<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
FORM 10-Q/A
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
COMMISSION FILE NUMBER 33-19435
eVENTURES GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2233445
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
ONE EVERTRUST PLAZA, 8th FLOOR
JERSEY CITY, NEW JERSEY 07302
(201) 200-5515
(Address and telephone number of principal executive offices)
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.
(1) Yes No X
--------- ---------
(2) Yes X No
--------- ---------
On December 15, 1999, 45,207,673 shares of the registrant's Common Stock were
outstanding.
The accompanying notes are an integral part of these consolidated
financial statements
<PAGE> 2
eVENTURES GROUP, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 1999 and September 30, 1999 (unaudited) 3
Consolidated Statements of Operations - Three months ended September 30, 1998 and 1999 4
(unaudited)
Consolidated Statement of Shareholders' Equity (Deficit)- Three months ended September 30, 5
1999 (unaudited)
Consolidated Statements of Cash Flows - Three months ended September 30, 1998 and 1999 6
(unaudited)
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk 14
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Securities Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
</TABLE>
WHEN USED IN THIS REPORT, THE WORDS "INTEND," "EXPECTS," "PLANS," "ESTIMATES,"
"ANTICIPATES," "PROJECTS," "BELIEVES," AND SIMILAR EXPRESSIONS ARE INTENDED TO
IDENTIFY FORWARD-LOOKING STATEMENTS. SPECIFICALLY, STATEMENTS INCLUDED IN THIS
REPORT THAT ARE NOT HISTORICAL FACTS, INCLUDING STATEMENTS ABOUT THE COMPANY'S
BELIEFS AND EXPECTATIONS ABOUT ITS BUSINESS AND ITS INDUSTRY ARE FORWARD-LOOKING
STATEMENTS. SUCH STATEMENTS ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD
CAUSE ACTUAL RESULTS OR OUTCOMES TO DIFFER MATERIALLY. SUCH RISKS AND
UNCERTAINTIES INCLUDE, BUT ARE NOT LIMITED TO, THE DEGREE TO WHICH THE COMPANY
IS LEVERAGED AND THE RESTRICTIONS IMPOSED ON THE COMPANY UNDER ITS EXISTING DEBT
INSTRUMENTS THAT MAY ADVERSELY AFFECT THE COMPANY'S ABILITY TO FINANCE ITS
FUTURE OPERATIONS, TO COMPETE EFFECTIVELY AGAINST BETTER CAPITALIZED COMPETITORS
AND TO WITHSTAND DOWNTURNS IN ITS BUSINESS OR THE ECONOMY GENERALLY; AND OTHER
FACTORS DISCUSSED IN THE COMPANY'S FILINGS WITH THE SECURITIES AND EXCHANGE
COMMISSION. FORWARD-LOOKING STATEMENTS INCLUDED IN THIS REPORT SPEAK ONLY AS OF
THE DATE HEREOF AND THE COMPANY UNDERTAKES NO OBLIGATION TO REVISE OR UPDATE
SUCH STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO
REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.
The accompanying notes are an integral part of these consolidated
financial statements
2
<PAGE> 3
ITEM 1: FINANCIAL STATEMENTS
eVENTURES GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
ASSETS 1999 1999
------------ ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 39,379 $ 5,462,745
Accounts receivable 6,129 1,438,979
Other receivables 11,164 71,988
Prepaid expenses and other 13,250 113,820
Deposits 242,310 299,071
VAT receivable 2,757,368 2,436,268
------------ ------------
3,069,600 9,822,871
------------ ------------
LONG-TERM ASSETS
Restricted cash 1,107,437 1,820,752
Property and equipment, net 6,219,874 7,347,775
Investments in affiliates 2,191,498 2,240,890
Goodwill, net 3,072,908 20,113,547
Other -- 46,800
------------ ------------
12,591,717 31,569,764
------------ ------------
$ 15,661,317 $ 41,392,635
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 4,609,806 $ 7,605,784
Accrued other 1,477,757 2,037,272
Accrued interest payable 383,163 25,512
Customer deposits and deferred revenues 1,272,682 2,528,947
Notes payable -- 26,250
Capital leases, current portion 1,916,761 2,001,531
------------ ------------
9,660,169 14,225,296
------------ ------------
LONG-TERM LIABILITIES
Debentures 6,828,948 --
Capital leases, net of current portion 2,031,513 1,750,160
------------ ------------
8,860,461 1,750,160
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock 36 788
Preferred stock -- --
Additional paid-in capital 4,310,144 36,351,203
Accumulated deficit (7,169,493) (10,481,812)
Deferred compensation -- (453,000)
------------ ------------
(2,859,313) 25,417,179
------------ ------------
$ 15,661,317 $ 41,392,635
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
3
<PAGE> 4
eVENTURES GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1998 1999
-------------- --------------
(UNAUDITED)
<S> <C> <C>
Revenues $ 4,205,662 $ 8,675,719
Direct costs 3,495,587 8,729,520
-------------- --------------
Gross profit (loss) 710,075 (53,801)
Selling, general and administrative
expenses 1,588,526 1,816,032
-------------- --------------
Income (loss) from operations, before
other (income) expenses (878,451) (1,869,833)
-------------- --------------
Other (income) expenses
Interest expense, net 359,435 519,231
Write off of unamortized debt discount -- 917,615
Equity in loss of affiliate -- 18,730
Foreign currency (gain) loss 8,238 (6,502)
Other 7,946 (6,588)
-------------- --------------
375,619 1,442,486
-------------- --------------
Net loss $ (1,254,070) $ (3,312,319)
============== ==============
Net loss per share (basic and diluted) $ (0.11) $ (0.20)
Weighted average number of shares
outstanding 11,365,614 16,547,331
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
4
<PAGE> 5
eVENTURES GROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
-------------------- --------------------- PAID-IN ACCUMULATED DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT COMPENSATION TOTAL
------ --------- ---------- -------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1999 -- $ -- 3,600 $ 36 $ 4,310,144 $ (7,169,493) $ -- $(2,859,313)
Period ended September 30,
1999 is Unaudited
Net effect of acquisitions 1,000 -- 39,423,010 752 31,588,059 -- -- 31,588,811
Intrinsic value of
stock options -- -- -- -- 453,000 -- (453,000) --
Net loss -- -- -- -- -- (3,312,319) -- (3,312,319)
----- --------- ---------- -------- ----------- ------------ ----------- -----------
Balance, September 30, 1999
(Unaudited) 1,000 $ -- 39,426,610 $ 788 $36,351,203 $(10,481,812) $ (453,000) $25,417,179
===== ========= ========== ======== =========== ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
5
<PAGE> 6
eVENTURES GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1998 1999
-------------- --------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,254,070) $ (3,312,319)
Adjustments to reconcile net income to net cash (used in)
provided by net operating activities:
Depreciation and amortization 522,064 1,708,406
Other expenses 370,689 --
Foreign currency (gain) loss 8,238 (6,502)
Equity in loss of unconsolidated affiliate -- 18,730
Change in operating assets and liabilities:
Accounts receivable (989,939) (97,493)
Other receivables (37,152) (60,824)
Prepaid expenses and other (16,038) (7,263)
VAT receivable (334,936) 321,100
Restricted cash (1,067,490) 36,686
Accounts payable 835,036 1,170,492
Accrued other (53,406) 309,516
Accrued interest payable 129,220 142,508
Customer deposits (200,000) 679,765
-------------- --------------
Net cash (used in) provided by operating activities (2,087,784) 902,802
-------------- --------------
CASH FLOW FROM INVESTING ACTIVITIES:
Deposits 2,906 (56,761)
Proceeds from sale of available-for-sale securities 246,580 --
Purchases of property and equipment (1,131,808) (574,379)
Net cash acquired in acquisitions -- 299,687
Investment in affiliates -- (68,122)
-------------- --------------
Net cash used in investing activities (882,322) (399,575)
-------------- --------------
CASH FLOW FROM FINANCING ACTIVITIES:
Advances - shareholders 10,688 --
Issuance of common stock and preferred stock -- 5,940,000
Proceeds from the issuance of debentures 850,000 --
Repayment of loan -- (823,278)
Payments on capital leases (46,517) (196,583)
-------------- --------------
Net cash provided (used in) by financing activities 814,171 4,920,139
-------------- --------------
Net change in cash (2,155,935) 5,423,366
CASH AND CASH EQUIVALENTS, beginning of period 2,417,216 39,379
-------------- --------------
CASH AND CASH EQUIVALENTS, end of period $ 261,281 $ 5,462,745
============== ==============
Supplemental disclosure of cash flows information:
Cash paid for:
Interest $ 11,000 $ 97,000
============== ==============
Taxes
$ -- --
============== ==============
Supplemental schedule of non-cash investing and
financing activities:
Goodwill arising from change in ownership
and acquisitions settled through the issuance of stock $ -- $ 17,162,468
============== ==============
Net assets of subsidiaries acquired through an
issue of stock $ -- $ 196,169
============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
6
<PAGE> 7
eVENTURES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS:
eVentures Group, Inc. ("eVentures" or the "Company") was incorporated in the
state of Delaware on June 24, 1987 and was a public company with no material
operations prior to the transactions consummated on September 22, 1999, which
are described below. The Company was formerly known as Adina, Inc.
On September 22, 1999, the Company acquired all of the outstanding shares of
AxisTel Communications, Inc. ("AxisTel"), approximately 66.67% of the
outstanding shares of e.Volve Technology Group, Inc. ("e.Volve"), approximately
17% of the outstanding shares of i2v2.com, Inc. ("i2v2.com") (collectively the
"Acquired Entities"), and $8,540,159 notes receivable from e.Volve including
accrued interest ("Notes") held by Major Shareholders (as defined below). All
the acquisitions and the purchase of the Notes were settled through issuance of
stock of eVentures (the "Transaction"). As a result of the Transaction,
approximately 77% of the common stock of the Company outstanding after the
Transaction was owned by three shareholders that are affiliated with each other
(the "Major Shareholders") on September 22, 1999. In October 1999, the remaining
33.33% of e.Volve was acquired by the Company.
Prior to the Transaction, the Major Shareholders had directly and indirectly
held interests in the Acquired Entities, as follows: 66.67% of e.Volve, 21% of
i2v2.com, and 0.7% of AxisTel plus options to purchase a further 49.3% of
AxisTel. In August of 1999, the interest in i2v2.com held by the Major
Shareholders was diluted to 17%. Immediately after exercising the options in
AxisTel, these interests, along with the Major Shareholders' Notes receivable
from e.Volve, were directly and indirectly transferred to eVentures in exchange
for the Company's stock. The remaining 50% of AxisTel was then purchased from
AxisTel's founding shareholders.
The Company operates a private convergence network which consists of digital
switching, routing and signal management equipment, as well as digital fiber
optic cable lines. The network incorporates software, programming and switching
Dec Agreed to this technology which was originally developed for or in relation
to the Internet.
The Acquired Entities provide communications services and operate communications
networks based on Internet Protocol ("IP") and Asynchronous Transfer Mode
("ATM") technologies. The Acquired Entities provide high quality communications
services, offering international voice, data, Internet access and other
value-added applications over private fiber optic networks and the Internet. The
customers of the Company include corporate and governmental communications
service providers and individual business customers in the United States and the
Company's foreign markets.
Both the e.Volve and AxisTel networks are scalable networks built around digital
packet switching equipment. This switching equipment, together with other
components of the networks, incorporate ATM and IP technologies. The networks
meet voice over internet protocol ("VOIP") standards. Internationally, the
Company's networks offer communications services through leased or owned fiber
optic cable under direct operating agreements with telecommunications
authorities and Internet service providers ("ISP").
Investments
As of September 30, 1999, the Company has made investments in the
following companies:
<TABLE>
<CAPTION>
COMPANY NAME ACCOUNTING METHOD % OWNERSHIP
------------ ------------------ -----------
<S> <C> <C>
Innovative Calling Technologies, LLC equity basis 50.0%
i2v2.com Inc. (d/b/a PhoneFree.com) cost basis 16.0%
</TABLE>
7
<PAGE> 8
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL DATA
The consolidated balance sheet as of September 30, 1999 and the consolidated
statements of operations, shareholders' equity and cash flows for the three
month periods ended September 30, 1998 and 1999 have been prepared by the
Company without audit. In the opinion of management, all adjustments,
consisting of only normal recurring adjustments, necessary to present fairly
the consolidated financial position, results of operations and cash flows
have been made. The results of operations for the interim periods are not
necessarily indicative of the results for the full year. The accompanying
financial statements should be read with the Company's consolidated
financial statements included in the Company's Form 10/A filed with the
Securities and Exchange Commission on March 8, 2000.
USE OF ESTIMATES
The preparation of financial statements in conformity with Generally
Accepted Accounting Principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3 PROPERTY AND EQUIPMENT:
Property and equipment consists of the following at September 30, 1999.
<TABLE>
<S> <C>
Property, Plant & Equipment: $ 542,993
Leasehold improvements 5,985,121
Network equipment under capital leases 1,950,762
Other equipment 74,913
Furniture and fixtures -----------
8,553,789
(1,206,014)
Accumulated depreciation and amoritization -----------
$ 7,347,775
===========
</TABLE>
Depreciation and amoritization expense related to the above property and
equipment was $122,506 and $412,526 for the three months ended September 30,
1998 and 1999, respectively.
4 NET LOSS PER SHARE:
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128 ("SFAS 128"), Earnings Per Share ("EPS"). SFAS
128 requires dual presentation of basic EPS and diluted EPS on the face of
all income statements issued after December 15, 1997 for all entities with
complex capital structures. Basic EPS is computed as net income divided by
the weighted average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur from common
shares issuable through stock options, warrants and convertible debentures.
Diluted EPS has not been presented for the effects of stock options,
warrants and convertible debentures as the effect would be antidilutive.
Accordingly, basic and diluted EPS did not differ for any period presented.
For purposes of computation of EPS, the shares issued for the acquisition of
2/3rd of e.Volve and the purchase of the e.Volve debentures (11,365,614
shares) are deemed to have been in existence for the entire period.
5 SUBSEQUENT EVENTS:
On October 14, 1999, the Company paid $1.1 million cash and issued 239,299
shares of eVentures' common stock to Avantel S.A. in satisfaction of
accounts payable to Avantel of $4.3 million.
As part of the September 22, 1999 Transaction (see Note 1), the Company
acquired the remaining 33.3% of e.Volve on October 19, 1999 through an
extension of eVentures original offer. This purchase was settled through an
issuance of 5,831,253 shares of eVentures' common stock.
8
<PAGE> 9
On November 19, 1999, November 26, 1999 and December 15, 1999, the Company
issued 7,000 shares of Series B Convertible Preferred Stock at a price of
$1,000 per share. The par value of shares of Series B Convertible Preferred
Stock is $0.00002. The shares of Series B Convertible Preferred Stock are
convertible into shares of the Company's common stock at a price of $13.80
per share, subject to certain anti-dilution adjustments. The conversion
price was determined using the average of the closing bid price per share of
eVentures common stock for the 10 trading days ended October 29, 1999. Due
to the beneficial conversion feature of these securities, an imputed
preferred dividend of $1.1 million has been recorded during the three months
ended December 31, 1999.
On November 30, 1999, the Company terminated its marketing agreement with
Corpovision, S.A. The Company settled its liability to Corpovision with
respect to the termination of this agreement through the issuance of 137,500
shares of eVentures common stock. As a result, the Company recorded a charge
in the statement of operations of approximately $1.1 million in November,
1999 related to the difference between the value of the shares issued and
the book value of the note payable to Corpovision.
6 PRO FORMA FINANCIAL DATA
On September 22, 1999, the Company acquired all of the outstanding shares of
AxisTel, approximately 66.7% of the outstanding shares of e.Volve, the
e.Volve debentures, and a minority interest in i2v2.com. On October 19,
1999, the Company acquired the remaining 33.3% of the outstanding shares of
e.Volve. All of the acquisitions were settled through the issuance of stock
of the Company.
Set forth below is the Company's unaudited pro forma condensed statement of
operations for the year ended June 30, 1999 and the three months ended
September 30, 1999 as though the Transaction had occurred on July 1, 1998,
after adjustments related to goodwill, amortization of intangible assets and
debt discount and interest expense relating to the e.Volve debentures. The
unaudited pro forma results are not necessarily indicative of either actual
results of operations that would have occurred had the acquisitions been
made on July 1, 1998 or of future results.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
JUNE 30, 1999 SEPTEMBER 30, 1999
<S> <C> <C>
Revenues $ 35,215,916 $ 14,695,002
Net loss $(10,501,114) $ (3,899,691)
Net loss per share $ (0.25) $ (0.09)
</TABLE>
9
<PAGE> 10
eVENTURES GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The financial information and other statistical data set out below represent
the financial condition and results of operations of the accounting acquirer
pursuant to a series of reorganization transactions completed on September 22,
1999 and October 19, 1999 (the "Reorganization") described herein for all
periods from July 1, 1998 through September 22, 1999. As a result, throughout
this Form 10Q/A, our financial statements as of any date and for any period
beginning July 1, 1998 and ending on or prior to September 22, 1999 reflect the
financial condition and results of operations of e.Volve as if we had acquired
the interest of the Infinity Entities in e.Volve on July 1, 1998, except that
(a) our balance sheet as of June 30, 1999 reflects the acquisition of our
minority interest in PhoneFree.com and (b) our balance sheet as of September 30,
1999 reflects the acquisition of AxisTel.
REVENUES. We generate revenues through the sale of international Internet
telephony minutes on a wholesale basis to other U.S. long-distance providers.
Our agreements with our wholesale customers are short term in duration and the
rates we charge customers are subject to change from time to time. Due to
increasing competition, management expects these rates to decline, which could
have a material adverse effect on our financial condition or results of
operation. Our three largest customers accounted for substantially all of our
revenues for the three months ended September 31, 1999.
DIRECT COSTS. Direct costs include per minute termination charges and lease
payments and fees for fiber optic cable. Prior to September 1999, we only
provided international telecommunication services from the United States to
Mexico. The majority of termination fees and certain fiber optic lease payments
were payable in Mexican pesos. As a result, we were exposed to exchange rate
risk due to the fluctuation of the Mexican peso compared to the US dollar.
Continued fluctuation in the exchange rate may have a material adverse impact on
our financial condition or results of operation. Two vendors in Mexico provided
substantially all of our terminating capabilities in Mexico. If one of these
vendor relationships were terminated, it could have a material adverse effect on
our financial condition and results of operation.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. These expenses include corporate
expenses and management salaries, sales and marketing expenses, travel and
development expenses, benefits, occupancy costs, and administrative expenses. We
maintain a corporate office and two switch facilities. Due to the international
nature of our business, travel and development costs have been significant and
could continue to increase as we seek to expand our network.
10
<PAGE> 11
SUMMARY OF OPERATING RESULTS
The table below summarizes our operating results
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
-----------------------------------------------------------
1998 % 1999 %
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues $ 4,205,662 100.0% $ 8,675,719 100.0%
Direct costs 3,495,587 83.1% 8,729,520 100.6%
----------- ----------- ----------- -----------
Gross profit (loss) 710,075 16.9% (53,801) (0.6)%
Selling, general and administrative expense 1,588,526 37.8% 1,816,032 20.9%
----------- ----------- ----------- -----------
Loss from operations, before other (income)
expenses (878,451) (20.9)% (1,869,833) (21.6)%
----------- ----------- ----------- -----------
Other (income) expenses
Interest expense, net 359,435 8.5% 519,231 6.0%
Write off of unamortized debt discount -- 0.0% 917,615 10.6%
Equity in loss of affiliate -- 0.0% 18,730 0.2%
Foreign currency (gain) loss 8,238 0.2% (6,502) (0.1)%
Other 7,946 0.2% (6,588) (0.1)%
----------- ----------- ----------- -----------
375,619 8.9% 1,442,486 16.6%
----------- ----------- ----------- -----------
Net loss $(1,254,070) (29.8)% $(3,312,319) (38.2)%
=========== =========== =========== ===========
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1998
REVENUES. Revenues increased to $8.7 million during the three months ended
September 30, 1999 from $4.2 million during the three months ended September 30,
1998, an increase of 106.3%. This primarily resulted from an increase in traffic
transmitted to 77.1 million minutes during the three months ended September 30,
1999 from 18.6 million minutes during the three months ended September 30, 1998,
offset by a decrease in the average revenue per minute primarily as a result of
increased competition in the Mexican market. The average revenue per minute
decreased to $0.11 per minute during the three months ended September 30, 1999
from $0.23 per minute during the three months ended September 30, 1998.
DIRECT COSTS. Direct costs increased to $8.7 million during the three months
ended September 30, 1999 from $3.5 million during the three months ended
September 30, 1998, an increase of 149.7%. This increase in direct costs
resulted primarily from a $5.5 million increase in termination fees associated
with the increase in traffic transmitted, offset by lower per minute termination
rates. The average rate per minute to terminate traffic decreased to $0.10 per
minute during the three months ended September 30, 1999 from $0.13 per minute
during the three months ended September 30, 1998. In addition, the increase in
direct costs was offset by reduced costs for fiber optic connections between our
points of presence of $293,000. As a percentage of revenues, direct costs during
the three months ended September 30, 1999 increased to 100.6% from 83.1% during
the three month ended September 30, 1998.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased to $1.8 million during the three months ended September 30,
1999 from $1.6 million during the three months ended September 30,1998, an
increase of 14.3%. This increase resulted primarily from an increase in
operating staff ($172,000), professional fees ($200,000), and depreciation
expense ($260,000). In addition, we reserved $370,000 for potential litigation
costs.
INTEREST EXPENSE, NET. Interest expense, net increased to $519,231 during the
three months ended September 30, 1999 from $359,435 during the three months
ended September 30, 1998, a increase of 44.5%. This increase was a result of
higher charges related to capital leases for new equipment.
WRITE OFF OF UNAMORTIZED DEBT DISCOUNT. The write off of unamortized debt
discount during the three months ended September 30, 1999 resulted from our
acquisition of the e.Volve debentures from our Major Shareholder as part of
reorganization and the subsequent elimination upon consolidation of these
debentures in our consolidated balance sheet.
EQUITY IN LOSS OF UNCONSOLIDATED AFFILIATE. Equity in loss of unconsolidated
affiliate was $18,730 during the three months ended September 30, 1999. These
losses occurred as a result of a joint venture formed with e.Volve in April
1999.
FOREIGN CURRENCY (GAIN) LOSS. Foreign currency (gain) loss during the three
months ended September 30, 1999 was a gain of $6,502 compared with a loss of
$8,238 during the three months ended September 30, 1998.
11
<PAGE> 12
OTHER. Other income of $6,588 during the three months ended September 30, 1999
changed from an expense of $7,946 during the three months ended September 30,
1998.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have funded our operations primarily through cash from
operations and from private placements of common stock, preferred stock,
warrants to purchase common stock and debt. As of September 30, 1999, we have
raised a total of $15.0 million to finance operations and to fund capital
expenditures primarily through borrowings from and equity investments by the
Infinity Entities and the proceeds of capital leases.
On September 28, 1999, we completed a private placement of common and preferred
stock of approximately $5.9 million. Proceeds from this placement were used for
general corporate purposes and as capital for new investments and projects.
Our principal uses of cash are to fund working capital requirements, capital
expenditures and the operating losses.
As of September 30, 1999, we had current assets of $9.8 million, including cash
and cash equivalents of $5.5 million, and a working capital deficit of $4.4
million. Current assets included a VAT receivable of $2.4 million.
CASH FLOWS FROM OPERATING ACTIVITIES:
Our operating activities generated cash of $902,802 during the three months
ended September 30, 1999. During the three months ended September 30, 1999 cash
flows from operating activities primarily resulted from non-cash depreciation
and amortization expenses, an increase in accounts payable, an increase in
customer deposits and a decrease in tax refund receivable, off-set by net
losses.
CASH FLOWS FROM INVESTING ACTIVITIES:
We used cash flow for investing activities of $399,575 during the three
months ended September 30, 1999. During the three months ended September 30,
1999, cash used in investing activities primarily consisted of cash used
to purchase equipment, fund a joint venture, and make certain deposits offset
by cash acquired in acquisitions.
CASH FLOWS FROM FINANCING ACTIVITIES:
Our cash flow from financing activities was $4.9 million during the three months
ended September 30, 1999. During the three months ended September 30, 1999 cash
provided from the proceeds of a private placement of $5.9 million of common
stock and preferred stock, offset by repayment of a loan and capital lease
payments.
GENERAL
Our business plans require and will continue to require a substantial amount of
capital to fund our expansion into existing and new markets, continue to develop
our network and fund operating losses and debt and capital lease payments. We
also will continue to make strategic investments and to evaluate acquisitions in
light of our long range plans. Such strategic investments and acquisitions, if
realized, could require expenditure of a material portion of our financial
resources and would accelerate the need for raising additional capital. Sources
of funding for our financing requirements may include vendor financing, bank
loans and public offerings or private placements of equity and/or debt
securities. We cannot be certain that additional financing will be available or,
if available, could be obtained on a timely basis and on acceptable terms. The
failure to obtain such financing on acceptable terms could have a material
adverse effect on our business and prospects.
Our cash and cash equivalents are expected to provide sufficient liquidity
to meet our capital requirements for approximately the next twelve months.
12
<PAGE> 13
EQUIPMENT LEASING AND FINANCING. We have leased equipment manufactured by
various equipment manufacturers including Network Equipment Technologies, Inc.
and Harris Corporation. We have entered into approximately $5.6 million of
capital leases with BA Capital Corp. and Arrendadora BankAmerica, S.A.
SUBSEQUENT EVENTS:
On October 14, 1999, we exchanged accounts payable to Avantel, S.A. of
$4.3 million for $1.1 million cash plus 239,229 shares of our Common Stock.
To consummate the September 22, 1999 Transaction (see Note 1), we acquired the
remaining 33.3% of e.Volve on October 19,1999, through an extension of our
original offer. This purchase was settled through an issuance of 5,831,253
shares of our common stock.
On November 19, 1999, we issued 2,500 shares of Series B Convertible Preferred
Stock and on November 26, 1999, we issued 3,725 shares of Series B Convertible
Preferred Stock, both at a price of $1,000 per share. The par value of both
classes of shares is $0.00002. The shares are convertible to Common Stock at a
price of $13.80 per share, subject to normal anti-dilution adjustments. The
conversion price was determined using the average of the closing bid price per
share of our Common Stock for the 10 trading days ended October 29, 1999. These
shares convert to our Common Stock on the second anniversary of date of issue.
On November 30, 1999, we terminated our marketing agreement with Corpovision. We
settled our liability to Corpovision and terminated the agreement through an
issue of 137,500 shares of eVentures' Common Stock. As a result, we will record
a charge in the statement of operations of approximately $1.1 million in
November, 1999 for the difference between the value of the shares issued and the
book value of the note payable to Corpovision.
On December 15, 1999, we issued and sold 775 shares of our Series B Convertible
Preferred Stock to an aggregate of 14 investors for $775,000 at a price of
$1,000 per share. The par value of both classes of shares is $0.00002. The
shares are convertible to Common Stock at a price of $13.80 per share, subject
to normal anti-dilution adjustments. The conversion price was determined using
the average of the closing bid price per share of our common stock for the 10
trading days ended October 29, 1999. These shares convert to our Common Stock on
the second anniversary of date of issue.
The preferred stock issued on November 19, 1999, November 26, 1999 and
December 15, 1999 were issued at a discount to the market value of our common
stock into which it is convertible. We will recognize this discount by
accounting for it as an imputed preferred dividend of $1.1 million in our second
quarter.
EFFECTS OF INFLATION
Management does not believe that its business is impacted by inflation to a
significantly different extent than is the general economy. However, there can
be no assurances that inflation will not have a material effect on the Company's
operations in the future.
13
<PAGE> 14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to the impact of political instability, foreign currency,
and other risks.
Political Instability Risks. We have relationships with foreign suppliers in
Mexico, India, Syria, Sri Lanka and other countries. We have not experienced any
negative economic consequences as a result of relationships with foreign
suppliers in these countries, but we may be negatively affected should political
instability in any of these countries develop.
Foreign Currency Risks. Since the agreements we have entered into with foreign
suppliers in Syria, India, Sri Lanka and other countries are denominated in U.S.
dollars, we are not exposed to risks associated with fluctuations in these
foreign currencies. However, because our agreements with Mexican suppliers are
denominated in Mexican pesos, we may be exposed to fluctuations in Mexican
pesos, as well as to downturns in the Mexican economy, all of which may affect
profitability. During the period ended September 30, 1999, substantially all of
our termination costs in Mexico were denominated in Mexican pesos.
Other Market Risks. We are also exposed to potential risks in dealing with
foreign suppliers in foreign countries associated with potentially weaker
protection of intellectual property rights, unexpected changes in regulations
and tariffs, and varying tax consequences.
<PAGE> 15
PART II
Item 1. Legal Proceedings
We are involved in legal proceedings from time to time, none of which
management believes, if decided adversely against us, would have a material
adverse effect on the business, financial condition or results of operations
of our Company.
Item 2. Changes in Securities
In the past four months, we have issued and sold unregistered securities in
the transactions described below.
On September 22, 1999, in connection with our reorganization, we issued and
sold:
(i) an aggregate of 14,562,193 shares of common stock to IEO Investments,
Limited and Infinity Emerging Subsidiary Limited as merger
consideration for all of the equity interests in IEO Holdings Limited;
(ii) an aggregate of 6,381,000 shares of common stock to certain
shareholders of AxisTel in exchange for the outstanding shares of
capital stock of AxisTel not owned by IEO Holdings Limited; and
(iii) 5,682,807 shares of common stock to Infinity Investors Limited in
exchange for shares of capital stock of e.Volve representing
approximately one-third of the outstanding capital stock of e.Volve.
The issuance of such shares was exempt from the registration requirements of
the Securities Act pursuant to Rule 506 of Regulation D promulgated pursuant to
the Securities Act. No general solicitations were made in connection with this
transaction, and three accredited, eight non-accredited and three foreign
investors participated in this transaction. All non-accredited investors were
represented in connection with this transaction by purchaser representatives.
On September 28, 1999, we issued and sold 1,000 shares of Series A
Convertible Preferred stock to an accredited investor for $1.0 million in a
transaction exempt from the registration requirements of the Securities Act
pursuant to Rule 506 of Regulation D promulgated pursuant to the Securities Act.
No general solicitations were made in connection with this transaction.
On September 28, 1999, we issued and sold an aggregate of 2,470,000 shares
of common stock to 25 investors for $4.9 million in a transaction exempt from
the registration requirements of the Securities Act pursuant to Rule 506 of
Regulation D promulgated pursuant to the Securities Act. No general
solicitations were made in connection with this transaction, and only accredited
investors participated in this transaction.
On October 14, 1999, we issued 239,229 shares of our common stock to
Avantel S.A. to settle accounts payable due to Avantel in the amount of $3.2
million in a transaction exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) of the Securities Act. These shares
were issued for consideration of $13.125 per share, which was 75% of the
closing price of our common stock on the date of issuance, and which
represented the fair market value of our common stock. The price per share was
determined following negotiations with Avantel.
On October 19, 1999, in connection with our reorganization, we issued and
sold an aggregate of 5,831,253 shares to 27 shareholders of e.Volve in exchange
for the outstanding shares of capital stock of e.Volve not owned by eVentures in
a transaction exempt from the registration requirements of the Securities Act
pursuant to Rule 506 of Regulation D under the Securities Act. No general
solicitations were made in connection with this transaction, and 22 accredited
and 5 non-accredited investors participated in this transaction. All
non-accredited investors were represented in connection with this transaction by
purchaser representatives.
On November 19, 1999, we issued and sold 2,500 shares of our Series B
preferred stock to an accredited investor for $2.5 million in a transaction
exempt from the registration requirements of the Securities Act pursuant to Rule
506 of Regulation D under the Securities Act. No general solicitations were made
in connection with this transaction.
On November 26, 1999, we issued and sold 3,725 shares of our Series B
preferred stock to an accredited investor for $3.7 million in a transaction
exempt from the registration requirements of the Securities Act pursuant to Rule
506 of Regulation D under the Securities Act. No general solicitations were made
in connection with this transaction.
On November 30, 1999, we issued 137,500 shares of our common stock to
Corpovision, S.A. to settle a note payable due to Corpovision in the amount of
$1.1 million in a transaction exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) of the Securities Act. These shares were
issued for consideration of $8.00 per share, which was below the market price of
our common stock on the date of issuance. We took a charge of $2.2 million
during our second fiscal quarter in connection with this transaction. The price
per share was determined following negotiations with Corpovision.
On December 15, 1999, we issued and sold 775 shares of our Series B
preferred stock to an aggregate of 14 accredited investors for $775,000 in a
transaction exempt from the registration requirements of the Securities Act
pursuant to Rule 506 of Regulation D promulgated pursuant to the Securities Act.
No general solicitations were made in connection with this transaction.
On December 21, 1999, we issued 200,000 shares of our common stock upon
conversion of 1,000 shares of our Series A preferred stock in a transaction
exempt from the registration requirements of the Securities Act pursuant to
Section 3(a)(9) of the Securities Act.
14
<PAGE> 16
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) The exhibit listed in the accompanying Index to Exhibits are filed as
part of this Report on Form 10-Q.
(b) Reports on 8-K
1) On October 7, 1999, the Company filed a report on Form 8-K
announcing that it had acquired (i) all of the outstanding
shares of AxisTel, (ii) approximately two-thirds of the
outstanding shares of e.Volve and (iii) approximately 17% of the
outstanding shares of i2v2.com Inc. pursuant to the
Reorganization.
2) On November 3, 1999, the Company filed a report on Form 8-K
announcing that on October 19, 1999 it had acquired the
remaining one-third interest of e.Volve, making e.Volve a wholly
owned subsidiary of the Company.
3) On December 7, 1999, the Company filed a report on Form 8-K/A
which amends the Form 8-K previously filed on October 7, 1999.
The Form 8-K/A reported that the Company was unable to provide
historical financial information statements and pro forma
financial information statements as of December 6, 1999 as was
previously planned, but anticipated filing the historical
financial information statements and pro forma financial
information statements on or prior to December 9, 1999.
4) On December 9, 1999, the Company filed a report on Form 8-K/A
which amends the Form 8-K previously filed on October 7, 1999,
as later amended on December 7, 1999. The Form 8-K/A filed on
December 9, 1999 included the historical financial information
statements and pro forma financial information statements, as
well as unaudited financial statements of the Company as of
September 30, 1999 and for the three months ended September 30,
1999 and September 30, 1998.
15
<PAGE> 17
5) On December 14, 1999, the Company filed a report on Form 8-K
announcing that (i) it had engaged BDO Seidman LLP at its
auditors and dismissed Larry O'Donnell, C.P.A. as of December 9,
1999 and (ii) it had changed its fiscal year end date from April
30, 1999 to June 30, 1999.
6) On December 20, 1999, the Company filed a report on Form 8-K/A
which amends the financial statements reported in the December
9, 1999 Form 8-K/A.
7) On December 28, 1999, the Company filed a report on Form 8-K/A
which amends the Form 8-K filed on December 14, 1999 in order to
provide the letter addressed to the Securities and Exchange
Commission by the Company's former accountant required pursuant
to Item 304 of Regulation S-K.
16
<PAGE> 18
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES AND EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
eVENTURES GROUP, INC.
Date: March 8, 2000 By: /s/ Barrett N. Wissman
----------------------------------------
Barrett N. Wissman President and
Chief Executive Officer
Date: March 8, 2000 By: /s/ John Stevens Robling Jr.
----------------------------------------
John Stevens Robling Jr. Chief
Financial Officer
17
<PAGE> 19
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMPANY'S CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 199 AND THE
STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 5,462,745
<SECURITIES> 0
<RECEIVABLES> 1,438,979
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,822,871
<PP&E> 8,553,789
<DEPRECIATION> 1,206,014
<TOTAL-ASSETS> 41,392,635
<CURRENT-LIABILITIES> 14,225,296
<BONDS> 0
0
0
<COMMON> 788
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 41,392,635
<SALES> 8,675,719
<TOTAL-REVENUES> 8,675,719
<CGS> 8,729,520
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,816,032
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 519,231
<INCOME-PRETAX> (3,312,319)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,312,319)
<EPS-BASIC> 0.20
<EPS-DILUTED> 0.20
</TABLE>
