STARTEC GLOBAL COMMUNICATIONS CORP, 10-Q/A, 2000-11-15

STARTEC GLOBAL COMMUNICATIONS CORP
10-Q/A, 2000-11-15
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

------------------------

FORM 10-Q/A

<TABLE>
<C> <S>
/X/ AMENDMENT TO QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
</TABLE>

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
OR

<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>

COMMISSION FILE NO. 000-23087

------------------------

STARTEC GLOBAL COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
DELAWARE 52-2099559
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

10411 MOTOR CITY DRIVE 20817
BETHESDA, MD (Zip Code)
(Address of principal executive
offices)
</TABLE>

(301) 365-8959
(Registrant's telephone number, including area code)

------------------------

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

<TABLE>
<S> <C>
SHARES OUTSTANDING
TITLE OF EACH CLASS: AS OF NOVEMBER 9, 2000
--------------------------------------------------------- -------------------------------
Common Stock, par value $0.01 per share.................. 14,354,609
</TABLE>

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<PAGE>
EXPLANATORY STATEMENT

This Form 10-Q/A restates the Company's Quarterly Report on Form 10-Q
originally filed on November 14, 2000 to reflect fully the change in segment
reporting from the second quarter of 2000 to the third quarter of 2000. These
changes are described in Note 5 to the Financial Statements.

STARTEC GLOBAL COMMUNICATIONS CORPORATION

FORM 10-Q

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000

INDEX

<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

Condensed Consolidated Statements of Operations for the
three and nine months ended September 30, 2000 and 1999... 3

Condensed Consolidated Balance Sheets as of September 30,
2000 and December 31, 1999................................ 4

Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 2000 and 1999.................. 5

Notes to Condensed Consolidated Financial Statements........ 6-14

ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 15-23

ITEM 3. Quantitative and Qualitative Disclosures about Market
Risk...................................................... 24

PART II. OTHER INFORMATION AND SIGNATURE............................. 25-26
</TABLE>

2
<PAGE>
PART I.--FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------- -------------------
2000 1999 2000 1999
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Net revenues......................................... $ 83,198 $ 76,616 $249,740 $196,246
Cost of services..................................... 64,807 66,545 200,060 173,927
-------- -------- -------- --------
Gross margin....................................... 18,391 10,071 49,680 22,319
General and administrative expenses.................. 16,150 11,316 49,780 31,308
Selling and marketing expenses....................... 5,124 3,553 12,146 10,729
Depreciation and amortization........................ 4,656 2,062 11,037 5,301
-------- -------- -------- --------
Loss from operations................................. (7,539) (6,860) (23,283) (25,019)
Interest expense..................................... (7,537) (5,511) (19,841) (16,034)
Interest income...................................... 767 1,140 2,296 4,092
Equity in loss from affiliates....................... (818) (41) (1,197) (60)
-------- -------- -------- --------
Loss before extraordinary item....................... (15,127) (11,272) (42,025) (37,021)
Extraordinary item--loss on early extinguishment of
debt............................................... -- -- (902) --
-------- -------- -------- --------
Net loss............................................. $(15,127) $(11,272) $(42,927) $(37,021)
======== ======== ======== ========
Basic and diluted loss per common share:
Loss before extraordinary item....................... $ (1.05) $ (1.19) $ (3.19) $ (3.98)
Extraordinary item--loss on early extinguishment of
debt............................................... -- -- (0.07) --
-------- -------- -------- --------
Basic and diluted loss per common share.............. $ (1.05) $ (1.19) $ (3.26) $ (3.98)
======== ======== ======== ========
</TABLE>

The accompanying notes are an integral part of these condensed consolidated
financial statements.

3
<PAGE>
STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................... $ 22,151 $ 54,731
Accounts receivable, net of allowance for doubtful accounts
of $7,435 and $3,964, respectively........................ 66,419 65,182
Accounts receivable, related party.......................... 602 518
Other current assets........................................ 9,879 4,876
--------- --------
Total current assets.................................... 99,051 125,307
Property and equipment, net of accumulated depreciation and
amortization of $19,589 and $10,422, respectively......... 121,179 94,221
Intangibles, net............................................ 51,218 21,982
Restricted cash and pledged securities...................... 19,299 28,108
Investments................................................. 37,507 4,729
Other long-term assets...................................... 8,812 6,284
--------- --------
Total assets............................................ $ 337,066 $280,631
========= ========
CURRENT LIABILITIES:
Accounts payable............................................ $ 71,166 $ 68,095
Accrued expenses............................................ 20,067 9,186
Credit facilities........................................... 12,255 14,191
Vendor financing............................................ 6,511 5,253
Capital lease and other obligations......................... -- 132
--------- --------
Total current liabilities............................... 109,999 96,857

Senior notes................................................ 158,391 158,233
Credit facilities, net of current portion................... 18,906 --
Vendor financing, net of current portion.................... 39,224 19,504
Capital lease and other obligations, net of current
portion................................................... 649 166
--------- --------
Total liabilities....................................... 327,169 274,760
--------- --------
Commitments and Contingencies
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value; 40,000,000 shares authorized,
14,354,509 and 11,354,005 shares issued and outstanding,
respectively.............................................. 144 114
Additional paid-in capital.................................. 126,071 78,447
Unearned compensation....................................... (147) (255)
Accumulated deficit......................................... (115,214) (72,287)
Accumulated other comprehensive loss........................ (957) (148)
--------- --------
Total stockholders' equity.............................. 9,897 5,871
--------- --------
Total liabilities and stockholders' equity.............. $ 337,066 $280,631
========= ========
</TABLE>

The accompanying notes are an integral part of these condensed consolidated
financial statements.

4
<PAGE>
STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED, IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
--------------------
2000 1999
--------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss.................................................... $ (42,927) $(37,021)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 11,037 5,301
Amortization of deferred debt financing costs and debt
discounts............................................... 729 584
Other non-cash adjustments................................ (1,001) (153)
Changes in operating assets and liabilities, net of
acquisition effects:
Accounts receivable, net.................................. (20,580) (11,260)
Accounts receivable, related party........................ (84) 479
Accounts payable.......................................... 530 20,034
Accrued expenses.......................................... 9,493 6,666
Other..................................................... (5,064) (3,612)
--------- --------
Net cash used in operating activities................... (47,867) (18,982)
--------- --------
INVESTING ACTIVITIES:
Acquisitions................................................ (10,274) (16,208)
Purchases of property and equipment......................... (33,694) (40,619)
Sale of property and equipment.............................. 424 --
--------- --------
Net cash used in investing activities................... (43,544) (56,827)
--------- --------
FINANCING ACTIVITIES:
Proceeds from vendor financing.............................. 40,464 15,934
Proceeds from credit facilities............................. 105,257 39,180
Proceeds from sale of pledged securities.................... 9,600 8,850
Proceeds from private placement............................. 15,240 --
Proceeds from exercise of warrants/options.................. 752 103
Payment of debt financing costs............................. (1,920) (276)
Repayments of credit facilities............................. (104,776) (23,518)
Repayments of vendor financing.............................. (5,507) (1,618)
Repayments under capital lease obligations.................. (279) (334)
--------- --------
Net cash provided by financing activities............... 58,831 38,321
--------- --------
Decrease in cash and cash equivalents....................... (32,580) (37,488)
Cash and cash equivalents, beginning of the period.......... 54,731 81,456
--------- --------
Cash and cash equivalents, end of the period................ $ 22,151 $ 43,968
========= ========
Supplemental disclosure of cash flow information:
Interest paid............................................... $ 13,782 $ 10,657
</TABLE>

The accompanying notes are an integral part of these condensed consolidated
financial statements.

5
<PAGE>
STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. GENERAL

The accompanying condensed consolidated financial statements of Startec
Global Communications Corporation and subsidiaries (the "Company" or "Startec")
have been prepared by the Company without audit. Certain information and
footnote disclosures normally included in financial statements presented in
accordance with accounting principles generally accepted in the United States
have been condensed or omitted. The condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1999.

In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments necessary to present
fairly the financial position of the Company and its subsidiaries as of
September 30, 2000, and the results of their operations and their cash flows for
the three and nine months ended September 30, 2000 and September 30, 1999.
Interim results are not necessarily indicative of results that may be expected
for future periods or for the entire year. Certain prior period amounts have
been reclassified to conform to current period presentation.

The Company is subject to various risks in connection with the operation of
its business. These risks include, but are not limited to, changes in market
conditions, availability of financing, dependence on the growth of the Internet
and the quality of its infrastructure, dependence on operating agreements with
foreign partners, difficulties in successfully integrating and managing the
operations, technology and personnel of acquired entities, cost of acquisitions,
reliance on third parties to provide it with technology, communications
infrastructure and content, interoperability problems among hardware produced by
different vendors, significant foreign and U.S.-based customers and suppliers,
availability of transmission facilities, U.S. and foreign regulations,
international economic and political instability, dependence on effective
billing and information systems, customer attrition, rapid technological change
and difficulties in attracting and retaining personnel. Many of the Company's
competitors are significantly larger and have substantially greater resources
than the Company. If the Company's competitors were to devote significant
additional resources to the provision of internet and communications products
and services to the Company's target customer base, the Company's business,
financial condition, and results of operations could be materially adversely
affected.

The Company has devoted substantial resources to the buildout of its
network, deployment of its Internet initiatives, and the expansion of its
marketing programs and strategic acquisitions. As a result, the Company
experienced operating losses and negative cash flows from operations in 1999 and
during the first nine months of 2000. These losses and negative operating cash
flows are expected to continue for additional periods in the future. There can
be no assurance that the Company's operations will become profitable or will
produce positive cash flows. The Company intends to fund its operational and
capital requirements using cash on hand, its available credit facilities, and
with equity or debt financing. There can be no assurance that such new financing
will be available on terms management finds acceptable or at all. In the event
that the Company is unable to obtain such additional financing, it will be
required to substantially limit or curtail its expansion plans, network
buildout, marketing programs, and foreign operations or the Company may resort
to selling assets to the extent permitted by its debt facilities. Even with such
reductions, management believes that new financing will be required by no later
than the end of 2001 to meet operating needs and the November 2001 interest
payment on the Company's senior notes. The Company has been advised by its
independent public accountants that if the Company has not raised sufficient
capital to meet its projected obligations for 2001 or alternatively completed
restructuring of its indebtedness prior to the completion of their audit of the
Company's

6
<PAGE>
STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. GENERAL (CONTINUED)
financial statements for the year ending December 31, 2000, their auditors'
report on those financial statements will be modified to reflect these
contingencies.

2. LOSS PER COMMON SHARE

Statement of Financial Accounting Standards No. 128 "Earnings Per Common
Share" requires dual presentation of basic and diluted earnings per common share
on the face of the statements of operations for all periods presented. Basic
earnings per common share excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity. Weighted average
common shares outstanding consist of the following for the three and nine months
ended September 30, 2000 and 1999 (in thousands):

<TABLE>
<CAPTION>
FOR THE THREE FOR THE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Weighted average common shares outstanding--basic........... 14,345 9,422 13,153 9,319
Stock option and warrant equivalents........................ -- -- -- --
------ ----- ------ -----
Weighted average common and equivalent shares
outstanding--basic/ diluted............................... 14,345 9,422 13,153 9,319
====== ===== ====== =====
</TABLE>

Options and warrants to purchase an aggregate of approximately 2,846,000 and
1,835,000 shares of common stock were excluded from the computation of diluted
loss per common share in 2000 and 1999, respectively, because inclusion of these
options and warrants would have an anti-dilutive effect on loss per common
share.

3. ACQUISITIONS

In the first quarter of 2000, the Company acquired several Voice over
Internet Protocol ("VoIP") termination facilities from various vendors for
approximately $2.2 million in cash and approximately $1.9 million in common
stock. The purchase price was allocated to the net assets acquired based upon
the estimated fair value of such assets, which resulted in an allocation of
approximately $4.1 million to goodwill.

In March 2000, the Company acquired Vancouver Telephone Company ("VTC"), for
approximately $1.1 million in cash and 520,463 shares of common stock valued at
approximately $12.3 million. VTC provides domestic and international long
distance services in Canada. VTC markets its telephone services to ethnic
communities in Canada, including Taiwanese, Chinese, Romanian and Serbian
communities. The purchase price was allocated to the net assets acquired based
upon the estimated fair value of such assets, which resulted in an allocation of
approximately $13.6 million to goodwill. If certain financial criteria are met
by January 31, 2001, the Company is subject to a contingent payment of
approximately $4.0 million payable with the Company's common stock.

7
<PAGE>
STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. ACQUISITIONS (CONTINUED)
In March 2000, the Company acquired DLC Enterprises Inc. ("DLC"), a New
York-based telecommunications company for approximately $0.5 milion. DLC offers
dial-1, debit card and ISP services. DLC provides Startec with a management and
sales force, proprietary billing and customer provisioning software and small
business revenue. The acquisition of DLC facilitates the introduction of
commercial services for ethnic and mid-sized business customers. The purchase
price was allocated to the net assets acquired based upon the estimated fair
value of such assets, which resulted in an allocation of approximately $1.1
million to goodwill. If certain financial criteria are met by April 30, 2001,
the Company is subject to a contingent payment of approximately $5.6 million
payable in cash of approximately $0.5 million and $5.1 million in the form of
either cash or the Company's common stock.

In March 2000, Startec acquired Global Villager Inc. for approximately $0.8
million in cash and 503,872 shares of the Company's common stock valued at
approximately $13.2 million. Global Villager owns a leading bilingual
Chinese/English Web community, DragonSurf.com, which provides a range of content
and services on its Web site for the Chinese community. The purchase price was
allocated to the net assets acquired based upon the estimated fair value of such
assets, which resulted in an allocation of approximately $13.8 million to
goodwill.

The Company has accounted for all of the referenced acquisitions using the
purchase method. Accordingly, the results of operations of the acquired
companies are included in the accompanying consolidated statements of the
Company as of the date of their respective acquisition. Purchase price
allocations have been completed on a preliminary basis and are subject to
adjustment should new or additional facts about the business become known. The
Company's summarized, unaudited consolidated pro forma results of operations for
the three and nine months ended September 30, 2000 and 1999, as if the above
acquisitions occurred on January 1, 1999 are as follows (in thousands, except
per share amounts):

4. INVESTMENTS

In September 2000, the Company sold certain of its VoIP termination
facilities, valued at approximately $4.3 million, and converted certain of its
accounts receivable, valued at approximately $24.5 million, in exchange for 40%
of the issued and outstanding common stock of Sunrise World
Communications, Inc. ("Sunrise"). Sunrise provides internet communications
services between the United States and the emerging economies of the world. The
accounts receivable consisted of trade

8
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STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. INVESTMENTS (CONTINUED)
receivables, prepaids, and certain other deposits. As of September 30, 2000, the
Company's investment value in Sunrise is approximately $28.8 million.

In May 1999, the Company entered into an agreement to acquire up to 49%
fully diluted ownership in Dialnet Communications Limited ("Dialnet") for up to
$1.6 million. Dialnet provides value added voice and data services in India.
Pursuant to the agreement, which became effective July 1999 upon approval by the
government of India, the Company made a total investment of $1.0 million, and
also extended $600,000 in credit to Dialnet. Through July 2002, the Company can
require that the face amount of the debt outstanding to Dialnet be converted
into common stock of Dialnet. As of September 30, 2000, the Company had an
equity investment of $1.3 million in Dialnet, and $0.6 million outstanding under
the loan.

In February 1999, the Company acquired a 20% equity ownership interest in
BCH Holding Company, Inc. ("BCH"), which has operations in Poland, for
approximately $1.2 million. BCH is a reseller of international voice and a
licensed Internet service provider in Poland. Concurrent with the acquisition,
Startec received a $2.5 million note receivable from BCH convertible at
Startec's option into common stock of BCH equivalent to an additional 28% fully
diluted ownership interest of BCH. Startec also extended credit for up to $0.5
million to BCH in the second quarter of 2000. As of September 30, 2000 BCH had
borrowed all $0.5 million. The investment in BCH and the note receivable from
BCH are included in other long-term assets in the accompanying consolidated
balance sheets.

5. BUSINESS SEGMENT DATA

The Company changed the composition of its reportable segments in the third
quarter of. Previously, the Company had classified its operations into two
industry segments, traditional telecommunications services and Internet Protocol
("IP") services. The traditional telecommunications service segment was
evaluated by management on a regional basis. The IP services segment was
evaluated by management on a product basis. In the third quarter of 2000, the
Company stopped evaluating services by product, and began evaluating all
services by region. In addition, the Company views traffic terminating on its IP
network as IP revenue. The IP revenue represents wholesale VoIP and residential
and business traffic. All other traffic is considered to be circuit switched
revenue. Restatement of prior period segment amounts is impractical and in
accordance with the Financial Accounting Standards Board Statement on Financial
Accounting Standards No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND
RELATED INFORMATION ("SFAS 131"), the Company will present segment information
for the third quarter of 2000, the period in which the change occurred, under
the old method and under the new method.

The Company evaluates the performance of its segments based primarily on
Earnings Before Interest Taxes Depreciation and Amortization ("EBITDA"). The
Company's interest income and expense are included in the consolidated Federal
income tax return of the Company and its subsidiaries and are allocated based
upon the relative contribution to the Company's consolidated general and
administrative expense.

The majority of the Company's selling, general, and administrative cost is
incurred by the North American operations. However, selling, general, and
administrative cost is allocated to all segments based on the total head count
for the Company.

9
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STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. BUSINESS SEGMENT DATA (CONTINUED)
The following table presents segment revenues and other financial
information based on product, which was the old method, as of September 30, 2000
and for the three and nine months ended September 30, 2000 (in thousands):

<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 2000
-------------------------------------------------------------------
TELECOMMUNICATIONS
------------------------------ IP TOTAL
NORTH ------------------- ------------
AMERICA EUROPE ASIA ESTART VOIP CONSOLIDATED
-------- -------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues....................... $ 31,086 $ -- $ -- $29,340 $22,772 $ 83,198
Gross margin....................... 1,556 -- -- 8,427 8,408 18,391
Selling, marketing, general and
administrative expense........... 11,488 -- -- 9,288 498 21,274
EBITDA............................. (9,932) -- -- (861) 7,910 (2,883)
Depreciation and amortization
expense.......................... 3,894 -- -- 583 179 4,656
Interest expense................... 7,473 -- -- 64 -- 7,537
Interest income.................... 742 -- -- 25 -- 767
Fixed assets, gross................ 89,639 -- -- 45,350 5,779 140,768
Total assets....................... $250,907 $ -- $ -- $77,656 $ 8,503 $337,066
</TABLE>

<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 2000
-------------------------------------------------------------------
TELECOMMUNICATIONS
------------------------------ IP TOTAL
NORTH ------------------- ------------
AMERICA EUROPE ASIA ESTART VOIP CONSOLIDATED
-------- -------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues...................... $116,517 $ 11,519 $ 3,493 $71,545 $46,666 $249,740
Gross margin...................... 10,484 2,082 1,144 21,476 14,494 49,680
Selling, marketing, general and
administrative expense.......... 25,888 9,683 4,838 15,309 6,208 61,926
EBITDA............................ (15,404) (7,601) (3,694) 6,167 8,286 (12,246)
Depreciation and amortization
expense......................... 8,888 236 485 948 480 11,037
Interest expense.................. 19,790 (14) 1 64 -- 19,841
Interest income................... 2,208 39 24 25 -- 2,296
Fixed assets, gross............... 89,639 -- -- 45,350 5,779 140,768
Total assets...................... $250,907 $ -- $ -- $77,656 $ 8,503 $337,066
</TABLE>

The preceding table reflects an amendment to the business segment data table
reflected in the Quarterly Report on Form 10-Q filed on November 14, 2000. This
amendment fully reflects the change in business segment data reporting from the
second quarter of 2000 to the third quarter of 2000.

10
<PAGE>
STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. BUSINESS SEGMENT DATA (CONTINUED)

The following table presents segment revenues and other financial
information based on region, which is the new method, as of September 30, 2000
and for the three and nine months ended September 30, 2000 (in thousands):

<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 2000
---------------------------------------------
NORTH TOTAL
AMERICA EUROPE ASIA CONSOLIDATED
-------- -------- -------- ------------
<S> <C> <C> <C> <C>
Net revenues:
IP................................................ $ 45,309 $ 5,368 $ 1,435 $ 52,112
Circuit switched.................................. 31,086 -- -- 31,086
Total net revenues.............................. 76,395 5,368 1,435 83,198
Gross margin:
IP................................................ 15,901 487 447 16,835
Circuit switched.................................. 1,556 -- -- 1,556
Total gross margin.............................. 17,457 487 447 18,391
Selling, marketing, general and administrative
expense........................................... 12,242 5,737 3,295 21,274
EBITDA.............................................. 5,215 (5,250) (2,848) (2,883)
Depreciation and amortization expense............... 4,301 115 240 4,656
Interest expense.................................... 7,473 64 -- 7,537
Interest income..................................... 742 11 14 767
Fixed assets, gross................................. 105,203 21,843 13,722 140,768
Total assets........................................ $287,155 $34,468 $15,443 $337,066
</TABLE>

<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 2000
---------------------------------------------
NORTH TOTAL
AMERICA EUROPE ASIA CONSOLIDATED
-------- -------- -------- ------------
<S> <C> <C> <C> <C>
Net revenues:
IP................................................ $ 70,310 $ 5,368 $ 1,435 $ 77,113
Circuit switched.................................. 157,615 11,519 3,493 172,627
Total net revenues.............................. 227,925 16,887 4,928 249,740
Gross margin:
IP................................................ 24,761 487 447 25,695
Circuit switched.................................. 20,759 2,081 1,145 23,985
Total gross margin.............................. 45,520 2,568 1,592 49,680
Selling, marketing, general and administrative
expense........................................... 38,373 15,420 8,133 61,926
EBITDA.............................................. 7,147 (12,852) (6,541) (12,246)
Depreciation and amortization expense............... 9,961 351 725 11,037
Interest expense.................................... 19,790 50 1 19,841
Interest income..................................... 2,208 50 38 2,296
Fixed assets, gross................................. 105,203 21,843 13,722 140,768
Total assets........................................ $287,155 $ 34,468 $15,443 $337,066
</TABLE>

In September 1999, the Company operated in only one business segment--long
distance telecommunications. Operations in Europe and Asia were not material for
the three and nine months ended September 30, 1999.

11
<PAGE>
STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. SIGNIFICANT CUSTOMERS AND SUPPLIERS

A significant portion of the Company's net revenues is derived from a
limited number of customers. For the nine-month periods ended September 30, 2000
and 1999, the Company's five largest carrier customers accounted for
approximately 20% and 38% of net revenues, respectively. The Company's
agreements and arrangements with its carrier customers generally may be
terminated by either party on short notice without penalty.

A significant portion of the Company's cost of services is purchased from a
limited number of suppliers. For the nine-month periods ended September 30, 2000
and 1999, the Company's five largest suppliers accounted for approximately 17%
and 22% of cost of services, respectively.

7. VENDOR AND CREDIT FACILITIES

In June 2000, the Company entered into a five-year term loan with a
principal balance of $50 million with NTFC Capital Corporation, a financing arm
of GE Capital ("NTFC Facility"). This loan represents an increase of $15 million
over the original $35 million facility entered into in December 1998 with NTFC.
Advances under the original $35 million mature on January 31, 2004 and advances
under the $15 million increase mature on May 31, 2005. The NTFC Facility may be
used to finance the continued expansion of Startec's Internet initiatives and
transport business, additional development of Wireless Applications Protocol,
applications of its Internet portals, expansion of VoIP services, acquisitions
and working capital for general corporate purposes. The outstanding borrowings
on the NTFC Facility carry interest rates ranging from 8.91% to 10.65%, with a
weighted average interest rate of 9.9%. Principal and interest payments are due
monthly. Under the terms of the NTFC Facility, the Company is subject to certain
financial and operational covenants, including but not limited to minimum
EBITDA, restrictions on the Company's ability to pay dividends and level of
indebtedness. As of September 30, 2000, approximately $46.8 million was
outstanding under the NTFC Facility. The NTFC Facility is secured by a pledge of
all shares of Startec Global Operating Company ("Operating Company") owned by
the Company, and by a first priority security interest in all of the Operating
Company's assets.

In June 2000, the Company entered into a $20 million unsecured facility from
Allied Capital Corporation ("Allied Facility") with a balloon payment due at
maturity in 2005. The Allied Facility may be used for general corporate
purposes, including, without limitation, the purchase of telecommunications
assets. The Allied Facility bears interest at the fixed rate of 15% per annum
and is payable semi-annually, in arrears, at the fixed rate of 10% per annum. In
connection with entering into the Allied Facility, the Company issued a stock
purchase warrant to Allied pursuant to which, at any time and from time to time
until June 30, 2005, Allied is entitled at its sole option to purchase an
aggregate of 125,000 shares of common stock at an exercise price of $11.21 per
share, subject to certain antidilution adjustments. Under the terms of the
Allied Facility, the Company is subject to certain financial and operational
covenants, including but not limited to restrictions on the Company's ability to
pay dividends and level of indebtedness. As of September 30, 2000, $20 million
was outstanding under the facility. After July 1, 2002, the Company can prepay
all or part of this loan without penalty.

In July 1999, the Company entered into a three-year vendor financing
facility for up to $5 million with IBM Credit Corporation ("IBM Facility"). The
IBM Facility may be used to finance the purchase of IBM hardware and software
from IBM under a capital lease structure. Borrowings under the IBM Facility bear
interest at a fixed rate equal to the average yield to maturity of the five-year
Treasury Note plus a rate adjustment which varies by the type of equipment
purchased. The outstanding

12
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STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. VENDOR AND CREDIT FACILITIES (CONTINUED)
borrowings on the IBM Facility carry interest rates ranging from 9.5% to 15.4%
with a weighted average interest rate of 11.7%. As of September 30, 2000,
approximately $ 1.3 million was outstanding under the IBM Facility.

In May 1999, the Company entered into a vendor financing facility for up to
$20 million with Ascend Credit Corporation ("Ascend Facility"). The Ascend
Facility may be used to finance equipment purchased from Ascend under a capital
lease structure. As of September 30, 2000, approximately $1.9 million bearing
interest at 8.5% was outstanding under the facility.

In May 2000, the Company entered into a credit facility for up to $7.5
million from Coast Business Credit Corporation ("Coast Facility") due in Novemer
2002. The Coast Facility may be used to satisfy various operating liabilities.
The interest rate on the Coast facility is the Prime Rate plus 3.5%, with a
floor of 9%. As of September 30, 2000, approximately $6.7 million was
outstanding under the Coast Facility.

In June 2000, the Company repaid and terminated a three-year Loan and
Security Agreement with Congress Financial Corporation ("CFC Facility") two
years ahead of the original term. Extraordinary losses of approximately $902,000
incurred with this extinguishment consisted of a one-time payment to Congress
Financial Corporation and unamortized deferred financing costs.

8. COMPREHENSIVE LOSS

The total of net loss and all other non-owner changes in equity consists of
the following for the three and nine months ending September 30, 2000 and 1999
(in thousands):

9. SUBSEQUENT EVENTS

In November 2000, Startec entered into an agreement to acquire Capsule
Communications, Inc. ("Capsule"), formerly known as US Wats, Inc. Under the
terms of the merger, subject to certain price adjustments, Startec will issue
approximately 2.7 million shares of common stock to shareholders of Capsule. In
addition, Startec will issue an aggregate of $3 million in 5-year, unsecured
promissory notes to two Capsule shareholders owning approximately 74% of the
issued and outstanding shares of Capsule. The merger agreement, which is
expected to be formally consummated in the first quarter of 2001, is subject to
the conditions set forth in the merger agreement and requires, among other
things, the approval of Startec and Capsule shareholders as well as receipt of
regulatory approvals. The approval of the merger by Capsule's stockholders is
assured because the two Capsule shareholders beneficially owning in the
aggregate approximately 74% of Capsule's outstanding common stock have executed
voting agreements committing them to vote all of their shares in favor of the
merger. Capsule is a switch-based interexchange carrier providing long distance
telephone communications services

13
<PAGE>
STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. SUBSEQUENT EVENTS (CONTINUED)
primarily to small and medium-size business customers as well as residents.
Capsule also provides inbound-800 long distance services, as well as other
telecommunications services. Capsule uses its own switches and facilities to
originate, transport and terminate calls for customers generally located in the
Mid-Atlantic region and California (on-net areas). For calls originating or
terminating outside Capsule's own network (off-net area), the Company utilizes
the services provided by other long distance companies. The acquisition is
subject to shareholder and regulatory approval.

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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

The following discussion and analysis of the financial condition and results
of operations should be read in conjunction with the financial statements,
related notes, and other detailed information included elsewhere in this
Quarterly Report on Form 10-Q. This report contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Forward-looking statements are statements other than historical information or
statements of current condition. Some forward-looking statements may be
identified by the use of such terms as "believes," "anticipates," "intends," or
"expects." These forward-looking statements relate to our plans, objectives and
expectations for future operations and growth. Other forward-looking statements
in this Quarterly Report on Form 10-Q include statements regarding synergies and
growth expected as a result of our in-progress and future acquisitions, expected
growth in earnings, revenue and gross margin, our expectation regarding our
ability to consummate future acquisitions and the necessity for and expected
availability of additional financing. In light of the risks and uncertainties
inherent in all such projected operational matters, the inclusion of
forward-looking statements in this report should not be regarded as a
representation by us or any other person that our objectives or plans will be
achieved or that any of our operating expectations will be realized. Our
revenues and results of operations are difficult to forecast and could differ
materially from those projected in the forward-looking statements contained in
this report as a result of certain risks and uncertainties including, but not
limited to, our ability to integrate and manage acquired companies, assets and
personnel, changes in market conditions, the volatile and competitive
environment for Internet telephony, the availability of transmission facilities,
management of our rapid growth, entry into new and developing markets,
competition, the international telecommunications industry, dependence on
operating agreements with foreign partners, reliance on third parties to provide
us with technology, infrastructure and content, significant foreign and U.S.-
based customers and suppliers, availability of transmission facilities, U.S. and
foreign regulations, international economic and political instability,
dependence on effective billing and information systems, customer concentration
and attrition, rapid technological change, and the expansion of the global
network. These factors should not be considered exhaustive; we undertake no
obligation to release publicly the results of any future revisions we may make
to forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.

OVERVIEW

We are a leading provider of advanced communications and Internet services
to residential and business customers transacting with the world's emerging
economies. Our quarterly revenues have increased from $76.6 million for the
three months ended September 30, 1999 to $83.2 million for the three months
ended September 30, 2000. We reported a net loss for the three months ended
September 30, 2000 of $15.1 million, or $1.05 per common share compared to a net
loss of $11.3 million or $1.19 per common share for the three months ended
September 30, 1999. The number of our residential customers increased from
approximately 256,000 customers as of September 30, 1999 to approximately
645,000 customers as of September 30, 2000. Of these customers, we provided a
bundle of telecommunications services and Internet access to approximately
130,000 North American customers.

We continue to deploy our Internet Protocol (IP) network, expand our ethnic
customer base and we are beginning to penetrate the business segment. We
anticipate future growth from providing a comprehensive product suite of IP
communication services. These services are expected to include Phone to Phone,
PC to PC, PC to Phone and IP Virtual Private Network (VPN) services. We continue
to pursue acquisitions that will increase our customer base and our revenue. In
addition, we are

15
<PAGE>
migrating from circuit-switched to IP-based technology and we will leverage our
existing assets to focus on IP services.

RESULTS OF OPERATIONS

The following table sets forth certain financial data as a percentage of net
revenues for the periods indicated:

<TABLE>
<CAPTION>
FOR THE THREE FOR THE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenues............................... 100.0% 100.0% 100.0% 100.0%
Cost of services........................... 77.9 86.9 80.1 88.6
----- ----- ----- -----
Gross margin............................. 22.1 13.1 19.9 11.4
General and administrative expenses........ 19.4 14.8 19.9 16.0
Selling and marketing expenses............. 6.2 4.6 4.9 5.5
Depreciation and amortization.............. 5.6 2.7 4.4 2.7
----- ----- ----- -----
Loss from operations....................... (9.1) (9.0) (9.3) (12.8)
Interest expense........................... (9.1) (7.2) (7.9) (8.2)
Interest income............................ 0.9 1.5 0.9 2.1
Equity in loss from affiliates............. (1.0) -- (0.5) --
Loss before extraordinary item............. (18.3) (14.7) (16.8) (18.9)
Extraordinary item--loss on early
extinguishment of debt................... -- -- (0.4) --
----- ----- ----- -----
Net loss................................... (18.3)% (14.7)% (17.2)% (18.9)%
===== ===== ===== =====
</TABLE>

THREE AND NINE MONTH PERIOD ENDED SEPTEMBER 30, 2000 COMPARED TO THREE AND NINE
MONTH PERIOD ENDED SEPTEMBER 30, 1999

NET REVENUES. Net revenues for the three months ended September 30, 2000
increased $6.6 million, or 8.6%, to $83.2 million from $76.6 million for the
three months ended September 30, 1999. Net revenues for the nine months ended
September 30, 2000 increased $53.5 million, or 27.3%, to $249.7 million from
$196.2 million over the same period in 1999. Net revenues include the effect of
acquisitions from their respective acquisition dates.

Net revenues generated by our North American segment increased $3.3 million,
or 4.5%, to $76.4 million for the three months ended September 30, 2000, from
$73.1 million for the same period in 1999, and increased $40.0 million, or
21.3%, to $227.9 million for the nine months ended September 30, 2000, from
$187.9 million for the same period in 1999. Revenue from our IP network in North
America was $45.3 million for the three months ended September 30, 2000 and
$70.3 million for the nine months ended September 30, 2000. The North American
IP segment was not operational in either of the corresponding periods of 1999.
Revenue from our North American circuit switched network decreased $42.0 million
or 57.5%, to $31.1 million for the three months ended September 30, 2000, from
$73.1 million for the same period in 1999. Revenue from our North American
circuit switched network decreased $30.3 million or 16.1%, to $157.6 million for
the nine months ended September 30, 2000, from $187.9 million for the same
period in 1999. The decrease in the amount of circuit switched revenues was due
to the reduction in the amount of wholesale circuit switched traffic on our
network. In addition, we were able to fully migrate our residential traffic onto
our IP network in the third quarter of 2000.

16
<PAGE>
Net revenues generated by our European segment increased $3.4 million, or
170.0%, to $5.4 million for the three months ended September 30, 2000, from $2.0
million for the same period in 1999, and increased $12.1 million, or 252.1%, to
$16.9 million for the nine months ended September 30, 2000, from $4.8 million
for the same period in 1999. Revenue from our IP network in Europe was $5.4
million for the three and nine months ended September 30, 2000. The European IP
segment was not operational in either of the corresponding periods of 1999. As a
result of the complete migration toward the IP network in Europe, we did not
generate any revenue from our circuit switched network for the three months
ended September 30, 2000, a decrease from $2.0 million for the same period in
1999. Revenue from our circuit switched network in Europe increased $6.7 million
or 139.6%, to $11.5 million for the nine months ended September 30, 2000, from
$4.8 million for the same period in 1999. The overall increase in net revenues
are due to our continued penetration into the European market during fiscal year
2000. We were able to migrate all of our European traffic onto our IP network in
the third quarter of 2000.

Net revenues generated by our Asian segment decreased $ 0.1 million, or
6.7%, to $1.4 million for the three months ended September 30, 2000, from $1.5
million for the same period in 1999, and increased $1.3 million, or 36.1%, to
$4.9 million for the nine months ended September 30, 2000, from $3.6 million for
the same period in 1999. Revenue from our IP network in Asia was $1.4 million
for the three and nine months ended September 30, 2000. The Asian IP segment was
not operational in either of the corresponding periods of 1999. As a result of
the complete migration toward the IP network in Asia, we did not generate any
revenue from our circuit switched network for the three months ended
September 30, 2000, a decrease from $1.5 million for the same period in 1999.
Revenue from our circuit switched network in Asia decreased $0.1 million or
2.8%, to $3.5 million for the nine months ended September 30, 2000, from $3.6
million for the same period in 1999.

GROSS MARGIN. Gross margin increased $8.3 million, or 82.2%, to $18.4
million for the three months ended September 30, 2000 from $10.1 million for the
three months ended September 30, 1999. Gross margin for the nine months ended
September 30, 2000 increased $27.4 million, or 122.9%, to $49.7 million from
$22.3 million for the same period in 1999. Gross margin as a percentage of net
revenues increased to 22.1% for the three months ended September 30, 2000 from
13.1% for the three months ended September 30, 1999, and increased to 19.9% for
the nine months ended September 30, 2000 from 11.4% for the same period in 1999.
The majority of this increase can be attributed to the higher gross margins we
experienced from operations in our IP segment.

Gross margin for our North American segment increased $8.0 million, or
84.2%, to $17.5 million for the three months ended September 30, 2000, from $9.5
million for the same period in 1999, and increased $24.6 million, or 117.7%, to
$45.5 million for the nine months ended September 30, 2000, from $20.9 million
for the same period in 1999. Gross margins for our North American segment's IP
revenues were 35.1% of net revenues or $15.9 million for the three months ended
September 30, 2000, and 35.2% of net revenues or $24.8 million for the nine
months ended September 30, 2000. The North American IP segment was not
operational in either of the corresponding periods of 1999. North American
circuit switched gross margins were 5.0% of net revenues, or $1.6 million for
the three months ended September 30, 2000, as compared to 12.9% of net revenues
and $9.5 million for the corresponding period in 1999. North American circuit
switched gross margins were 13.2% of net revenues or $20.8 million for the nine
months ended September 30, 2000, as compared to 11.1% and $20.9 million for the
corresponding period in 1999.

Gross margin for our European segment increased $0.6 million, to $0.5
million for the three months ended September 30, 2000, from a negative $0.1 for
the same period in 1999, and increased $3.1 million, to $2.6 million for the
nine months ended September 30, 2000, from a negative $0.5 million for the same
period in 1999. Gross margins for our European IP revenues were $0.5 million, or
9.3% of net revenues for the three months ended September 30, 2000, and $0.5
million, or 9.3% of net revenues for the nine months ended September 30, 2000.
The European IP segment was not

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<PAGE>
operational in either of the corresponding periods of 1999. The European traffic
was completely migrated from the circuit switched network in the second quarter
of 2000. As such, no revenues were generated on the European circuit switched
network. European circuit switched gross margins were 18.1% of net revenues, or
$2.1 million for the nine months ended September 30, 2000, as compared to a
negative 9.6% of net revenues and negative $0.5 million for the corresponding
period in 1999.

Gross margin for our Asian segment decreased $0.4 million, or 50.0%, to $0.4
million for the three months ended September 30, 2000, from $0.8 million for the
same period in 1999, and decreased $0.2 million, or 11.1%, to $1.6 million for
the nine months ended September 30, 2000, from $1.8 million for the same period
in 1999. Gross margins for our Asian segment's IP revenues were 31.1% of net
revenues for the three months ended September 30, 2000, and 31.1% of net
revenues for the nine months ended September 30, 2000. The Asian IP segment was
not operational in either of the corresponding periods of 1999. The Asian
traffic was completely migrated from the circuit switched network in the second
quarter of 2000. As such, no revenues were generated on the Asian circuit
switched network. Asian circuit switched gross margins were 32.8% of net
revenues, or $1.1 million for the nine months ended September 30, 2000, as
compared to 51.6% of net revenues and negative $1.8 million for the
corresponding period in 1999.

GENERAL AND ADMINISTRATIVE. General and administrative expenses for the
three months ended September 30, 2000 increased $4.9 million, or 43.4% to $16.2
million from $11.3 million for the three months ended September 30, 1999.
General and administrative expenses increased $18.5 million, or 59.1% to $49.8
million for the nine months ended September 30, 2000 from $31.3 million over the
same period in 1999.

General and administrative expenses as a percentage of net revenues
increased to 19.4% for the three months ended September 30, 2000 from 13.1% for
the same period in 1999, and increased to 19.9% for the nine months ended
September 30, 2000 from 11.4% for the same period in 1999. The increase was
primarily due to business integration costs generated by our acquisitions in the
first quarter of 2000.

General and administrative expenses for our North American segment remained
constant at $8.0 million for the three months ended September 30, 2000 and 1999,
and increased $7.1 million, or 31.4%, to $29.7 million for the nine months ended
September 30, 2000, from $22.6 million for the same period in 1999.

General and administrative expenses for our European segment increased $2.8
million, or 133.3%, to $4.9 million for the three months ended September 30,
2000, from $2.1 million for the same period in 1999, and increased $5.8 million,
or 90.6%, to $12.2 million for the nine months ended September 30, 2000, from
$6.4 million for the same period in 1999.

General and administrative expenses for our Asian segment decreased $0.5
million, or 41.7%, to $3.2 million for the three months ended September 30,
2000, from $1.2 million for the same period in 1999, and increased $3.1 million,
or 134.8%, to $7.9 million for the nine months ended September 30, 2000, from
$2.3 million for the same period in 1999.

SELLING AND MARKETING. Selling and marketing expenses for the three months
ended September 30, 2000 increased $1.5 million, or 41.7% to $5.1 million from
$3.6 million for the three months ended September 30, 1999. Selling and
marketing expenses increased $1.4 million, or 13.1% to $12.1 million for the
nine months ended September 30, 2000 from $10.7 million for the nine months
ended September 30, 1999.

Selling and administrative expenses as a percentage of net revenues
increased to 6.2% for the three months ended September 30, 2000 from 4.6% for
the same period in 1999, but decreased to 4.9% for the nine months ended
September 30, 2000 from 5.5% for the same period in 1999. The decrease is

18
<PAGE>
primarily due to our efforts to convert our existing dial around customer base
to a bundled customer base rather than pursuing new customers through increased
external marketing efforts.

Selling and marketing for our North American segment increased $1.1 million,
or 35.4%, to $4.2 million for the three months ended September 30, 2000, from
$3.1 million for the same period in 1999, but decreased $0.9 million, or 9.4%,
to $8.7 million for the nine months ended September 30, 2000 from $9.6 million
for the same period in 1999. Selling and marketing expenses as a percentage of
net revenues increased to 5.5% for the three months ended September 30, 2000
from 4.2% for the same period in 1999, and decreased to 3.8% for the nine months
ended September 30, 2000 from 5.1% for the same period in 1999. The decrease is
primarily due to our efforts to convert our existing dial around customer base
to a bundled customer base rather than pursuing new customers through increased
external marketing efforts. The costs from our outbound service representatives
who performed this function are recorded in general and administrative expenses.

Selling and marketing for our European segment increased $0.5 million, or
125.0%, to $0.9 million for the three months ended September 30, 2000, from $0.4
million for the same period in 1999, and increased $2.1 million, or 190.9%, to
$3.2 million for the nine months ended September 30, 2000 from $1.1 million for
the same period in 1999. Selling and marketing expenses as a percentage of net
revenues decreased to 16.6% for the three months ended September 30, 2000 from
20.0% for the same period in 1999, and decreased to 18.9% for the nine months
ended September 30, 2000 from 22.9% for the same period in 1999. The decrease is
primarily due to the efforts to convert our dial around customer base for
bundled customer acquisitions rather than pursuing new customers through
increased marketing efforts. The costs from our outbound service representatives
who performed this function are recorded in general and administrative expenses.

Selling and marketing for our Asian segment increased $10,000, or 21.7%, to
$56,000 for the three months ended September 30, 2000, from $46,000 for the same
period in 1999, and increased $126,000, or 165.8%, to $202,000 for the nine
months ended September 30, 2000 from $76,000 for the same period in 1999.
Selling and marketing expenses as a percentage of net revenues increased to 4.0%
for the three months ended September 30, 2000 from 3.1% for the same period in
1999, and increased to 4.1% for the nine months ended September 30, 2000 from
2.1% for the same period in 1999.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased $2.6 million, or 123.8%, to $4.7 million for the three months ended
September 30, 2000 from $2.1 million for the same period in 1999. Depreciation
and amortization expense increased $5.7 million, or 107.5%, to $11.0 million for
the nine months ended September 30, 2000 from $5.3 million for the same period
in 1999. This was primarily due to increases in capital expenditures pursuant to
our strategy of expanding our network infrastructure and amortization of
goodwill.

INTEREST EXPENSE. Interest expense increased $2.0 million, or 36.4%, to
$7.5 million for the three months ended September 30, 2000 from $5.5 million for
the same period in 1999. Interest expense increased $3.8 million, or 23.8%, to
$19.8 million for the nine months ended September 30, 2000 from $16.0 million
for the same period in 1999. This was a result of higher balances drawn from
several bank and vendor financing agreements entered into during 1999 and 2000.

INTEREST INCOME. Interest income decreased $0.3 million, or 27.3%, to $0.8
million for the three months ended September 30, 2000 from $1.1 million for the
same period in 1999. Interest income decreased $1.8 million, or 43.9%, to $2.3
million for the nine months ended September 30, 2000 from $4.1 million for the
same period in 1999. This is primarily due to a decrease in the amount of
pledged securities on our balance sheet, reflecting the interest payments made
on the Senior Notes.

19
<PAGE>
NET LOSS. Net loss for the three months ended September 30, 2000 was $15.1
million or $1.05 per common share compared to a net loss of approximately $11.3
million or $1.19 per common share for the same period in 1999. Nine-month net
loss before extraordinary item was $42.0 million or $3.19 per common share
compared to $37.0 million or $3.98 per common share over the same period in
1999. Net loss for the three months ended September 30, 2000 was $15.1 million
or $1.05 per common share and net loss for the nine months ended September 30,
2000 was $42.9 million or $3.26 per common share, after the extraordinary item.
We incurred a loss of $0.9 million in connection with the early repayment and
termination of our Loan and Security Agreement with Congress Financial
Corporation ("CFC") during the second quarter. This amount consisted of a
one-time payment to CFC and unamortized deferred financing costs.

LIQUIDITY AND CAPITAL RESOURCES

We reported a decrease in cash and cash equivalents of approximately $32.6
million during the nine months ended September 30, 2000. Cash used in operating
activities for the nine months ended September 30, 2000 increased $28.9 million,
or 152.1% to $47.9 million from $19.0 million for the same period in 1999
principally due to cash requirements for the expansion of operations partially
offset by changes in operating accounts and the integration of acquisitions.

We expect to incur net losses on a quarterly basis for the next several
quarters, as we incur additional costs associated with the strengthening of our
network infrastructure, the development and expansion of our marketing programs,
our entry into new markets, the pursuit of our acquisition strategy, the
expansion of existing and introduction of new telecommunications and Internet
services, the expansion of our global IP network and as a result of interest
expense associated with our financing activities. As of September 30, 2000, we
have pledged securities of approximately $19.3 million to cover all scheduled
cash interest payments on the Senior Notes through May 2001. The Company is
scheduled to pay a semiannual interest payment of approximately $9.6 million in
November 2000. We may be required to obtain additional financing in order to pay
interest on the Senior Notes after May 2001 and to repay the Senior Notes at
their maturity.

During 1998, we advanced an aggregate of approximately $1.4 million to
certain of our employees and officers. The secured loans bear interest at a rate
of 7.87% per year, and were originally due and payable on December 31, 1999.
Approximately $0.9 million was repaid in January 2000, and the balance was
extended through December 31, 2000.

In September 2000, we sold certain of our VoIP termination facilities,
valued at approximately $4.3 million, and converted certain of our accounts
receivable, valued at approximately $24.5 million, in exchange for 40% of the
issued and outstanding common stock of Sunrise World Communications, Inc.
("Sunrise"). Sunrise provides internet communications services between the
United States and the emerging economies of the world. The accounts receivable
consisted of trade receivables, prepaids, and deposits. As of September 30,
2000, our investment value in Sunrise is approximately $28.8 million.

In the first quarter of 2000, we acquired several VoIP termination
facilities from various vendors for approximately $2.2 million in cash and
approximately $1.9 million in common stock. We issued the shares in the second
and third quarters of 2000. We have integrated these facilities into our VoIP
network and launched VoIP services as a new line of business in the first
quarter of 2000. The purchase price was allocated to the net assets acquired
based upon the estimated fair value of such assets, which resulted in an
allocation of approximately $4.1 million to goodwill. Purchase price allocations
have been completed on a preliminary basis and are subject to adjustment should
new or additional facts about the business become known.

In the first quarter of 2000, we acquired Vancouver Telephone Company
("VTC") for approximately $1.1 million in cash and 520,463 shares of common
stock valued at approximately $12.3 million. We issued the shares in the second
quarter of 2000. VTC provides domestic and international

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long distance services in Canada. VTC markets its telephone services to ethnic
communities in Canada, including Taiwanese, Chinese, Romanian and Serbian
communities. The purchase price was allocated to the net assets acquired based
upon the estimated fair value of such assets, which resulted in an allocation of
approximately $13.6 million to goodwill. Purchase price allocations have been
completed on a preliminary basis and are subject to adjustment should new or
additional facts about the business become known.

In the first quarter of 2000, we acquired DLC Enterprises Inc. ("DLC"), a
New York-based telecommunications company for approximately $0.5 million. DLC
offers voice and data services. DLC provides us with a management and sales
force, proprietary billing and customer service software and small business
customers. The acquisition of DLC facilitates the introduction of commercial
services for ethnic small and mid-sized business customers. The purchase price
was allocated to the net assets acquired based upon the estimated fair value of
such assets, which resulted in an allocation of approximately $1.1 million to
goodwill. Purchase price allocations have been completed on a preliminary basis
and are subject to adjustment should new or additional facts about the business
become known.

In the first quarter of 2000, we acquired Global Villager Inc. for
approximately $0.8 million in cash and 503,872 shares of common stock valued at
approximately $13.2 million. Global Villager owns a leading bilingual
Chinese/English Web community, DragonSurf.com, which provides a range of content
and services on its Web site for the Chinese community. The purchase price was
allocated to the net assets acquired based upon the estimated fair value of such
assets, which resulted in an allocation of approximately $13.8 million to
goodwill. Purchase price allocations have been completed on a preliminary basis
and are subject to adjustment should new or additional facts about the business
become known.

In November 2000, we entered into an agreement to acquire Capsule
Communications, Inc. ("Capsule"), formerly known as US WATS, Inc. Under the
terms of the merger, subject to certain price adjustments, we will issue
approximately 2.7 million shares of common stock to shareholders of Capsule. In
addition, we will issue an aggregate of $3 million in 5-year, unsecured
promissory notes to two Capsule shareholders owning approximately 74% of the
issued and outstanding shares of Capsule. The merger agreement, which we
anticipate will be formally consummated in the first quarter of 2001, is subject
to the conditions set forth in the merger agreement and requires, among other
things, the approval of our shareholders and Capsule shareholders as well as the
receipt of regulatory approvals. The approval of the merger by Capsule's
stockholders is assured because the two Capsule shareholders beneficially owning
in the aggregate approximately 74% of Capsule's outstanding common stock have
executed voting agreements committing them to vote all of their shares in favor
of the merger.

Our business strategy contemplates aggregate capital expenditures (including
capital expenditures, working capital and other general corporate purposes) of
approximately $35 million through December 31, 2000 to be spent on our Internet
infrastructure. A substantial portion of these expenditures has been incurred as
of September 30, 2000, and has been funded by existing vendor arrangements. We
are also pursuing additional sources of financing from the capital markets. We
intend to use any additional sources of financing to fund our acquisition
activities. These activities include, but are not limited to, integration
expenses, Internet infrastructure and other post acquisition-related
expenditures.

We regularly review opportunities to implement our business strategy through
strategic alliances with, investment in, or acquisitions of businesses that we
believe are complementary to our current and planned operations. Our ability to
consummate strategic alliances and acquisitions, and to make investments that
may be of strategic significance, may require us to obtain additional debt
and/or equity financing. There can be no assurance that we will be successful in
arranging such financing on terms we consider acceptable or at all.

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Although we intend to implement the capital spending plan described above,
it is possible that unanticipated business opportunities may arise which we may
conclude are more favorable to our long-term prospects than those contemplated
by the current capital spending plan.

EQUITY AND DEBT FINANCING

In June 2000, we repaid and terminated a three-year Loan and Security
Agreement with Congress Financial Corporation ("CFC Facility") two years ahead
of the original term. We incurred extraordinary losses of approximately $0.9
million with this extinguishment consisting of a one-time payment to Congress
Financial Corporation and unamortized deferred financing costs.

In June 2000, we entered into a five-year term loan with a principal balance
of $50 million with NTFC Capital Corporation, a financing arm of GE Capital
("NTFC Facility"). This loan represents an increase of $15 million over the
original $35 million facility entered into in December 1998 with NTFC. The NTFC
Facility may be used to finance the continued expansion of our Internet
initiatives and transport business, additional development of Wireless
Applications Protocol, applications of its Internet portals, expansion of VoIP
services, acquisitions and working capital for general corporate purposes. The
outstanding borrowings on the NTFC Facility carry interest rates ranging from
8.91% to 9.90%, with a weighted average interest rate of 9.9%. Under the terms
of the NTFC Facility, we are subject to certain financial and operational
covenants, including but not limited to minimum EBITDA, restrictions on our
ability to pay dividends and level of indebtedness. As of September 30, 2000,
approximately $46.8 million was outstanding under the NTFC Facility. The NTFC
Facility is secured by a pledge of all shares of Startec Global Operating
Company ("Operating Company") owned by the Company, and by a first priority
security interest in all of the Operating Company's assets.

In June 2000, we entered into a $20 million unsecured facility from Allied
Capital ("Allied Facility") with a balloon payment due at maturity in 2005. The
Allied Facility may be used for general corporate purposes, including the
purchase of telecommunications assets, without limitations. The Allied Facility
bears interest at the fixed rate of 15% per annum and is payable semi-annually,
in arrears, at the fixed rate of 10% per annum. Under the terms of the Allied
Facility, we are subject to certain financial and operational covenants,
including but not limited to restrictions on our ability to pay dividends and
level of indebtedness. As of September 30, 2000, $20 million was outstanding
under the facility. After July 1, 2002, the Company can prepay all or part of
this loan without penalty. In connection with entering into the Allied Facility,
we issued a stock purchase warrant to Allied pursuant to which, at any time and
from time to time until June 30, 2005, Allied is entitled at its sole option to
purchase an aggregate of 125,000 shares of our common stock at an exercise price
of $11.21 per share subject to certain antidilution adjustments.

In May 2000, we entered into vendor financing facility for up to $7.5
million from Coast Business Credit Corporation ("Coast Facility") due in Novemer
2002. The Coast Facility may be used to satisfy various operating liabilities.
The interest rate on the Coast facility is the Prime Rate plus 3.5%, with a
floor of 9%. As of September 30, 2000, approximately $6.7 million was
outstanding under the Coast Facility.

In July 1999, we entered into a three-year vendor financing facility for up
to $5 million with IBM Credit Corporation ("IBM Facility"). The IBM Facility may
be used to finance the purchase of IBM hardware and software from IBM under a
capital lease structure. Borrowings under the IBM Facility bear interest at a
fixed rate equal to the average yield to maturity of the five-year Treasury Note
plus a rate adjustment which varies by the type of equipment purchased. The
outstanding borrowings on the IBM Facility carry interest rates ranging from
9.5% to 15.4% with a weighted average interest rate of 11.7%. As of
September 30, 2000, approximately $1.3 million was outstanding under the IBM
Facility.

In May 1999, we entered into a vendor financing facility for up to $20
million with Ascend Credit Corporation ("Ascend Facility"). The Ascend Facility
may be used to finance equipment purchased

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from Ascend under a capital lease structure. As of September 30, 2000,
approximately $1.9 million bearing interest at 8.5% was outstanding under the
facility.

In May 1998, we issued $160 million of 12% Senior Notes yielding net
proceeds of approximately $155 million, of which approximately $52.4 million was
used to purchase securities which are pledged and restricted for use as the
first six interest payments due on the Senior Notes. As part of the offering, we
issued warrants to purchase 200,226 shares of common stock. The warrants are
exercisable subsequent to November 1998 at an exercise price of $24.20 per
share. The Senior Notes are unsecured and require semi-annual interest payments,
which began in November 1998.

The implementation of our strategic plans, including the development and
expansion of our network facilities, expansion of our marketing programs,
expansion of our global IP network, pursuit of our acquisition strategy,
acquisition of additional commercial customers, our evolution to marketing of
network and enterprise services, and funding of operating losses and working
capital needs, will require significant investment. There can be no assurance
that we will not need additional financing sooner than currently anticipated.
The need for additional financing depends on a variety of factors, including the
rate and extent of our expansion and new markets, the cost of an investment in
additional switching and transmission facilities and ownership rights in fiber
optic cable, the incurrence of costs to support the introduction of additional
or enhanced services, and increased sales and marketing expenses. In addition,
we may need additional financing to fund unanticipated working capital needs or
to take advantage of unanticipated business opportunities, including
acquisitions, investments or strategic alliances. The amount of our actual
future capital requirements also will depend upon many factors that are not
within our control, including competitive conditions and regulatory or other
government actions. In the event that our plans or assumptions change or prove
to be inaccurate or our capital resources prove to be insufficient to fund our
growth and operations, then some or all of our development and expansion plans
could be delayed or abandoned, or we may be required to seek additional
financing or to sell assets, to the extent permitted by the terms of the Senior
Notes.

We need to raise such additional capital from public or private equity or
debt sources. We cannot assure you that we will be able to obtain additional
financing or, if obtained, that it will be able to do so on a timely basis or on
favorable terms. If we are able to raise additional funds through the incurrence
of debt, it would likely become subject to additional restrictive financial
covenants. In the event that we are unable to obtain such additional capital or
are unable to obtain such additional capital on acceptable terms, we may be
required to reduce the scope of our expansion, which could adversely affect our
business, financial condition and results of operations, our ability to compete
and our ability to meet our obligations under the Senior Notes.

CASH FLOWS

Our cash and cash equivalents decreased $32.5 million, or 59.4%, to $22.2
million at September 30, 2000, from $54.7 million at December 31, 1999. Net cash
used in operating activities increased $28.9 million, or 152.1%, to $47.9
million for the nine months ended September 30, 2000 compared to approximately
$19.0 million for the same period in 1999. The increase in cash used in
operations was primarily the result of an increase of net loss and accounts
receivable, which was partially offset by an increase in accounts payable and
accrued expenses.

Cash used in investing activities was $43.5 million in the first nine months
of 2000 compared to $56.8 million in the same period in 1999. We capitalized
approximately $3.7 million pursuant to the Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use."

Cash provided by financing activities was approximately $58.8 million for
the first nine months of 2000 compared to approximately $38.3 million over the
same period in 1999. Cash provided by financing activities primarily relates to
proceeds from draws on the bank facility and vendor financing

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as well as proceeds from the private placement of our common stock partially
offset by repayments of the credit facility and vendor financing.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk, including changes in interest rates, and to
foreign currency exchange rate risks. We do not hold any financial instruments
for trading purposes. We believe that our primary market risk exposure relates
the effects that changes in interest rates have on our investments and those
portions of our outstanding indebtedness that do not have fixed rates of
interest. In this regard, changes in interest rates affect the interest earned
on our investments in cash equivalents, which consist primarily of demand
deposits and money market accounts, and U.S. Government obligations which we
have purchased and pledged to make certain interest payments on the Senior
Notes. In addition, changes in interest rates impact the fair value of our
long-term debt obligations (including the Senior Notes). As of September 30,
2000, the fair value of the Senior Notes was approximately $120.0 million and
the fair value of the securities pledged to make certain interest payments on
the Senior Notes was approximately $19.3 million. Changes in interest rates also
affect our borrowings under our other financing facilities with NTFC, Allied,
IBM and Ascend. The NTFC Facility provides that each borrowing under the
facility bears interest at a fixed rate equal to the average yield to maturity
of the five-year Treasury Note plus an agreed-upon rate adjustment. The Allied
facility bears interest at the fixed rate of 15% per annum and is payable
semi-annually, in arrears, at the fixed rate of 10% per annum. The Ascend
Facility provides that each borrowing under the facility bears interest at 8.5%.
The IBM facility bears interest at a variable rate during the term of the lease.

The foreign exchange rate fluctuations relating to our results of foreign
operations have not been material. We have not entered into foreign currency
exchange forward contracts or other derivative arrangements to manage risks
associated with foreign exchange rate fluctuations. Foreign exchange rate
fluctuation exposure may increase in the future as the size and scope of our
foreign operations increases.

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PART II.--OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time we are involved in litigation incidental to the conduct of
our business. We are not currently a party to any lawsuit or proceeding which,
in the opinion of management, is likely to have a material adverse effect on the
business, financial condition or results of operations.

ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

a. Exhibits

<TABLE>
<C> <S>
2.2* Agreement and Plan of Reorganization dated November 2, 2000
by and among Startec Global Communications Corporation,
Stars Acquisition Corp., Capsule Communications, Inc.,
Gold & Appel Transfer, S.A. and Foundation for the
International Non-Governmental Development of Space

4.13** First Amendment dated as of August 21, 1999 to Shareholder
Rights Agreement dated as of March 26, 1998, between Startec
Global Communications Corporation and Continental Stock
Transfer & Trust Company.

4.14* Second Amendment dated November 8, 2000 to Shareholder
Rights Agreement dated as of March 26, 1998, between Startec
Global Communications Corporation and Continental Stock
Transfer & Trust Company.

10.61* Voting Agreement dated November 2, 2000 by and between
Startec Global Communications Corporation, Stars Acquisition
Corp. and Gold & Appel Transfer, S.A.

10.62* Voting Agreement dated November 2, 2000 by and between
Startec Global Communications Corporation, Stars Acquisition
Corp. and Foundation for the International Non-Governmental
Development of Space.

27.1 Financial Data Schedule
</TABLE>

------------------------

* Incorporated by reference from Exhibits 2.2, 99.1, 99.2, 99.3 and 99.4 to
the Company's Current Report on Form 8-K (SEC File No. 000-23087) filed on
November 13, 2000.

** Incorporated by reference from Exhibit 99.1 to the Company's Current Report
on Form 8-K (SEC File No. 000-23087) filed on August 25, 1999.

No reports on Form 8-K were filed during the period ending September 30,
2000.

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SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned thereunto duly authorized on the 15th day of
November, 2000.

<TABLE>
<S> <C> <C>
STARTEC GLOBAL COMMUNICATIONS CORPORATION

By: /s/ PRABHAV V. MANIYAR
-----------------------------------------
CHIEF FINANCIAL
OFFICER AND DIRECTOR
(PRINCIPAL FINANCIAL AND ACCOUNTING
OFFICER)
</TABLE>