U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
AMENDMENT NO 1. TO
FORM 10-QSB/A-1
(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.)
45 Broadway, 17th Floor, New York, NY 10006
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(Address of Principal Executive Offices)
(212) 509-0982
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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 18,130,702 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. AND SUBSIDIARIES
INDEX
PAGE NUMBER
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 3
Consolidated Balance Sheets as of
June 30, 2000 (unaudited) and March 31, 2000 3
Unaudited Consolidated Statements of Operations for the
three months ended June 30, 2000 and 1999 4
Unaudited Consolidated Statements of Cash Flow for the
three months ended June 30, 2000 and 1999 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Plan of Operation 7
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 17
EXHIBIT 27.1
2
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PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has experienced a net loss
of $4,861,063 for the year ended March 31, 2000 and a net loss of $3,235,167 for
the three months ended June 30, 2000. Additionally, the Company's current
liabilities exceeded its current assets by $6,794,735 and the Company had a
shareholders' deficit of $4,624,455 at June 30, 2000. The Company used cash of
$1,775,837 in its operations for the year ended March 31, 2000. These factors
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Plan of Operation. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
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Win-Gate Equity Group, Inc. and Subsidiaries
Consolidated Balance Sheet
June 30, 2000 (unaudited) and March 31, 2000
June 30, 2000 (unaudited) March 31, 2000
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Assets
Current assets
Cash 395,470 4,055,992
Accounts receivable, less allowance
for doubtful accounts of $62,470 and $4,300 281,170 120,250
Prepaid expenses and other current assets 143,860 118,855
----------------- -------------------
Total current assets 820,500 4,295,097
Property and equipment, net 10,621,400 10,065,869
Goodwill 1,976,460 2,070,918
Deposit and other 601,240 524,442
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Total assets 14,019,600 16,956,326
================= ===================
Liabilities and Stockholders' Equity (Deficit)
Current liabilities
Loan payable 667,000 667,000
Accounts payable 4,000,095 3,641,057
Capital lease obligations, current portion 1,583,810 1,583,814
Customer deposits 767,400 767,406
Accrued expenses and other current liabilities 596,930 614,231
----------------- -------------------
Total current liabilities 7,615,235 7,273,508
Long-term capital lease obligations, net of current portion 6,028,820 6,072,106
Convertible loan payable to bank 5,000,000 5,000,000
Stockholders' equity
Common stock (par value $.001, 20,000,000 shares authorized;
18,130,702 shares issued and outstanding) 18,150 18,150
Additional paid-in capital 3,457,625 3,457,625
Accumulated Deficit (8,100,230) (4,865,063)
----------------- -------------------
Total stockholders' deficit (4,624,455) (1,389,288)
Total liabilities and stockholders' deficit 14,019,600 16,956,326
================= ===================
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The accompanying notes are an integral part of this statement.
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Win-Gate Equity Group, Inc. and Subsidiaries
Unaudited Consolidated Statements of Operations
For Three Months Ended June 30, 2000 and 1999
Three Months Three Months
Ended June 30, 2000 Ended June 30, 1999
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<S> <C> <C>
Revenue 537,280 ---
Expenses
Cost of sales 1,101,420 ---
General and administrative 1,934,287 ---
Depreciation and amortization 489,000 ---
Stock related expense --- 32,400
Goodwill and intangibles amortization 94,450 ---
------------------------- -------------------------
Operating loss (3,081,877) (32,400)
Other income (expense)
Interest expense, net (153,290) ---
Other expense --- ---
------------------------- -------------------------
Loss before
provision for income taxes (3,235,167) (32,400)
------------------------- -------------------------
Income tax benefit --- ---
------------------------- -------------------------
Net loss (3,235,167) (32,400)
========================= =========================
Net loss per common share - basic and fully diluted (.18) (.12)
------------------------- -------------------------
Weighted average of common shares outstanding 18,130,702 276,395
========================= =========================
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The accompanying notes are an integral part of this statement.
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Win-Gate Equity Group, Inc. and Subsidiaries
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended June 30, 2000 and 1999
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Three Months Ended
June 30, 2000 June 30, 1999
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Cash flows from operating activities
Net loss $ (3,235,167) $ (32,400)
Adjustments to reconcile net loss to net cash used
in operating activities
Professional services paid for in common stock -- 32,400
Depreciation and amortization 583,450 --
Provision for bad debts 58,140 --
Changes in assets and liabilities
Increase in accounts receivable (219,060) --
Increase in deposit and other (76,798) --
Increase in prepaid expenses and other current assets (25,005) --
Increase in accounts payable 359,038 --
Decrease in accrued expenses and other liabilities (60,587) --
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Net cash used in operating activities (2,615,989) --
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Cash flows from investing activities
Acquisitions of property and equipment (1,044,533) --
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Net cash used in by investing activities (1,044,533) --
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Net decrease in cash (3,660,522) --
Cash at beginning of year 4,055,992 --
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Cash at end of period $ 395,470 --
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Supplemental disclosure of cash flow information: Cash paid during the period for:
Taxes $ - --
=============== ==========
Interest $ 184,309 --
=============== ==========
Non Cash activity:
In the three months ended June 30, 1999, the Company issued 300,384
shares of common stock for services rendered
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The accompanying notes are an integral part of this statement.
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UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with the generally accepted accounting principles for
interim financial information and with the instructions for Form 10-QSB.
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
accruals) considered necessary for fair presentation have been included.
Generally accepted accounting standards also require management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses, and disclose contingent assets and
liabilities at the date of the financial statements. Significant estimates
include those made for the allowance for uncollectible accounts, and
contingencies. Actual results could differ from those estimates. Operating
results for the three months ended June 30, 2000 are not necessarily indicative
of the results that may be expected for the year ending March 31, 2001.
The balance sheet at March 31, 2000 has been derived from the audited
financial statements at that date, but does not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. For further information, refer to the audited financial
statements and footnotes thereto included in the Form 10-KSB filed by the
Company for the year ended March 31, 2000.
NOTE B - OPERATIONS OF THE COMPANY
The Company is a developmental stage multinational facilities-based
provider of integrated communications services in emerging markets to U.S. based
local and long distance telecommunications operators. On behalf of such U.S.
based operators, the Company transports voice, data and broadband services to
its foreign networks. The Company currently operates nine foreign networks
located primarily in the Caribbean and South America. In addition, the Company
maintains operating agreements that enable it to deliver similar services in
many countries throughout the world using the networks of others.
The Company's current and planned services include voice telephony,
Internet access, international and domestic long distance services, and resale
of satellite bandwidth. To date, the Company has primarily been engaged in
network engineering, product development, vendor selection, and initiating
market entry by means of securing strategic agreements for the development of
its international carrier business. Currently, the Company is constructing an
international carrier grade convergent Internet Protocol (IP) network to deliver
reliable, low cost connectivity to customers in its target markets. The Company
has invested in certain infrastructure for net-to-phone, unified messaging, and
interactive e-commerce services, which it expects to market within the next
twelve months. The Company has an Asynchronus Transfer Mode/Voice Over Internet
Protocol (ATM/VOIP) switching network operating in the United States and
extending to eight countries, and currently has offices in Miami, Florida, New
Jersey, and New York City.
NOTE C - COMMITMENTS AND CONTINGENCIES
In June 2000, the Company entered into a financing agreement whereby
they will receive up to $20 million for the cost of leased equipment. The term
of each individual lease will be five years, have a $1 buy-out purchase option
and an interest rate of 12% per annum. As of July 31, 2000, the Company has
borrowed $13.8 million.
NOTE D - SUBSEQUENT EVENTS
Effective August 18, 2000, the Company appointed Alvaro Davila Pena as
Vice President and Chief Operating Officer - Latin American Operations and a
Director of the Company. Mr. Davila was formerly a practicing attorney and is
experienced in international telecommunications regulatory matters. Mr. Davila
will be responsible for operations of the Company in the Andean Region and
throughout all of Latin America.
In July 2000, the Company executed a financing proposal to obtain
$10,000,000 for the purchase of digital local and tandem softswitch equipment
and services. The arrangement is expected to have a term of 7 years, and has an
interest rate of 11.5%.
In July 2000, the Company entered into a loan agreement whereby the
lender 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.
In July 2000, the Company received an extension on the note payable
related to the acquisition of Startcomm Corporation. The note payable was
extended from May 1, 2000 to December 31, 2001. In consideration for the
extension of the loan, the Company has issued an additional 6,000 shares of
common stock to the former ownners of Startcomm Corporation.
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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
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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.
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.
Since inception, the Company's operational and strategic objectives
have included 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
-> Establish a reliable, fully redundant, technologically
advanced network
-> Invest in network infrastructure
For the fiscal year ended March 31, 2001, the Company also 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
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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. 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, subject to finalization of certain
preconditions of the ministry of communications of 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 expects to achieve
additional market positioning due to customer dissatisfaction
with the incumbent communications
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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 customer's 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,
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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 ratio 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.
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 three month period of April 1 2000 through June 30,
2000 totaled $537,280 reflecting growth in the carrier sales segment of the
business as well as start-up of the Company's arbitrage sales business. Revenues
from direct wholesale carrier termination sales of international voice and data
telecommunications into the Company's foreign site Points of Presence (POP) were
$338,840 for the period ending June 30, 2000.
Arbitrage sales occur from packaging wholesale foreign termination
rates from third-party carriers and reselling them to carriers that connect to
one of the Company's domestic switch sites. The Company incurs no transport or
foreign site termination costs with arbitrage sales as all inbound/outbound call
switching is done within the Company's switch sites. For the three month period
ending June 30, 2000, arbitrage revenue totaled $165,800, and is expected to
increase as the Company adds switch port capacity at its domestic switch sites.
During the three month period ending June 30, 2000 revenue from the
resale of excess satellite bandwidth totaled $34,200. Interest income for the
period totaled $22,360.
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 include fixed recurring monthly
costs and variable usage fees for termination costs, constitute 97% of the Cost
of Goods Sold for the three month period ended June 30, 2000. The fixed
recurring costs represent approximately 87% of Cost of Goods Sold and are
commitments for transport services which will significantly decrease as a
percentage of Cost of Goods Sold as the Company's network reaches its expected
traffic capacity levels. The Company includes service commissions paid to
foreign site operators, which comprise $35,500, or 3% of the total Cost of
Goods Sold.
Selling, General, and Administrative (SG&A) expenses of $1,934,287 for
the three month period ended June 30, 2000 reflect the developmental stage of
the Company during its first full year of operations. Approximately $754,910, or
39% of total SG&A, relating to professional fees, was expensed during the three
month period. Legal and accounting related services comprised 59% of the total
for this category. Travel related expenses, $139,540, or 7% of total SG&A,
relate to organizational and financing activities as well as deployment of
foreign sites. Salaries and wages, $558,170, were 29% of SG&A for the period.
Rent and occupancy expenses were $197,670, or 10% of total 29% SG&A.
Depreciation and amortization expense for the period ended June 30,
2000, totaled $583,450. Amortization of Goodwill incurred as a result of
acquisition of subsidiary companies was $94,450 of this category.
Net interest expense for the quarter ended June 30, 2000, was
$153,290. Total expenses for the three month period ended June 30, 2000 were
$3,794,807, producing a net loss of $3,235,167 for the three month period ended
June 30, 2000.
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Liquidity and Capital Resources
As of June 30, 2000, the Company was operating 9 networks. The costs
associated with the initial construction and operation of a network may vary,
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 June 30, 2000, the Company had invested
approximately $12,074,560 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 June 30, 2000, the Company's unrestricted
cash balance was approximately $395,470.
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.
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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 of
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).
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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 has a 36 month agreement with a supplier of
telecommunications services ("Vendor") which began November 1999 for the
provision of satellite service for the Company's telecommunication services.
Under the agreement, the Company is required to pay the Vendor for services
totaling $3,000,492 at a rate of $83,347 per month for a period of 36 months.
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 Note is
convertable as to principal, into 2.68% of the total issued and outstanding
stock of the Company, on a fully diluted basis upon consumation of a qualifying
private placement by the Company. 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 will require significant additional financing within the
immediate short term in order to continue its business operations as conducted
to date. The Company is actively seeking additional
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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 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 6. Exhibits and Reports on Form 8-K.
(a) Exhibit Index:
2 Stock Purchase Agreement between Win-Gate Equity Group, Inc.
and the Shareholders of Globaltron Communications Corporation
dated January 21, 2000. (1)
3.1 Articles of Incorporation of Win-Gate Equity Group, Inc. (2)
3.2 By-Laws of Win-Gate Equity Group, Inc. (2)
4.1 Specimen Common Stock Certificate. (2)
10.1 Forms of Subscription Documentation for Prospective Investors.
(2)
10.2 Win-Gate Equity Group, Inc. 1996 Stock Option Plan. (2)
10.3 Loan Agreement. (2)
10.4 Loan Agreement dated February 29, 2000, by and among Win-Gate
Equity Group, Inc. Globaltron Communications Corporation and
GNB Bank Panama, S.A. (4)
10.5 Letter Agreement dated February 29, 2000, between Gary D.
Morgan and GNB Bank Panama, S.A. (4)
10.6 Loan Agreement dated July 26, 2000 between Win-Gate Equity
group, Inc. and Arthur E. Lipson, Trustee. (5)
10.7 Equipment Financing Proposal dated August 23, 1999 between
Globaltron Communications Corporation and Lucent Technologies.
(5)
10.8 Master Conditional Sale Agreement dated September 15, 1999
between Globaltron Communications Corporation and Lucent
Technologies. (5)
10.9 Term Sheet dated June 23, 2000 between Globaltron
Communications Corporation and Italtel SPA. (5)
10.10 Equipment Financing Agreement dated October 25, 1999 between
Globaltron Communications Corporation and Cisco Systems
Capital Corporation. (5)
10.11 Soft Cost Financing Agreement dated October 25, 1999 between
Globaltron Communications Corporation and Cisco Systems
Capital Corporation. (5)
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10.12 Equipment Financing Agreement dated January 24, 2000 between
Globaltron Communications Corporation and Cisco Systems
Capital Corporation. (5)
10.13 Term Sheet dated July 13, 2000 between Globaltron
Communications Corporation and Tropico Sistemas e
Telecomunicacoes S.A. (5)
10.14 Term Sheet dated July 11, 2000 between Globaltron
Communications Corporation and CPqD Technologies. (5)
10.15 Equipment Financing Agreement dated June 23, 2000 between
Globaltron Communications Corporation and Gallant Capital &
Finance, LLC. (5)
10.16 Term Sheet dated June 13, 2000 between Win-Gate Equity Group,
Inc. and ECI Telecom Ltd. (5)
10.17 Executive Employment Agreement between Globaltron
Communications Corporation and Gary Stukes. (5)
10.18 Purchase and Sale Agreement dated July 11, 2000 between
Globaltron Communications Corporation, Tropico Sistemas e
Telecomunicacoes S.A. and Singer Products Inc. (5)
10.19 License Agreement dated July 11, 2000 between Globaltron
Communications Corporation, CpqD Technologies and Systems,
Inc. and Singer Products Inc. (5)
10.20 Services Agreement dated July 11, 2000 between Globaltron
Communications Corporation and Singer Products, Inc. (5)
10.21 Satellite Bandwith Agreement dated November 9, 1999 between
Globaltron Communications Corporation and Satellites Mexicans,
S.A. de C.V. (5)
10.22 Contract of Sale dated November 9, 1999 between Globaltron
Communications Corporation and Owners of 64% of Startcomm
Corporation. (5)
27.1 Financial Data Schedule. (6)
99 Financial Statements of Startcomm Corporation for the Year
Ended December 31, 1997 and December 31, 1998 and for the Ten
Months Ended October 31, 1999. (5)
(1) Filed as an exhibit to the Company's Current Report on Form
8-K (File No. 333-05188- A), as filed with the Securities and
Exchange Commission on January 31, 2000.
(2) Filed as an exhibit to the Company's Registration Statement on
Form SB-2 (File No. 333- 5188-A), as filed with and declared
effective by the Commission on October 10, 1997.
(3) Filed as an exhibit to the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1998 (File No.
333- 5188-A), filed with the Commission on October 27, 1999.
(4) Filed as an exhibit to the Company's Current Report on Form
8-K (File No. 333-05188- A), as filed with the Securities and
Exchange Commission on March 20, 2000.
(5) Filed as an exhibit to the Company's Annual Report on Form
10-KSB/A for the fiscal year ended March 31, 2000 (File No.
333-5188-A), filed with the Commission on August 28, 2000.
(6) Filed herewith
(b) Current Reports on Form 8-K: None.
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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 31, 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
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