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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 000-23087
------------------------
STARTEC GLOBAL COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 52-2099559
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1151 SEVEN LOCKS ROAD
POTOMAC, MD 20854
(Address of principal executive (Zip Code)
offices)
(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.
SHARES OUTSTANDING
TITLE OF CLASS: AS OF MAY 14, 2001
--------------- ------------------
Common Stock, par value $0.01 per share 16,554,156
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STARTEC GLOBAL COMMUNICATIONS CORPORATION
FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 2001
INDEX
PAGE
--------
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (unaudited)
Condensed Consolidated Statements of Operations for the
three months ended March 31, 2001 and 2000................ 3
Condensed Consolidated Balance Sheets as of March 31, 2001,
and December 31, 2000..................................... 4
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 2001 and 2000................ 5
Notes to Condensed Consolidated Financial Statements........ 6-12
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 13-18
ITEM 3. Quantitative and Qualitative Disclosures about Market
Risk...................................................... 19
PART II. OTHER INFORMATION AND SIGNATURE............................. 20-22
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)
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------
2001 2000
--------- ---------
Net revenues................................................ $ 64,966 $ 77,376
Cost of services............................................ 54,354 62,890
-------- --------
Gross margin.............................................. 10,612 14,486
General and administrative expenses......................... 15,721 15,401
Selling and marketing expenses.............................. 887 3,628
Depreciation and amortization............................... 6,226 2,574
-------- --------
Loss from operations........................................ (12,222) (7,117)
Interest expense............................................ (8,060) (5,996)
Interest income............................................. 180 950
Equity in losses from affiliates............................ -- (13)
-------- --------
Net loss.................................................... $(20,102) $(12,176)
======== ========
Basic and diluted loss per common share..................... $ (1.23) $ (1.05)
======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
MARCH 31, DECEMBER 31,
2001 2000
----------- ------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................... $ 6,031 $ 14,875
Accounts receivable, net of allowance for doubtful accounts
of $18,518 and $16,809, respectively...................... 62,149 51,411
Accounts receivable, related party.......................... 100 265
Other current assets........................................ 9,337 8,695
--------- ---------
Total current assets.................................... 77,617 75,246
Property and equipment, net of accumulated depreciation and
amortization
of $29,058 and $24,366, respectively...................... 121,279 123,843
Restricted cash and pledged securities...................... 9,991 9,859
Investments in affiliates................................... 5,539 5,539
Intangible assets, net of accumulated amortization of $4,239
and $1,949, respectively.................................. 30,382 32,235
Other long-term assets...................................... 7,040 7,288
--------- ---------
$ 251,848 $ 254,010
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable............................................ $ 85,782 $ 70,777
Accrued expenses............................................ 20,856 17,098
Credit facility............................................. 25,306 25,187
Vendor financing............................................ 49,198 50,844
Capital lease obligations................................... 318 334
--------- ---------
Total current liabilities............................... 181,460 164,240
Senior notes, net of discount............................... 158,496 158,444
--------- ---------
Total liabilities....................................... 339,956 322,684
Commitments and contingencies
STOCKHOLDERS' DEFICIT:
Common stock, $0.01 par value; 40,000,000 shares authorized,
16,554,156 and 16,365,656 shares issued and outstanding,
respectively.............................................. 166 164
Additional paid-in capital.................................. 133,729 133,526
Unearned compensation....................................... (115) (131)
Accumulated deficit......................................... (220,744) (200,642)
Accumulated other comprehensive loss........................ (1,144) (1,591)
--------- ---------
Total stockholders' deficit............................. (88,108) (68,674)
--------- ---------
$ 251,848 $ 254,010
========= =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------
2001 2000
--------- ---------
OPERATING ACTIVITIES:
Net loss.................................................... $(20,102) $(12,176)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 6,226 2,574
Amortization of deferred debt financing costs and debt
discounts............................................... 358 213
Other non-cash adjustments................................ 668 66
Changes in operating assets and liabilities, net of
acquisition effects:
Accounts receivable, net.................................. (10,385) (148)
Accounts receivable, related party........................ 165 (174)
Accounts payable.......................................... 15,005 (362)
Accrued expenses.......................................... 3,758 8,658
Other..................................................... (808) (209)
-------- --------
Net cash used in operating activities................... (5,115) (1,558)
-------- --------
INVESTING ACTIVITIES:
Acquisitions................................................ -- (9,629)
Purchases of property and equipment......................... (591) (11,256)
-------- --------
Net cash used in investing activities................... (591) (20,885)
-------- --------
FINANCING ACTIVITIES:
Proceeds from vendor financing.............................. -- 6,447
Proceeds from credit facilities............................. 6,791 48,600
Payment of debt financing costs............................. -- (150)
Repayments of credit facilities............................. (6,730) (55,524)
Repayments of vendor financing.............................. (3,183) (1,438)
Repayments of capital lease obligations..................... (16) (174)
-------- --------
Net cash used in financing activities................... (3,138) (2,239)
-------- --------
Decrease in cash and cash equivalents....................... (8,844) (24,682)
Cash and cash equivalents, beginning of the period.......... 14,875 54,731
-------- --------
Cash and cash equivalents, end of the period................ $ 6,031 $ 30,049
======== ========
Supplemental disclosure of cash flow information:
Interest paid............................................... $ 2,496 $ 173
Equipment financed by capital leases........................ $ 1,537 $ --
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
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, 2000.
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
March 31, 2001, and the results of their operations and their cash flows for the
three months ended March 31, 2001 and 2000. 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.
ORGANIZATION
Startec is a facilities-based provider of Internet Protocol ("IP")
communication services, including voice, data and Internet access. Founded as a
corporation in 1989, the Company markets its services to ethnic businesses,
ethnic residential communities located in major metropolitan areas,
international long distance carriers and Internet service providers transacting
with the world's emerging economies. The Company's mission is to become a
leading provider of IP communication services, including voice, data and
Internet services. The Company's target markets are comprised of businesses and
ethnic residential customers that transact with the Asia Pacific Rim, the Middle
East and North Africa, Russia and Central Europe and Latin and South America.
The Company provides services through a flexible network of owned and leased
facilities, operating and termination agreements, and resale arrangements. The
Company has an extensive network of IP gateways, international gateways,
domestic switches, and ownership in undersea fiber optic cables.
GOING CONCERN AND OTHER RISK FACTORS
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 each of
the last three years. These losses and negative cash flows are expected to
continue in the future. During the first quarter of 2001, the Company
substantially reduced its work force and consolidated its administrative
functions previously located in Bethesda, Maryland to the Company's operations
center in Potomac, Maryland. Additionally, the Company has consolidated its
North American and European operations and curtailed its operations in Europe
and Hong Kong. Although these reductions in force resulted in severance and
other termination costs in the first quarter of 2001, management believes these
actions will result in significant cost savings during the second half of 2001.
Additionally, management has substantially curtailed capital expenditures in
2001. However, there can be no assurance that the Company's operations will
become profitable or will produce positive cash flows. As of March 31, 2001, the
Company's current liabilities were in excess of current assets by approximately
$103.8 million due in part to the current classification of approximately
$75 million of debt outstanding under its credit facilities and vendor financing
agreements.
In April 2001, the Company entered into a 24 month accounts receivable
purchase facility transaction with Allied Capital Corporation ("Allied"),
resulting in net proceeds of approximately
6
$7.375 million after paying certain loan payments, prepayments and a commitment
fee to NTFC Capital Corporation ("NTFC") (See Note 9). If the Company cannot
raise additional financing or restructure its Senior Notes, it is unlikely that
the Company will be able to make its November 2001 interest payment on the
Company's Senior Notes.
The Company is in discussions with its lenders to obtain additional debt
financing and with holders of its senior notes to restructure the indebtedness
outstanding under the Senior Notes. There can be no assurance that such new
financing will be available on terms the Company finds acceptable or at all, or
that management will be able to restructure the Senior Notes. In the event that
the Company is unable to obtain such additional financing or restructure the
Senior Notes, it will be required to further limit or curtail its operations,
and the Company may resort to selling assets to the extent permitted by its debt
facilities. Even with such reductions, management believes that if the Company
cannot restructure the terms of the Senior Notes or raise additional financing,
it is unlikely that the Company will make the November 2001 interest payment.
Furthermore, if the Company cannot restructure the Senior Notes, there will be a
material and adverse effect on the financial condition of the Company, to the
extent that a restructuring, sale or liquidation of the Company will be required
in whole or in part. The above factors raise substantial doubt about the
Company's ability to continue as a going concern. The accompanying financial
statements have been prepared on the basis that the Company will continue as a
going concern. The financial statements do not include any adjustments relating
to the recoverability and classification of asset carrying amounts or the amount
and classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
As part of management's plan to improve operating performance, the Company
eliminated its circuit switched traffic in the first quarter of 2000, which
accounted for approximately $143 million of the Company's 2000 net revenues. The
Company's plan is to generate more traffic for its own IP network with a goal of
generating higher margins. While there can be no assurance that higher gross
margins can be achieved, the Company may experience a decrease in net revenues.
The Company is subject to various risks in connection with the operation of
its business. These risks include, but are not limited to, the increasing cost
of financing and difficulties in obtaining needed financing, our ability to
restructure our Senior Notes or other indebtedness and to meet our obligations
under existing indebtedness, substantial foreign governmental control of
national telecommunications companies, our ability to regain favorable carrier
rates which were recently suspended, difficulty and expense in obtaining and
maintaining foreign and domestic licenses and other governmental or regulatory
approvals, the risk of litigation in connection with the contents of our
Internet portal, our strategy of focusing on business customers and migrating
entirely to the IP network, the Company's ability to integrate and manage
acquired technology, companies, assets and personnel, changes in market
conditions, the volatile and intensely competitive environment in the
telecommunications and internet industries, dependence on call termination
agreements, entry into new and developing markets, competition, the
international telecommunications industry, dependence on operating agreements
with foreign partners, reliance on third parties to provide the Company with
technology, infrastructure and content, dependence on a few 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, the expansion of the global network
and the Company's dependence on key and scarce employees in a competitive market
for skilled personnel.
In the United States, the Federal Communications Commission ("FCC") and
relevant state Public Service Commissions have the authority to regulate
interstate and intrastate telephone service rates, respectively, ownership of
transmission facilities, and the terms and conditions under which the Company's
services are provided. Legislation that substantially revised the U.S.
Communications Act of 1934 was signed into law on February 8, 1996. This
legislation has specific guidelines under which the Regional Bell Operating
Companies ("RBOCs") can provide long-distance services, which will permit
7
the RBOCs to compete with the Company in providing domestic and international
long-distance services. Further, the legislation, among other things, opens
local service markets to competition from any entity (including long-distance
carriers, cable television companies and utilities).
Because the legislation opens the Company's markets to additional
competition, particularly from the RBOCs, the Company's ability to compete may
be adversely affected. Moreover, certain Federal and other governmental
regulations may be amended or modified, and any such amendment or modification
could have material adverse effects on the Company's business, results of
operations, and financial condition.
The Company has also received correspondence from several trade creditors
concerning the timing of payment of past due accounts payable balances. All
amounts are recorded as current liabilities in the March 31, 2001, balance
sheet. The Company is in discussions with these vendors regarding the resolution
of certain disputes related to the charges and the timing of payments.
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 months ended
March 31, 2001 and 2000 (in thousands):
FOR THE THREE
MONTHS ENDED
MARCH 31,
-------------------
2001 2000
-------- --------
Weighted average common shares outstanding-basic............ 16,399 11,615
Stock option and warrant equivalents........................ -- --
------ ------
Weighted average common and equivalent shares
outstanding-basic/diluted................................. 16,399 11,615
====== ======
Options and warrants to purchase an aggregate of approximately 2,910,000 and
2,480,000 shares of common stock were excluded from the computation of diluted
loss per common share in 2001 and 2000, respectively, because inclusion of these
options and warrants would have an anti-dilutive effect on loss per common
share.
3. LONG-LIVED ASSETS
Long-lived assets, including property and equipment, identifiable intangible
assets to be held and used and goodwill, are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of the
assets may not be recoverable. To determine recoverability of its long-lived
assets, the Company evaluates the probability that future undiscounted net cash
flows will be less than the carrying amount of assets. If future estimated
undiscounted net cash flows are less than the carrying amounts of long-lived
assets, then such assets are written down to their fair value. The Company
considers expected cash flow and estimated future operating results, trends, and
other available information in assessing whether the carrying value of the
assets is impaired.
The Company's estimates of anticipated gross revenues, the remaining
estimated lives of tangible and intangible assets, or both, could be reduced
significantly in the future due to changes in technology,
8
regulation, available financing, or competitive pressures. As a result, the
carrying amounts of long-lived assets would be reduced materially in the future.
In the first quarter of 2001, the Company reevaluated the useful lives of
its goodwill arising from acquisitions. Previously, goodwill had been amortized
on a straight-line basis over 20 years. Based on market conditions arising
subsequent to these acquisitions, the Company has changed the amortizable lives
of goodwill to 5 years. This change will be applied to the current and future
financial statements prospectively in accordance with the Accounting Principals
Board Opinion No. 20, "ACCOUNTING CHANGES" ("APB 20"). The effect of this change
in estimate was an increase in net loss of approximately $1.5 million or $0.09
per common share for the three months ended March 31, 2001.
4. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative and Hedging Activities" ("SFAS No. 133"),
which establishes accounting and reporting standards for derivative instruments
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives), and for hedging activities. SFAS
No. 133, as amended, became effective January 1, 2001. The adoption of SFAS
No. 133 did not have a material effect on the Company's consolidated balance
sheets or statements of operations.
5. BUSINESS SEGMENT DATA
The Company evaluates 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. In the first quarter of
2001, all of the Company's traffic is considered to be IP revenue.
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 expense
is incurred by the North American operations. However, selling, general, and
administrative expense is allocated to all segments based on the total head
count for the Company.
The following table presents revenues and other financial information on a
segmented basis based on region, as of March 31, 2001 and for the three months
ended March 31, 2001 (in thousands):
THREE MONTHS ENDED MARCH 31, 2001
---------------------------------------------
NORTH TOTAL
AMERICA EUROPE ASIA CONSOLIDATED
-------- -------- -------- ------------
Net revenues........................ $ 54,516 $ 9,095 $ 1,355 $ 64,966
Gross margin........................ 8,005 1,975 632 10,612
Selling, marketing, general and
administrative expense............ 9,961 5,036 1,611 16,608
EBITDA.............................. (1,956) (3,061) (979) (5,996)
Depreciation and amortization
expense........................... 5,524 478 224 6,226
Interest expense.................... 7,757 303 -- 8,060
Interest income..................... 172 -- 8 180
Fixed assets, gross................. 124,263 9,932 16,142 150,337
Total assets........................ $212,117 $20,549 $19,182 $251,848
9
The following table presents revenues and other financial information on a
segmented basis based on region as of March 31, 2000 and for the three months
ended March 31, 2000 (in thousands):
THREE MONTHS ENDED MARCH 31, 2000
---------------------------------------------
NORTH TOTAL
AMERICA EUROPE ASIA CONSOLIDATED
-------- -------- -------- ------------
Net revenues........................ $ 70,260 $ 5,394 $ 1,722 $ 77,376
Gross margin........................ 12,339 1,648 499 14,486
Selling, marketing, general and
administrative expense............ 11,108 5,696 2,225 19,029
EBITDA.............................. 1,231 (4,048) (1,726) (4,543)
Depreciation and amortization
expense........................... 2,371 9 194 2,574
Interest expense.................... 5,996 -- -- 5,996
Interest income..................... 901 35 14 950
Fixed assets, gross................. 99,118 8,595 11,613 119,326
Total assets........................ $279,904 $15,745 $13,413 $309,062
6. DEBT
Debt consists of the following (in thousands):
MARCH 31 DECEMBER 31
2001 2000
-------- -----------
Senior Notes, with a rate of 12% due May 2008............... $160,000 $160,000
NTFC Financing Agreement, with a weighted average rate of
10.2%, maturing January 2004 through May 2005............. 43,275 45,937
IBM Financing Agreement, with a weighted average rate of
11.8%, maturing 2003...................................... 1,627 1,697
Ascend Financing Agreement, with a rate of 8.5%, maturing
October 2003.............................................. 1,617 1,762
Allied Financing Agreement, with a rate of 15%, maturing
June 2005................................................. 19,406 19,348
Coast Facility Agreement at the prime rate plus 3.5%, with a
floor of 9%, maturing November 2002....................... 5,900 5,839
Notes payable to individuals and other...................... 679 679
Capital lease and other obligations......................... 2,318 1,103
-------- --------
234,822 236,365
Less: debt discounts on Senior Notes........................ (1,504) (1,556)
Less: current portion....................................... (74,822) (76,365)
-------- --------
$158,496 $158,444
======== ========
CURRENT CLASSIFICATION OF AMOUNTS OUTSTANDING UNDER VENDOR AND CREDIT FACILITIES
The Company has classified amounts outstanding under its vendor and credit
facilities as current in the accompanying condensed consolidated financial
statements due to noncompliance with certain financial and other covenants under
the agreements or due to the subjective nature of certain covenants. If the
respective lenders were to demand payment for such borrowings outstanding, it is
unlikely that the Company would have the available resources to make such
payments at this time.
10
7. COMPREHENSIVE LOSS
The total of net loss and all other non-owner changes in equity consists of
the following for the three months ending March 31, 2001 and 2000 (in
thousands):
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------
2001 2000
--------- ---------
Net loss................................................ $(20,102) $(12,176)
Other comprehensive loss:
Foreign currency translation adjustment................. 447 (315)
-------- --------
Comprehensive loss...................................... $(19,655) $(12,491)
======== ========
8. LITIGATION
On January 23, 2001, the Company gave notice to Capsule Communications, Inc.
("Capsule") that Capsule had breached the terms of the merger agreement entered
into on November 2, 2000 among the Company, Capsule, Gold & Appel Transfer, S.A.
and Foundation for the International Nongovernmental Development of Space. On
January 25, 2001, Capsule issued a press release stating that it had terminated
the merger agreement. On March 12, 2001, the Company, Capsule, Gold & Appel and
Foundation for the International Nongovernmental Development of Space announced
that they had resolved all issues resulting from the termination of the merger
agreement. In connection with the termination of the merger agreement, the
Company agreed to make a series of payments to Capsule over several months in
2001 for an aggregate of approximately $400,000. In March 2000, the Company paid
$100,000 in connection with this settlement.
From time to time the Company is involved in litigation incidental to the
conduct of business. Startec is 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.
9. SUBSEQUENT EVENTS
On April 5, 2001, the Company received written notification from the Nasdaq
Listing Qualifications Department, stating that the Company's common stock no
longer met certain requirements for continued listing on the Nasdaq National
Market. As permitted under Nasdaq's rules, the Company has appealed the
delisting determination. The Company's request for an appeal will suspend the
delisting process pending a decision by the Nasdaq Listing Qualifications Panel.
The Company has been granted a hearing before the Nasdaq Listing Qualifications
Panel on May 24, 2001. There can be no assurance that the Company's appeal will
be successful. If the common stock is delisted from Nasdaq, the Company intends
to seek participation in the NASD OTC Bulletin Board. The Company does not
believe it will be eligible to list its securities on the Nasdaq Small Cap
Market should the securities be delisted from the Nasdaq National Market.
In April 2001, two of the wholly owned subsidiaries of the Company, Startec
Global Operating ("Operating") Company and Startec Global Licensing Company
("Licensing"), together borrowed an aggregate of $20 million from Allied. These
funds were distributed to the parent. The proceeds were used to repay the parent
company's outstanding indebtedness under the Allied Facility. As a result, the
parent company no longer has any indebtedness to Allied, but Operating and
Licensing are jointly indebted to Allied for $20 million, $10 million of which
is secured by their accounts receivable and $10 million of which is unsecured.
This indebtedness bears interest at a fixed rate of 15% per annum, payable
semi-annually in arrears, at the fixed rate of 10% per annum. A balloon payment
is due at maturity in 2005, but the indebtedness may be prepaid at any time
without penalty. In addition, the
11
Company is subject to certain financial and operational covenants, including
limitations on its ability to incur additional indebtedness.
In addition, Operating and Licensing entered into a 24 month revolving
accounts-receivable purchase facility with Allied, resulting in net proceeds of
approximately $14.3 million, approximately $7.625 million of which was used to
pay NTFC overdue loan payments, prepayments and a commitment fee of $125,000.
The proceeds of this purchase facility may be used for general corporate
purposes including payments to NTFC as described below. Under the purchase
facility, Allied purchased an interest in the accounts receivable of Operating
and Licensing. The annual discount rate payable with respect to the purchase
price is 16%. During the 24-month term of the facility, Allied is obligated to
use proceeds from collection of the accounts receivable to purchase additional
interests in other accounts receivable up to a maximum aggregate amount of
$15 million, assuming that the Company remains in compliance with the financial
and other covenants pursuant to this facility.
In conjunction with the restructuring of the Allied indebtedness described
above, the Company amended it's credit facility with NTFC. Pursuant to the
amendment, NTFC agreed to waive certain defaults and revise certain financial
covenants. In connection with this amendment, the Company paid NTFC
$7.5 million in overdue loan payments and prepayments and a $125,000 commitment
fee. The Company also agreed to issue NTFC a stock purchase warrant to purchase
25,000 shares of voting stock upon any restructuring of the Senior Notes.
12
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 our
expectation that the recent Allied funding will allow us to remain funded
through the third quarter of 2001, expected growth in earnings, EBITDA, revenue
and gross margin, expected decreases in operating expenses, our exposure to
interest-rate risk, our expectation regarding our ability to consummate future
acquisitions and any restructuring of our Senior Notes or other outstanding
indebtedness, our ability to meet our obligations to pay interest and fees and
repay the principal on our indebtedness, the necessity for and expected
availability of additional financing and our ability to remain listed on Nasdaq
or to be included on the NASD OTC Bulletin Board. 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, the increasing cost of financing and difficulties in obtaining
needed financing, our ability to restructure our Senior Notes or other
indebtedness and to meet our obligations under existing indebtedness,
substantial foreign governmental control of national telecommunications
companies, our ability to regain favorable carrier rates which were recently
suspended, difficulty and expense in obtaining and maintaining foreign and
domestic licenses and other governmental or regulatory approvals, the risk of
litigation in connection with the contents of our Internet portal, our strategy
of focusing on business customers and migrating entirely to the IP network, our
ability to integrate and manage acquired technology, companies, assets and
personnel, changes in market conditions, the volatile and intensely competitive
environment in the telecommunications and internet industries, dependence on
call termination agreements, 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, dependence on a few 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, the expansion of the global network
and our dependence on key and scarce employees in a competitive market for
skilled personnel. 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 facilities-based provider of Internet protocol communication
services, including voice, data and Internet access. Founded as a corporation in
1989, we market our services to ethnic businesses, ethnic residential
communities located in major metropolitan areas, international long distance
carriers and Internet service providers transacting with the world's emerging
economies. Our mission is to become a leading provider of IP communication
services, including voice, data and
13
Internet services. Our target markets are comprised of businesses and ethnic
residential customers that transact with the Asia Pacific Rim, the Middle East
and North Africa, Russia and Central Europe and Latin and South America. We
provide our services through a flexible network of owned and leased facilities,
operating and termination agreements, and resale arrangements. We have an
extensive network of IP gateways, international gateways, domestic switches, and
ownership in undersea fiber optic cables.
Beginning in the fourth quarter of 2000, we began to modify our business
plan. The revised plan calls for a restructuring that includes 1) consolidation
of selected North American and European operations, 2) accelerated migration of
circuit switched traffic to our IP network, 3) the discontinuation of
unprofitable, low-margin business lines and 4) implementation of certain cost
reduction procedures. Implementation of this plan commenced in the first quarter
of 2001. We believe these actions, combined with our recent financing
transaction as described below, position us to become EBITDA positive during
2001.
During 2000, and in the first quarter of 2001, we eliminated approximately
400 positions globally. This number represents approximately 45% of our total
workforce. The consolidation of operations represents approximately half of the
positions we eliminated. A significant portion of this reduction related to our
decision to shift our residential customer service operations from Bethesda,
Maryland to Vancouver, Canada, where we already operate a call center facility.
Last year, we established our Vancouver presence through the acquisition of
Vancouver Telephone Company. Vancouver's diverse ethnic population provides a
large pool of highly qualified potential employees to serve as in-language
customer service representatives, and we believe the shift will allow us to take
advantage of lower personnel costs and overhead. We plan to use our Bethesda
call center facilities to provide customer service support for our managed
network services targeting business customers. We also intend to continue our
call center operations in Guam, France and Germany.
We are also consolidating our UK, France, Germany and Poland operations to
focus on the development of our European business customer base. Germany will
become the headquarters for our European customer service operations. We plan to
have Startec UK, France and Germany discontinue non-profitable product lines and
focus on growing our existing profitable product line and increasing penetration
into the business customers segment.
In 2000, we began eliminating the low margin circuit switched wholesale
business to focus on the higher margin VoIP business. We have successfully
transitioned all traffic to our IP network. We believe this transition should
result in a reduction of interconnect charges and we expect this will also free
up port capacity for business customers without significant increases in capital
expenditures. Our strategy is to increase our focus on business customers, who
generally have higher monthly revenue, generate higher margins and tend to
"churn" less frequently than residential customers.
We prepay many of our foreign IP routes in order to obtain the least cost
routes. This is a standard industry-wide practice. We experienced a significant
delay in the timing of the funding transaction consummated with Allied Capital
Corporation ("Allied") which we anticipated to close in the middle of the first
quarter but did not close until April 2001. As a result, we were unable to
prepay many of these favorable IP routes and lost our capacity on those routes.
We are now actively seeking to secure these lost routes. The loss of these
routes in the first quarter had a negative impact on our gross margins.
On April 5, 2001, we received written notification from the Nasdaq Listing
Qualifications Department, stating that our common stock no longer met the
listing requirement of the Nasdaq National market. As permitted under Nasdaq's
rules, we have appealed the delisting determination. Our request for an appeal
will suspend the delisting process pending a decision by the Nasdaq Listing
Qualifications Panel. We have been granted a hearing before the Nasdaq Listing
Qualifications Panel on May 24, 2001. There can be no assurance that this appeal
will be successful. We do not believe we
14
will be eligible to list our common stock on the Nasdaq Small Cap Market should
it be delisted from the Nasdaq National Market. If our common stock is delisted
from Nasdaq, we intend to seek participation on the NASD OTC Bulletin Board.
LIQUIDITY AND CAPITAL RESOURCES
We had approximately $6.0 million of unrestricted cash and cash equivalents
and an additional $10.0 million of restricted cash and pledged securities as of
March 31, 2001. We obtained $15 million in new funding from Allied, one of our
existing creditors, in April 2001. The transaction is structured as a
twenty-four month revolving accounts receivable purchase facility. Of the
$15 million, we received net proceeds of $14.3 million, approximately
$7.625 million of which was used to pay NTFC Capital Corporation overdue loan
payments, prepayments and a commitment fee of $125,000. Based on our internal
projections, we expect this new funding will allow us to remain funded through
the third quarter of 2001. However, should market conditions deteriorate and
credit further contract, creating new and unforeseen pressures on working
capital, there can be no assurances that we will have enough funding to continue
operations through the third quarter of 2001. These uncertainties could also
adversely impact our ability to be EBITDA positive in 2001.
Currently, there is no availability under our credit facility with NTFC. If
we are unable to restructure our Senior Notes, we will require additional
financing to meet the November 2001 interest payment on our Senior Notes. We
have classified the outstanding amounts under our credit and vendor facilities
as current due to violation of certain covenants. The above factors raise
substantial doubt about our ability to continue as a going concern. We prepared
our financial statements on the basis that we will continue as a going concern.
The financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might be necessary should we be unable to
continue as a going concern.
In March, 2001, we engaged Jefferies & Company, Inc. ("Jefferies") as our
financial advisor to assist in evaluating alternatives to strengthen our capital
structure, including the potential restructuring of our $160 million, 12% Senior
Notes due 2008. We are also in discussions with other investors to obtain
additional financing. There can be no assurance such new financing will be
available on terms that we find acceptable or that we will be able to
restructure the Senior Notes. In the event that we are unable to obtain such
additional financing and restructure the notes, we will be required to limit or
curtail our operations, and we may be required to sell assets to the extent
permitted by our debt facilities. Even with such reductions, we believe that if
we cannot restructure the terms of the Senior Notes or raise additional
financing, it is unlikely that we will make the November 2001 interest payment.
Furthermore, if we cannot restructure the Senior Notes, there will be a material
and adverse effect on our financial condition, to the extent that a
restructuring, sale or liquidation will be required, in whole or in part.
In connection with our engagement of Jefferies described above, we paid
Jefferies a non-refundable cash fee of $200,000. In addition, we agreed to pay
Jefferies significant additional fees in connection with the services to be
provided under the engagement letter in the future. Under certain circumstances,
we may be required to issue warrants to Jefferies exercisable into shares of our
common stock.
On March 12, 2001, the parties to the Agreement and Plan of Reorganization
dated as of November 2, 2000 among Startec Global Communications Corporation,
Stars Acquisition Corp., Capsule Communications Corporation, Gold & Appel
Transfer, S.A. and Foundation for the International Nongovernmental Development
of Space resolved all issues resulting from the termination of the merger
agreement. To reflect the differences in incurred expenses in the course of the
merger efforts, we agreed to make a series of payments to Capsule over the first
half of 2001 totaling $400,000 in the aggregate. We made the first scheduled
payment of $100,000 in March 2001.
15
In April 2001 two of our wholly owned subsidiaries Startec Global Operating
Company ("Operating") and Startec Global Licensing Company ("Licensing"),
together borrowed an aggregate of $20 million from Allied, which funds were
distributed to the parent company. The proceeds were used to repay outstanding
indebtedness under the Allied Facility. As a result, the parent company no
longer has any indebtedness to Allied, but Operating and Licensing are jointly
indebted to Allied for $20 million, $10 million of which is secured by their
accounts receivable and $10 million of which is unsecured. This indebtedness
bears interest at a fixed rate of 15% per annum, payable semi-annually in
arrears, at the fixed rate of 10% per annum. A balloon payment is due at
maturity in 2005, but the indebtedness may be prepaid at any time without
penalty. In addition, we are subject to certain financial and operational
covenants, including limitations on our ability to incur additional
indebtedness.
In addition, Operating and Licensing entered into a 24 month revolving
accounts-receivable purchase facility with Allied, resulting in net proceeds of
approximately $14.3 million, approximately $7.625 million of which was used to
pay NTFC overdue loan payments, prepayments and a commitment fee of $125,000.
The proceeds of this purchase facility may be used for general corporate
purposes. Under the purchase facility, Allied purchased an interest in the
accounts receivable of Operating and Licensing. The annual discount rate payable
with respect to the purchase price is 16%. During the 24 month term of the
facility, Allied is obligated to use proceeds from collection of the accounts
receivable to purchase additional interests in other accounts receivable up to a
maximum aggregate amount of $15 million, assuming that we remain in compliance
with the financial and other covenants pursuant to this facility.
RESULTS OF OPERATIONS
The following table sets forth certain financial data as a percentage of net
revenues for the periods indicated:
FOR THE THREE
MONTHS ENDED
MARCH 31,
--------------------
2001 2000
-------- --------
Net revenues................................................ 100.0% 100.0%
Cost of services............................................ 83.7 81.3
----- -----
Gross margin.............................................. 16.3 18.7
General and administrative expenses......................... 24.2 19.9
Selling and marketing expenses.............................. 1.4 4.7
Depreciation and amortization............................... 9.6 3.3
----- -----
Loss from operations........................................ (18.9) (9.2)
Interest expense............................................ (12.4) (7.8)
Interest income............................................. 0.3 1.2
----- -----
Net loss.................................................... (31.0)% (15.8)%
===== =====
THREE MONTH PERIOD ENDED MARCH 31, 2001 COMPARED TO THREE MONTH PERIOD ENDED
MARCH 31, 2000
NET REVENUES. Net revenues for the three months ended March 31, 2001
decreased $12.4 million, or 16.0%, to $65.0 million from $77.4 million for the
three months ended March 31, 2000. We were able to transition all of our traffic
onto our IP routes in the first quarter of 2001. Correspondingly, all revenues
are IP revenues for the three months ended March 31, 2001. The overall decrease
in revenues was due to our initiative to eliminate circuit switched carrier
revenues.
16
Net revenues generated by our North American segment decreased
$15.8 million, or 22.5%, to $54.5 million for the three months ended March 31,
2001, from $70.3 million for the same period in 2000. IP revenue for the three
months ended March 31, 2000 was $6.3 million. Circuit switched revenues were
$64.0 million for the same period.
Net revenues generated by our European segment increased $3.7 million, or
68.5%, to $9.1 million for the three months ended March 31, 2001, from
$5.4 million for the same period in 2000. All of the revenues in Europe were
circuit switched for the three months ended March 31, 2000. The overall increase
in revenues was due to our continued expansion of operations in Germany.
Net revenues generated by our Asian segment decreased $0.3 million, or
17.7%, to $1.4 million for the three months ended March 31, 2001, from
$1.7 million for the same period in 2000. All of the revenues in Asia were
circuit switched for the three months ended March 31, 2000.
GROSS MARGIN. Gross margin decreased $3.9 million, or 26.9%, to
$10.6 million, or 16.3% of net revenues, for the three months ended March 31,
2001, from $14.5 million, or 18.7% of net revenues, for the three months ended
March 31, 2000. We prepay many of our foreign IP routes in order to obtain the
least cost routes. This is a standard industry-wide practice. In the first
quarter of 2001, we experienced a significant delay in the timing of the funding
transaction consummated with Allied. The funding was anticipated and needed in
the middle of the first quarter. The funding closed in April 2001 and as a
result, we were unable to prepay many of these favorable IP routes and lost our
capacity on these routes. We are now actively seeking to acquire these lost
routes. The loss of these routes in the first quarter had a negative impact on
our gross margins.
Gross margin for our North American segment decreased $4.3 million, or
35.0%, to $8.0 million, or 14.7% of net revenues, for the three months ended
March 31, 2001, from $12.3 million, or 17.6% of net revenues, for the same
period in 2000.
Gross margin for our European segment increased $0.4 million, to
$2.0 million, or 25.0% of net revenues, for the three months ended March 31,
2001, from $1.6 million for the same period in 2000.
Gross margin for our Asian segment increased $0.1 million, or 20.0%, to
$0.6 million, or 46.6% of net revenues, for the three months ended March 31,
2001, from $0.5 million for the same period in 2000.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for the
three months ended March 31, 2001, increased $0.3 million, or 2.0% to
$15.7 million from $15.4 million for the three months ended March 31, 2000.
General and administrative expenses as a percentage of net revenues
increased to 24.2% for the three months ended March 31, 2001 from 19.9% for the
same period in 2000. The percentage increase was primarily due to the decrease
in net revenues associated with our initiative to eliminate circuit switched
revenues.
SELLING AND MARKETING. Selling and marketing expenses for the three months
ended March 31, 2001 decreased $2.7 million, or 75.0% to $0.9 million from
$3.6 million for the three months ended March 31, 2000.
Selling and administrative expenses as a percentage of net revenues
decreased to 1.4% for the three months ended March 31, 2001, from 4.7% for the
same period in 2000. The decrease is primarily due to our efforts to implement
certain cost reduction procedures.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased $3.6 million, or 138.5%, to $6.2 million for the three months ended
March 31, 2001 from $2.6 million for the same period in 2000. This was primarily
due to increases in capital expenditures pursuant to our strategy of
17
expanding our network infrastructure, acquisitions made during 2000 and the
change in useful lives our goodwill and other intangibles to five years from
20 years.
INTEREST EXPENSE. Interest expense increased $2.1 million, or 35.0%, to
$8.1 million for the three months ended March 31, 2001, from $6.0 million for
the same period in 2000. This was a result of higher balances drawn from several
bank and vendor financing agreements entered into during the second quarter of
2000.
INTEREST INCOME. Interest income decreased $0.8 million, or 80.0%, to
$0.2 million for the three months ended March 31, 2001, from $1.0 million for
the same period in 2000. 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.
NET LOSS. Net loss for the three months ended March 31, 2001 was
$20.1 million or $1.23 per common share compared to a net loss of approximately
$12.2 million or $1.05 per common share for the same period in 2000.
CASH FLOWS
Our liquidity requirements arise from cash used in operating activities,
purchases of network equipment and payments on outstanding indebtedness.
Our cash and cash equivalents decreased to approximately $6.0 million at
March 31, 2001 from approximately $14.9 million at December 31, 2000. Net cash
used by operating activities was approximately $5.1 million for the three months
ended March 31, 2001 and $1.6 million for the same period in 2000. The increase
in cash used in operations was primarily the result of the net loss and an
increase in accounts receivable, which was partially offset by an increase in
accounts payable and accrued expenses.
Net cash used in investing activities was approximately $0.6 million and
$20.9 million for the three months ended March 31, 2001 and 2000, respectively.
Net cash used by financing activities was approximately $3.1 million and
$2.2 million for the three months ended March 31, 2001 and 2000, respectively.
Cash used by financing activities for the three months ended March 31, 2001
primarily resulted from the repayments of vendor and bank financing agreements.
18
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 effect 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 the our investments in cash equivalents, which consist primarily of demand
deposits and money market accounts, and U.S. Government obligations which have
been purchased by us 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 March 31, 2001,
the fair value of the Senior Notes was approximately $9.6 million and the fair
value of the securities pledged to make certain interest payments on the Senior
Notes was approximately $10.0 million. Changes in interest rates also affect our
borrowings under our other financing facilities with NTFC, Allied, IBM, Ascend
and Coast. 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 Coast
facility bears interest at a variable rate equal to the prime rate plus 3.5%
with a floor of 9%.
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 if the size and scope of our
foreign operations increases.
19
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
In March 2001, we issued an additional 185,500 shares of our common stock,
par value $0.01 per share, to the investors who had participated in our
November 2000 private placement. These shares were issued in compensation for
our failure to timely file a registration statement with respect to the resale
of the shares of common stock originally issued in connection with the
November 2000 private placement. The 185,500 shares were issued in a private
transaction to accredited investors exempt from registration under Section 4(2)
of the Securities Act of 1933, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
DEFAULT UNDER NTFC LOAN AND SECURITY AGREEMENT
NTFC Capital Corporation has notified us of certain events of default
arising out of our inability to meet the minimum EBITDA and gross margin
covenants for the quarter ended March 31, 2001. We have amended our loan and
security agreement with NTFC to waive these events of default and change the
time period for satisfaction of certain other covenants.
DEFAULT UNDER ALLIED INVESTMENT AND LOAN AGREEMENTS (SECURED AND UNSECURED)
Allied Capital Corporation has waived a covenant default arising out of our
inability to meet the total liabilities to net revenues annualized covenant for
the quarter ended March 31, 2001.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
Our 2001 Annual Meeting of Stockholders is currently scheduled to be held on
August 1, 2001, which is more than 30 calendar days after the anniversary of our
prior annual meeting. As a result, we have extended the deadline for submission
of stockholder proposals and nominations relating to the 2001 Annual Meeting
beyond the dates specified in last year's proxy statement.
Any stockholder who wishes to submit a proposal for inclusion in our proxy
statement for the 2001 Annual Meeting of Stockholders pursuant to Rule 14a-8
under the Securities Exchange Act of 1934, as amended, must deliver the proposal
on or prior to June 2, 2001.
Any stockholder proposal or nomination submitted outside the processes of
Rule 14a-8 (to be presented at the 2001 Annual Meeting of Stockholders but not
to be included in our proxy statement) will be considered "untimely" unless it
is delivered within 10 days following the date on which we mail this year's
proxy statement.
All such proposals and nominations must be delivered in writing to our
principal executive offices at 1151 Seven Locks Road, Potomac, Maryland 20854
Attention: Secretary, and must otherwise comply with our restated certificate of
incorporation and by-laws and with the rules and regulations of the Securities
and Exchange Commission.
20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
EXHIBIT NUMBER DESCRIPTION
-------------- ------------------------------------------------------------
10.39.3 Third amendment and waiver to loan and security agreement by
and between NTFC Capital Corporation and the Company,
dated as of May 15, 2001.
b. Reports on Form 8-K
On January 26, 2001, we filed a Current Report on Form 8-K with the
Securities and Exchange Commission to disclose that we had notified Capsule
Communications Corporation that it was in breach of the Agreement and Plan
of Reorganization we had entered with Capsule on November 2, 2000.
21
SIGNATURE
Pursuant to the requirements 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 21st day of May 2001.
STARTEC GLOBAL COMMUNICATIONS CORPORATION
By: /s/ PRABHAV V. MANIYAR
-----------------------------------------
CHIEF FINANCIAL OFFICER AND DIRECTOR
(PRINCIPAL FINANCIAL AND ACCOUNTING
OFFICER)
22