backbone to ensure low cost
international transport positioning. By establishing a US
backbone with direct routes to the Company's target CLEC
markets, the Company believes that it will realize significant
cost advantages for international transport and termination.
In addition, established direct routes allow the Company to
further capitalize on the prevailing traffic patterns between
the US and Latin America by providing international
origination and termination to other service providers. The
Company's execution strategy is to be 80% "On Net" across its
own facilities, composed of the Company's own international
gateways and transport facilities to targeted countries.
The Company is working toward establishing a highly reliable,
technologically advanced international transport network. The
international convergent IP network is being constructed using
technology from Lucent Technologies and Cisco. The network is
being built end to end using cell based ATM switching and
Internet Protocol for integrated voice, data and video
applications. The transport network is optic utilizing a
bi-directional SONET ring architecture where fiber is
available. A Network Operations Center for comprehensive
network management is staffed 24 hours per day, 365 days per
year to monitor the worldwide network. In addition, the
Company's switching platform possesses full E1/T1 capability
to accommodate the standards of most every country in the
world. The Company believes that its network characteristics
will meet and exceed its customers demands for reliability,
quality and capacity.
o Build a Portfolio of Integrated Services and Applications.
Although the Company's current services are primarily sold to
wholesale customers, the Company's network infrastructure is
designed for the provision of both wholesale and retail
service offerings. Integrated services and applications offer
higher margins and a mix of wholesale and retail traffic helps
maintain optimal network utilization, which drives lower
network operating costs per minute. The Company has begun to
build a portfolio of integrated services and applications to
capture retail opportunities in the U.S. and in foreign
markets where the Company has an established presence. Planned
services and applications include national and international
long distance, local access, IP Telephony, Unified Messaging
and enhanced value added services and prepaid calling cards.
The Company has made a strategic investment in a developer of
Unified Messaging and IP Telephony applications and secured
licenses or retail distribution agreements for the Andean
Region Countries of Columbia and Peru.
o Foreign Market Traffic Origination. As the Company develops
and expands its relationships with foreign carriers, PTTs and
other foreign market providers, the Company's Carrier focus
will shift increasingly to originate international carrier
data,
<PAGE>
voice and virtual services traffic in foreign markets. Foreign
market origination in deregulating markets offers
significantly higher margins and leads to additional
opportunities for foreign market retail origination. The
Company's strategy is to migrate the ration of direct
arbitrage routes of foreign market and sales operations from a
current 5/95% to a targeted 80/20% as the network plan is
executed.
o Capitalize on Experienced Management. The Company's management
team is made up of individuals with significant industry
experience. Gary Morgan, the Company's founder, Chairman of
the Board and Chief Executive Officer, has twenty- two years
of industry experience in both domestic and international
communications. Gary Stukes, the Company's President and Chief
Operating Officer, has over twenty years of industry
experience including twelve years with AT&T and a previous
position as Vice President of Carrier Sales at Totaltel.
o Aggregate Carrier Traffic to Forge Strategic Operating
Agreements. Aggregation of international call termination has
been and will continue to be a key asset for the Company in
achieving favorable positioning in foreign markets. As a
facilities-based carrier the Company supplies large volumes of
traffic to key international regions and resells "arbitrage"
traffic to the balance of the world. Strategically, the
Company uses the aggregated traffic volumes to swap routes,
extend business relationships to joint ventures, enter
deregulating markets and obtain foreign originating traffic.
The Company has already signed international contracts for
voice, data, and virtual services transmission with over 100
carriers worldwide.
o Utilize Strategic Acquisitions to Enhance Share Value. The
Company expects to continue to expand internally as well as
through acquisition and merger activities, acquiring companies
that provide complementary services or are positioned in
attractive markets. To date, the Company has acquired licenses
companies in Miami, Florida and Colombia.
Results of Operations
The discussion below relates to results of operations for the three
months ended June 30, 2000. The Company does not believe that it is meaningful
to compare changes from the corresponding period in the preceding year due to
the significant change in the Company's operations subsequent to the Globaltron
acquisition and the nominal operations of Globaltron in such prior fiscal
period.
Revenues for the Company for the period ended June 30, 2000 totaled
$_____. [EXPLAIN COMPONENTS]
The Company has contracted with providers of telecommunications
transport services and facilities to process call traffic over its national and
international network. Such expenses, which are predominantly fixed recurring
monthly costs, constitute ____% of the Costs of Good Sold for the period ended
June 30, 2000. These costs, as a percentage of Costs of Goods Sold, are expected
to decrease as the Company's network reaches its expected traffic capacity
levels. The Company's
<PAGE>
build-out of its international network is continuing. Due to the number of
international sites under construction and testing required during the period,
the company incurred negative gross margins.
Selling, general and administrative expenses ("SGA") for the period
ended June 30, 2000 reflect the developmental stage of the Company during its
first year of operations. Approximately $____________ (____% of total SGA),
relating to professional fees, was expensed during the period. Travel related
expenses of $____________ (or ___% of total SGA), relate to organizational and
financing activities as well as the deployment of foreign sites.
The Company recorded $__________ of expenses during the period ended
June 30, 2000, relating to the issuance by the Company of stock to certain
individuals for professional services and employment inducements. These
transactions allowed the Company to secure certain services requisite to
formation of the Company for non-cash consideration. Management regards these
expenses as one-time start-up expenses. Depreciation and amortization expense
for the period ended June 30, 2000 totaled $_________. Interest expense for the
period totaled $__________.
The Company recorded a net loss for the period ended June 30, 2000 of
$2,958,303.
Liquidity and Capital Resources
As of July 31, 2000, the Company was operating 9 networks. The costs
associated with the initial construction and operation of a network may very,
primarily due to market variations in geographic and demographic
characteristics, and the types of construction technologies, which can be used
to deploy the network. As the Company develops, introduces and expands its
high-speed data/Internet and voice services in each of its markets, additional
capital expenditures and net operating costs will be incurred. The amount of
these costs will vary, based on the number of customers served and the actual
services provided to the customers.
The Company is incurring negative cash flows due, in major part, to the
funding requirements for working capital, network construction or development
and voice services. Through March 31, 2000, the Company had invested
approximately $10,958,000 million in network and telecommunications equipment.
The Company expects it will continue to incur negative cash flow for at least
two years. There can be no assurance that the Company's networks or any of its
other services will ever provide a revenue base adequate to sustain
profitability or generate positive cash flow. The Company estimates that in
calendar 2000, capital required for implementation of its integrated networks
and its other services and to fund negative cash flow, including interest
payments, will be significant. As of March 31, 2000, the Company's unrestricted
cash balance was approximately $4,055,990.
The Company's development and enhancement of new services and networks
will require substantial capital expenditures. The funding of these expenditures
is dependent upon the Company's ability to raise substantial equity and debt
financing. In certain instances the ability to secure equipment financing
requires the consent of existing vendors. Any such acquisitions or arrangements
that the Company might consider are likely to require additional equity or debt
financing, which the Company will seek to obtain as required and which may also
require that the Company obtain the consent of its debt holders.
<PAGE>
In order for the Company to continue to acquire the ATM/VOIP switching
network equipment necessary to develop its international telephone network, the
Company has entered into various equipment financing agreements with equipment
vendors. Capital equipment used by the Company in its international telephony
network is typically financed directly or indirectly by equipment vendors. In
the instance of a direct financing facility, the vendor itself will negotiate
the facility with the Company, advance the funding, receive payments and
administer all details related to the transaction. In an indirect financing
transaction, the vendor will have pre-selected a group of third party financial
institutions that will represent the vendor to effect customer financing. The
vendor accepts an order from the Company, while the Company and the financing
institution will together negotiate the financial details of the transaction.
The respective facility is characterized as either a conditional sales contract
or as a capital lease agreement, generally with a nominal buy-out option at
termination. Regardless of the form of the agreement, the facilities feature
deferred payment terms, multi-year maturity dates and allowance for such
ancillary soft costs as shipping, taxes, installation and set-up necessary to
place the equipment into service.
On October 25, 1999, the Company entered into two separate Equipment
Financing Agreements with Cisco Systems Capital Corporation. On January 24,
2000, the Company entered into an additional Equipment Financing Agreement with
Cisco Systems Capital Corporation. Pursuant to the Agreements, the Company has
the ability to borrow up to an aggregate of $6,373,048 in order to purchase
switches and routers and for related ancillary costs for equipment maintenance,
installation and preparation. The facility is available in 3 phases. The
Agreement has a term of 36 months for the purchase of equipment and 24 months
for ancillary costs including shipping, taxes, installation, cabling and
software. As of July 31, 2000, all funds available under the equipment facility
have been borrowed.
On August 23, 1999, Globaltron entered into an Equipment Financing
proposal with Lucent Technologies. Pursuant to the proposal, the Company had the
ability to borrow up to $10 million in order to purchase Lucent Technologies
equipment and services and to pay for ancillary costs associated with the
installation and preparation of equipment for operation. The equipment facility
was divided into 3 phases. Phase one was for up to $1,750,000 and was to be used
towards the purchase equipment to be deployed outside the United States. Phase
two was for up to $6,750,000 and was to be used towards the purchase equipment
to be deployed in the United States. Phase three was for up to $1,500,000 and
was to be used towards the purchase of Lucent Technologies professional
services, plus costs relating to taxes and shipping. On September 15, 1999,
Globaltron entered into a Master Conditional Sale Agreement with Lucent
Technologies finalizing all of the terms and conditions of the Equipment
Financing Proposal. Through April 30, 2000, Globaltron borrowed approximately $9
million under the Lucent Technologies facility. Lucent Technologies subsequently
decided to decrease their financing role and turned new financings and renewals
to third party lenders. On June 27, 2000, the Company entered into a Equipment
Financing Agreement with Gallant Capital and Finance, LLC. The original Lucent
$10 million facility was assigned to Gallant Capital and rolled into the Gallant
Capital facility and an additional $10 million was available for borrowing under
the new Gallant Capital facility. The Gallant Capital Agreement has a term of 60
months and an annual interest rate of 12%. As of July 31, 2000, the Company has
borrowed $13.8 million under the Gallant Capital Agreement ($9 million of which
was previously delivered under the original Lucent Agreement and $4.8 million of
which was delivered under the Gallant Capital Agreement).
<PAGE>
The Company has also recently signed various term sheets for equipment
financing. All of these term sheets, which are described below, are subject to
the preparation and execution of definitive agreements. There can be no
assurance that such definitive agreements will be executed. As such, no funds
have been drawn under any of the term sheets described below. In June 2000, the
Company entered into a term sheet for the provision of financing by Italtel SPA.
Pursuant to the arrangement, the Company would have the ability to borrow up to
$60 million in order to purchase carrier switching equipment in 21 countries
including the Andean region of South America. The arrangement is expected to
have a term of 60 months. Interest will be at LIBOR plus a range of 25 to 75
basis points. On June 13, 2000, the Company entered into a term sheet for the
provision of equipment financing with ECI Telecom Ltd. Pursuant to the ECI term
sheet, the Company would have the ability to borrow up to $37,500,000 in order
to purchase ECI Innowave wireless local loop equipment to be deployed in the
Company's wireless local loop projects in South America. The equipment facility
is expected to be divided into 6 phases and have a term of 48 months. Each phase
will require a down payment by the Company ranging from 35% to 60% of the amount
of such phase. Interest will range downward by phase from an initial rate of
LIBOR plus 300 basis points.
On July 13, 2000, the Company received a proposal to obtain equipment financing
from Tropico Sistemas e Telecomunicacoes S.A., CPqD Technologies & Systems, Inc.
and Singer Products, Inc. Pursuant to the terms of the proposal, the Company
would have the ability to borrow up to $10 million in order to purchase digital
local and tandem softswitch equipment with the requisite software and
maintenance. The arrangement is expected to have a term of 7 years with interest
at 11.5%.
The Company's capital needs have also been funded, in part, through the
funds it received from certain credit facilities. On February 29, 2000, the
Company obtained a loan from GNB Bank. Pursuant to the GNB Loan Agreement, GNB
Bank made a loan to the Company in the principal amount of $5.0 million, plus
interest at Citibank N.A.'s base rate plus 1%. The GNB Loan is evidenced by an
unsecured convertible promissory note ("Note") due May 29, 2001. The payment of
the obligations under the Note and related agreements and the performance of the
obligations therewith, are unconditionally guaranteed by Globaltron.
The GNB credit facility contains certain covenants, which impose
restrictions on the Company. These include, without limitation, restrictions on
the declaration or payment of dividends with respect to capital stock of the
Company, the conduct of certain activities, certain investments, the creation of
additional liens or indebtedness, the disposition of assets and fundamental
changes.
On July 27, 2000, the Company entered into a Loan Agreement with Arthur
E. Lipson, Trustee ("Lipson"), whereby Lipson loaned the Company the principal
amount of $900,000, plus interest at a rate of 12% per annum. The loan proceeds
are being used for working capital needs. The loan is evidenced by an unsecured
convertible promissory note due October 27, 2000.
The Company believes that it can satisfy its cash requirements for its
existing business operations through ____________, 2000, on the basis of funds
available under the equipment and credit facilities described above. The Company
will require significant additional financing in order to continue as a going
concern and to achieve its growth and acquisition objectives. The Company
anticipates that it will need to raise significant additional debt and equity
financing during calendar year 2000 in order to expand and maintain its
business. The Company is actively seeking additional
<PAGE>
funding from a variety of sources, including potential issuances of its
securities in one or more private transactions and various additional vendor
financing arrangements. Depending upon the Company's ability to rapidly
integrate and achieve certain of its expansion and acquisition objectives, the
Company's financing needs could exceed $100 million, a large portion of which
the Company would seek in the form of vendor financing. The Company is currently
negotiating other vendor financing arrangements. The terms upon which the
Company may obtain additional funding are restricted by the GNB Loan Agreement
and the consent of GNB Bank may be necessary to accomplish certain funding
objectives of the Company. There can be no assurance that the Company will be
successful in its efforts to obtain any of such financing. In the event the
Company is not successful in obtaining additional financing, it could be forced
to curtail or cease operations. Any financing activities by the Company could
result in substantial dilution of existing equity positions and increased
interest expense. Transaction costs to the Company in connection with such
activities are also anticipated to be significant.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes in Securities And Use of Proceeds.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit Index:
27.1 Financial Data Schedule
(b) Current Reports on Form 8-K: None.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Dated: August 24, 2000
WIN-GATE EQUITY GROUP, INC.
By: /s/ Gary D. Morgan
-------------------------------------
Gary D. Morgan, Chief Executive
Officer
By: /s/ David Walsh
------------------------------------
David Walsh, Principal Financial
Officer
