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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
eVentures Group, Inc.
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(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 75-2233445
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
One Evertrust Plaza, 8th Floor,
Jersey City, New Jersey 07302
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(Address of Principal Executive Offices) (Zip Code)
201-200-5515
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Registrant's telephone number, including area code
Securities to be registered pursuant to Section 12(g) of the Act:
Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
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Common Stock NASDAQ National Market System
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock
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(Title of Class)
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(Title of Class)
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Explanatory Note:
The financial information and other statistical data contained herein
represent the financial condition and results of operations of (i) e.Volve
Technology Group, Inc. ("e.Volve") for all periods prior to July 1, 1998 and
(ii) 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 30, 1999.
As a result, throughout this Form 10, our financial statements as of any date
and for any period beginning July 1, 1998 and ending on or prior to September
30, 1999 reflect the financial condition and results of operations of e.Volve
Technology Group, Inc., ("e.Volve") as if we had acquired the interest of
Infinity Investors Limited ("IIL"), IEO Investments, Limited ("IEOIL"), and
Infinity Emerging Subsidiary Limited ("IESL") (collectively, 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 i2v2.com,
Inc. ("i2v2.com") and (b) our balance sheet as of September 30, 1999 reflects
the acquisition of Axistel Communications, Inc. ("Axistel"). Financial
information and other data as of any date after September 30, 1999 is financial
information and other data of eVentures Group, Inc. ("eVentures" or the
"Company").
Item 1. Business
COMPANY OVERVIEW
HISTORY OF THE COMPANY; REORGANIZATION TRANSACTION
We are an Internet-based communications services provider and network
company based on Internet Protocol ("IP") and Asynchronous Transfer Mode ("ATM")
technologies. Our business strategy is to focus on operating, developing,
investing in and acquiring businesses that:
o provide communications services to businesses and consumers
using the Internet or Internet-related transmission
infrastructures;
o provide communications products to businesses and consumers to
take advantage of the Internet or Internet-related
transmission infrastructures;
o operate Internet-based or Internet-related communications
networks; and
o supply products or services that support the foregoing
business models such as Internet marketing, Internet
consulting and web design and hosting.
We were originally incorporated in 1987 as "Adina, Inc." We allowed our
corporate existence to lapse in March 1996 and were subsequently reinstated as
"eVentures Group, Inc." in August 1999. From 1987 until the Reorganization, we
were an inactive company. As a result of the Reorganization, our business is now
based on the operations of two wholly owned subsidiaries and strategic
investments in three companies.
The Infinity Entities had made loans to and equity investments in
e.Volve, Axistel and i2v2.com from June 1998 to September 1999. In connection
with the Reorganization, we acquired the ownership of 66.67% of e.Volve, 100% of
Axistel and 17% of i2v2.com on September 22, 1999. Subsequent to, but as an
extension of, the Reorganization, we acquired the 33.33% of e.Volve that was not
owned by the Infinity Entities.
FINANCIAL INFORMATION; BUSINESS SEGMENTS
Operating Businesses
We operate in one business segment, the provision of Internet-based
communications services and operation of Internet-based communications networks
based on IP and ATM technologies. We currently have network
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facilities and points of presence in the United States and five foreign
countries: Mexico, India, Syria, Sri Lanka and the United Kingdom.
We have generated increasing revenues over the last three years. On a
historical basis, after giving effect to the Reorganization, we generated net
revenues and net losses of $921,599 and $375,707 for the period from inception
through the fiscal year ended June 30, 1997, $1.7 million and $4.9 million for
the Fiscal Year ended June 30, 1998, and $27.2 million and $5.5 million for the
Fiscal Year ended June 30, 1999, respectively. For the quarter ended September
30, 1999, we had net revenues of $8.7 million and net losses of $3.3 million. As
of June 30, 1998, we had assets of $4.3 million and as of June 30, 1999, we had
assets of $15.7 million. At September 30, 1999, we had total assets of $41.7
million.
Description of Operating Companies
Our operating companies are e.Volve and Axistel. They provide
communications services and operate communications networks based on IP and ATM
technologies. Our operating companies provide high quality communications
services, including offering international voice, data, Internet access and
other value-added applications over private fiber optic networks and the
Internet. Our customers include corporate and governmental communications
service providers and individual business customers in the United States and
internationally.
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,
our networks offer communications services through leased or owned fiber optic
cable under direct operating agreements with telecommunications authorities and
internet service providers ("ISP").
Our operating companies provide the following services:
High Quality Voice, Data and IP Services. We can complete voice calls
and provide data transmission services (such as frame relay, ATM, ethernet, fax,
and Internet uploads and downloads) over both the AxisTel and e.Volve networks,
with quality superior to that of traditional circuit-switched networks. Through
our network operations centers we are able to monitor our network and route
traffic over dedicated private lines or traditional circuit-switched lines when
necessary to maintain high quality. This enables us to provide consistently high
quality services to communications service providers.
Cost Effective Solutions. Our transmission costs are lower because
packet switching is more efficient than traditional circuit switching. Our
packet-based scaleable solution also allows us to better match our investment in
equipment with capacity needs, and provide lower cost world-class operating
support systems.
International High Capacity Network. We provide data transport services
over our network. Our network consists of gateways and other points of presence,
leased or owned fiber optic cable and our network operating center. By providing
customers with access to our network, they can transmit data worldwide. Our
networks allow us to complete calls worldwide. During our third quarter ended
September 30, 1999, we transported approximately 75 million minutes of traffic
over our network.
Strategic Investments
In conjunction with our operations, we also intend to make strategic
acquisitions and investments. These investments may be in companies at an early,
middle or late stage of development. We also may, from time to time, form a
company following a business model if we want to make a strategic investment but
cannot find an appropriate investment vehicle. Although we may from time to time
vary the types of companies in which we make strategic investments, we intend to
focus our strategic investments on companies that are well-positioned to take
advantage of next-generation networks and services and that can exploit the
growth of the Internet as a medium for communications, commerce and the
provision of information. In making these investments, we intend to provide
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(in addition to capital) operational assistance and strategic relationships,
including strategic relationships with our operating companies.
As of December 16th, 1999, we have made strategic investments in the
following companies:
Company Name Date of Investment Percentage Ownership
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Innovative Calling Technologies LLC April, 1999 50.0%
i2v2.com (d/b/a PhoneFree.com) June, 1999 16.0%
FonBox, Inc. November, 1999 8.0%
Description of Strategic Investments
ICT
In April 1999, e.Volve formed a joint venture whereby we received 50%
ownership of Innovative Calling Technologies, LLC ("ICT"), a Nevada limited
liability company.
ICT is a provider of automated operator services with emphasis on
software development, billing solutions and network applications for the
Internet and voice telephony environment. ICT focuses on the processing and
billing of credit card, third party, collect, prepaid and long distance calls
over private networks and the Internet. ICT provides its services primarily to
the tele-marketing, call center and hotel industries.
i2v2.com
In June 1999, we acquired 21% of the common stock of i2v2.com.
Subsequently, our ownership interest was diluted to 17% due to a sale of common
stock by i2v2.com in July of 1999 and was diluted further to 16% due to a sale
of common stock by i2v2.com in December of 1999. Four of our directors are
members of the board of directors of i2v2.com.
i2v2.com, a Delaware corporation, develops and markets an Internet
Telephony product and operates a web site called PhoneFree.com at the Internet
address (www.phonefree.com). The PhoneFree software, which can be downloaded
from the web site, allows users to conduct "real-time" duplex voice
conversations from PC to PC and PC to phone. This software functions with normal
multimedia PC hardware over the Internet. PC to PC calls are free to users with
ISP connections, regardless of their duration and destination while PC to phone
service in the U.S. is generally available for a flat monthly fee.
FONBOX
On November 23, 1999, we acquired 500,000 shares of Series A preferred
stock of Fonbox Inc. ("FonBox"), representing approximately 8.0% of the
outstanding equity interests of FonBox. We have an option, which expires on
December 23, 1999, to acquire up to 35% of the outstanding equity interests of
Fonbox. We have a verbal agreement to extend this option to December 30, 1999.
FonBox is a development stage company which offers Internet based
communications solutions for the Portuguese-speaking and Spanish-speaking market
in Latin America and abroad. They intend to exploit cross messaging, natural
language access, and phone-based Internet access technologies through their
Lineabox (www.lineabox.com), unified messaging product. Our chief executive
officer is a member of the board of directors of FonBox.
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OUR OPERATING STRATEGY
We intend to become a leading provider of high quality IP and ATM
communication services to telecommunications carriers, other communications
service providers, public and private communications providers, businesses and
consumers. We plan to accomplish this by pursuing the following strategies:
1) Focus on High Volume Communications Service Providers. We are
focused on providing communications services to high-volume carriers,
and service provider customers. By initially focusing on the needs of
the largest users in each market we serve, rather than the end-users,
we are able to avoid the time and expense associated with building a
retail sales channel, and supporting infrastructure and absorb the
additional overhead focusing on the middle-markets.
2) Provide Carrier-Class Services Using Our Private Networks and the
Internet. Through our proprietary networks, we offer high quality voice
and data transmission services. We can also use the Internet in
combination with our networks. By using our own networks, we are able
to control quality of service, which we feel is critical to meeting the
needs of our high volume customers. We intend to continue to use our
own networks and the Internet, where appropriate, to provide our high
quality services at competitive prices. We will continue to introduce
only those services that we can offer at carrier-class quality.
3) Focus on the International Market and Expand our Presence Through
Partnerships and Acquisitions. We intend to build a leading
international ATM and IP network to allow carriers to use us for their
international and domestic Internet telephony services around the
world. We will focus on attractive market segments and, where
appropriate, partner with communications service providers. We will
also consider acquiring complementary domestic or international
businesses or other technologies if attractive opportunities arise.
4) Remain at the Forefront of IP and ATM Communications Technology. In
order to provide these high quality services and stay at the forefront
of next-generation based communications technology and service
offerings, we will continue to invest in improving our technology, and
partner with leaders in Internet-based communications hardware and
software.
5) Increase Sales and Marketing Efforts and Brand Awareness. We will
continue to expand our sales and marketing activities, while focusing
on communications services providers domestically as well as
internationally. We intend to build our business into a premier IP and
ATM based communications provider and will strive to provide our
customers with high quality, value-added Internet-based communications
services. We are in the process of hiring additional sales, sales
support and marketing professionals with specific experience in our
target markets and regions.
6) Offer Additional Internet-based Communications Services. We intend
to introduce new services that carriers can offer over our network or
their own networks. These services may be provided through strategic
relationships or through partnering with businesses in which we make
strategic investments. We are focused on applications that will allow
carriers to expand their business, improve service quality and cut
costs. We also intend to offer new services such as dedicated Internet
and circuit-switched network access, which will help our customers
enter new markets quickly. We believe that these new services will
increase our customer base and allow us to cross-sell other services to
communications service providers once they are our customers.
OUR INVESTMENT STRATEGY
We also intend to make strategic investments. When we consider
strategic investments, we apply the following criteria:
o SIZE OF MARKET. We prefer to invest in companies that provide
products or services to a potentially large market.
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o MARKET LEADER. We will invest in a company only if we believe
that it can become a leader in its particular market. Our
assessment may be based on the company's products, its
business plan, or its ability to be an innovator in its
particular market.
o REVENUE AND PROFITABILITY GROWTH. We attempt to identify
companies that are capable of sustained revenue growth and
eventual profitability. To a certain degree, this is dependent
upon the two factors mentioned above. We also take into
account whether the particular company can assert leverage in
its market, whether its customers will have high switching
costs, and the degree of advertising and marketing investment
required to achieve our goals.
o TECHNOLOGY. We attempt to invest in companies with management
that is both experienced and adaptable. We look for
entrepreneurs with good track records and senior management
that has faced and managed the challenges of emerging
companies with new technologies.
When we make strategic investments, we generally use the following
guidelines:
o SIGNIFICANT EQUITY STAKE. We will generally invest in a
company only if we believe that we can acquire a significant
equity stake (which we generally feel is 25% or more). From
time to time, we may seek to acquire entire companies if they
fit a strategic need or complement one of our strategic
investments. Alternatively, we may take a small minority
position in a company if we feel that we can generate an
attractive return on the investment or if there are other
factors that preclude a larger involvement, such as the
presence of other investors with whom we want to participate.
o SENIORITY IN CAPITAL STRUCTURE. We will generally structure
our investments as "senior equity", in the form of convertible
preferred stock or convertible debt. We may also purchase
common stock or similar equity interests. From time to time,
we may negotiate options to invest additional amounts at what
we feel are attractive valuations.
o ACTIVE ROLE IN DEVELOPMENT OF BUSINESS. We will usually invest
in companies where we can obtain board representation and we
prefer to take an active role in the development of businesses
in which we make strategic investments. Depending on the
circumstances of a particular strategic investment, we may
seek to have control over key financing, marketing, personnel
and growth decisions.
o VALUE ADDED BY PARTNERING WITH OPERATING COMPANIES. We intend
to create interlocking relationships between our operating
companies and companies in which we make strategic
investments. We also intend to provide operational synergies
by sharing personnel, legal, accounting, finance, sales,
marketing and business development functions where practical.
OUR GLOBAL NETWORK
Over our international networks we deliver large volumes of high
quality data, voice, fax and other value-added services. Our networks consist of
the following elements:
Gateways. Gateways are the entrance points for communications traffic
over our global network. Gateways translate voice to data for transmission and
retrieval over our data network, and provide IP, ATM, and leased line data
services. Our gateways are connected to the public switched telephone network,
Internet (network access points) ("NAPs") as well as entrance facilities to the
world's largest carriers.
Our customers can interconnect with our global network through
dedicated circuits from their facilities to one of our gateways, located in
Jersey City, New York, Philadelphia, Atlanta, Boston, Miami, Dallas, Kansas
City, Los Angeles, London, Mexico City, Colombo, Damascus, New Delhi and Madras.
Alternatively, our customers may elect to co-locate and install equipment
directly at our facilities to eliminate the cost of back-hauling traffic from
their facilities to one of our enhanced points of presence.
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The gateways on our network are scaleable and flexible platforms
designed for interconnection with our network as well as others. The scalability
of our gateways permits us to quickly increase capacity in discrete increments
at relatively low cost, either for a region or a customer. In addition, the
point of presence flexible architecture is designed to easily integrate and
support the new services we intend to offer.
The Internet. We use the Internet to transmit some of our voice and fax
traffic and deliver other value-added services, because of its global coverage,
rapid growth and flexible connectivity. By using the Internet, we avoid having
to build a private, dedicated network of fiber and cable connections, which
would delay our time-to-market in many locations and would be more costly to
deploy. However, until technology allows us to provide guaranteed levels of
service the Internet will remain as a secondary means of transmission. We have
addressed the challenges present in using the Internet by:
o selecting only high quality, service-oriented Internet service
providers as our vendors;
o purchasing high-speed connections into the major NAP's and
MAE's; and
o continuously pursue private and public peering arrangements
with any internet backbone in the world.
OUR VOICE SERVICES.
Global Packet-Voice. Through the use of IP and ATM technology, we bring
the benefits of packet-switched services to the wholesale market. We have
deployed gateways throughout our network to implement IP and ATM technology
service and interconnect with the public switched network. We provide IP and ATM
services primarily on a wholesale basis to our carrier and service provider
customers. We offer global call completion services, and other value-added
services, that provide our customers with a high quality, efficient alternative
for voice and fax transport.
Voice Transport. Through the utilization of our voice transport ("VT")
service, carriers and service provider customers can leverage our network
elements to their advantage. By compressing traditional circuit switched phone
calls and passing them through our packet switched network, we are able to
provide customers a traditional circuit switched handoff (T-1/E-1) at prices 50%
to 60% below traditional leased line services.
OUR DATA SERVICES
International and Domestic Private Line Services. We offer point to
point services with a wide range of capacities, providing connections between
customers' location based on customers' bandwidth needs. These can be monitored
and maintained by our network operating control center.
Hub Service. Hub service provides our customers the ability to
aggregate and distribute bandwidth, saving time and money. For customers who
need to distribute circuits to multiple locations in a city or multiple
locations, we can provide the connectivity between our hub site and a customer's
locations creating a simple manageable networking solution.
Virtual Private WAN(SM). We can extend a customer's network and can
provide the high-speed links needed to facilitate any amount of bandwidth. We
incorporate voice, data and Internet services over a single network platform,
and provide a fully managed, secure network. We can monitor and maintain a
virtual private WAN through our network operations control center.
OUR INTERNET ACCESS SERVICES
Direct Access. We offer dedicated Internet services that meet the needs
of the smallest commercial user to the most sophisticated high bandwidth
customers. We provide a complete end-to-end solution, allowing the service
implementation process to be smooth and transparent to the end user.
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Server Collocation. Our gateway facilities offer complete
environmentally controlled areas for customers to house web servers. Options for
server hosting space include open racks, secured cabinets and caged secured
areas. We work with customers to find the solution that is right for their
business.
OUR FUTURE SERVICES
We intend to add new services that leverage components of our networks
to generate additional sources of revenue. We believe that our ability to deploy
new Internet-based communication services makes us an attractive partner for
application developers. We also believe that the ability to offer these new
services will be beneficial to our customers, regardless of whether or not they
directly charge their end-users for these services, because they will help our
customers attract new subscribers and retain and "up-sell" their existing
subscriber base. Some of the services that we may choose to introduce in the
future include:
o 1) Basic Messaging. We may offer additional basic messaging
services, including outsourced voicemail, store-and-forward
fax, or faxmail, and e-mail.
o 2) Advanced Messaging. We may offer advanced messaging
services including unified messaging, which enables
subscribers to access different message types, e.g., voicemail
and e-mail, from multiple user interfaces; one-number service,
which allows subscribers to consolidate existing office, home,
and mobile numbers into a single contact or "follow-me"
number; Internet call management services such as caller ID,
call waiting and call forwarding; and message delivery that
includes the recording and scheduling of a message, repeated
delivery attempts and message delivery confirmation. These
services may in some cases leverage components of our network
to provide international call-termination services and
operational support services.
o 3) Information Services. We may offer Internet-based
information services that deliver detailed, metered billing
information that can help customers to understand better how
their network is being used.
o 4) Directory Services. We may offer subscriber-based directory
services that maintain important customer information. This
would enable communications service providers to customize and
automate their services.
o 5) Internet and Circuit Switched Infrastructure. We may offer
circuit-switched access, dedicated Internet access, and
equipment co-location services to help our customers meet
their time-to-market objectives.
o 6) Conferencing Services. We may offer audio, video and data
conferencing services.
o 7) Billing Services. We may offer additional outsourced
billing services such as on-line bill presentment and Internet
telephony clearinghouse settlement services.
OUR MARKETS AND CUSTOMERS
Telephone companies are usually classified by size into first tier,
second tier and third tier carriers. First tier carriers generally have annual
revenues in excess of $2 billion and include large domestic and international
carriers, such as MCI/WorldCom, Cable & Wireless and certain
government-affiliated monopolies, such as the Japanese telecommunications
carrier KDD. Second tier carriers have revenues generally in the $750 million to
$2 billion range, and have fewer direct operating agreements with other carriers
and fewer international facilities than first tier carriers. Second tier
carriers include RSL Com ("RSL"), WorldxChange Communications, World Access
Telecomm Group, Star Telecom ("Star") and Pacific Gateway Exchange. Third tier
carriers are typically switch-based resellers with revenues of less than $750
million.
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We provide services to members of all three tiers of United States
carriers, who transmit voice and fax traffic through our New York or Los Angeles
points of presence for completion overseas. For Fiscal Year ended June
1999, our business was comprised of 65% with Qwest, 18% with RSL, and 16% with
Star. Through September 30, 1999, our business was comprised of at least 90%
with Qwest and the rest with other companies. As of September 30, 1999, we were
providing services to seven of the top thirteen highest volume United
States-based international carriers. The ability to provide quality consistently
acceptable to these classes of carriers is of vital importance, because these
carriers often have traffic volumes that regularly exceed their capacity.
Overseas we have established relationships with in-country companies
and local service providers that have local market expertise and relationships
to build strong businesses. Some of our overseas partners/customers are very
large well-established national carriers. Others are emerging carriers or
Internet service providers who are able to provide the services necessary to
terminate minutes for us in their country.
OUR SALES AND MARKETING STRATEGIES
Our sales efforts target leading telecommunications carriers both in
the United States and overseas. Our sales personnel have long-time relationships
in the telecommunications industry and are frequently supplemented by senior
members of management. In the United States, we sell directly to carriers and
have successfully developed brand awareness and beneficial relationships through
numerous channels including the Web, trade shows, speaking engagements and joint
marketing programs. The ability to provide quality acceptable to leading
carriers is a strong selling point for us. These carriers have traffic that
frequently exceeds their capacity and compels them to seek alternative channels
that offer comparable quality, particularly where those channels can offer
better pricing. Our sales process often involves a test by our potential
customers of our services with traffic to a particular country. Our experience
has been that once a carrier has begun to use our network for a single country
and has found our quality to be acceptable, the sales process for other
countries becomes easier.
In overseas markets, we seek to establish relationships with local
service providers that have the local market expertise to provide the
termination services we need. We believe that the opportunity we offer these
companies to terminate a substantial number of minutes makes us an attractive
partner. Prime candidates for overseas partners are carriers, call back
companies, cellular, PCS and paging companies and Internet service providers.
Our marketing strategy includes public relations campaigns, interaction
with industry analysts and attendance at trade shows. We aggressively pursue
favorable coverage in the trade and business press and participate in a variety
of industry trade shows, including Voice on the Net, Telecommunications
Resellers Association and Telecom Business.
OUR STRATEGIC TECHNOLOGY RELATIONSHIPS
We have entered into strategic technology relationships with a number
of leading technology providers in the Internet telephony industry, including
Lucent Technologies and Siemens AG, and Network Equipment Technologies. We
believe that our strategic technology relationships are important because they
give us early access to new technologies.
COMPETITION
The market for international voice and fax call completion services is
highly competitive. We face competition from a variety of sources, including
large communications service providers with more resources, longer operating
histories and more established positions in the telecommunications marketplace,
some of whom have begun to develop Internet telephony capabilities. Many of our
competitors are larger companies. We also compete with small companies who have
focused primarily on Internet telephony. We believe that we compete principally
on quality of service, price, convenience and bandwidth. We also expect that the
ability to offer enhanced service capabilities, including new services, will
become an increasingly important competitive factor in the near future.
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Telecommunications Companies and Long Distance Providers
Large carriers around the world carry a substantial majority of the
traffic. These carriers, such as British Telecom and Deutsche Telecom, have
started to deploy packet-switched networks for voice and fax traffic. These
carriers have substantial resources and have large budgets available for
research and development. In addition, several companies, many with significant
resources, such as Level 3 and Qwest Communications, are building fiber optic
networks, primarily in the United States, for Internet telephony traffic. These
networks can be expected to carry voice and fax and these newer companies may
expand into international markets.
The nature of the telecommunications marketplace is such that carriers
buy from and sell to each other. Most carriers have multiple routes to virtually
every destination, and frequently buy and sell based on the strength and
capacity to a particular country. We have relationships with many of these
carriers and have carried traffic for them in the past. We expect to continue to
exchange traffic with many of these companies in the future, even as they begin
to devote more resources to competing in the Internet telephony market.
Internet Telephony Service Providers
A number of companies have started Internet telephony operations in
last few years. AT&T Clearinghouse, GRIC Communications and IXC Communications
sell international voice and fax over the Internet and compete directly with us.
Other Internet telephony companies, including Net2Phone, deltathree.com, and
PhoneFree.com are currently focusing on the retail market and personal
computer-based Internet telephony, but may compete with us in the future.
GOVERNMENT REGULATION
Regulation of Internet Telephony.
The use of the Internet to provide telephone service is a recent market
development. Currently, the Federal Communications Commission (the "FCC") is
considering whether to impose surcharges or additional regulations upon certain
providers of Internet telephony. On April 10, 1998, the FCC issued its report to
Congress concerning the implementation of the universal service provisions of
the Telecommunications Act. In the report, the FCC indicated that it would
examine the question of whether certain forms of phone-to-phone Internet
telephony are information services or telecommunications services. The FCC noted
that it did not have, as of the date of the report, an adequate record on which
to make a definitive pronouncement, but that the record suggested that certain
forms of phone-to-phone Internet telephony appear to have the same functionality
as non-Internet telecommunications services and lack the characteristics that
would render them information services. If the FCC were to determine that
certain services are subject to FCC regulation as telecommunications services,
the FCC may require providers of Internet telephony services to make universal
service contributions, pay access charges or be subject to traditional common
carrier regulation. It is also possible that PC-to-phone and phone-to-phone
services may be regulated by the FCC differently. In addition, the FCC sets the
access charges on traditional telephony traffic and if it reduces these access
charges, the cost of traditional long distance telephone calls will probably be
lowered, thereby decreasing our competitive pricing advantage.
Changes in the legal and regulatory environment relating to the
Internet connectivity market, including regulatory changes which affect
telecommunications costs or that may increase the likelihood of competition from
the regional Bell operating companies or other telecommunications companies,
could increase our costs of providing service. For example, the FCC recently has
determined that subscriber calls to Internet service providers should be
classified for jurisdictional purposes as interstate calls. This determination
could affect a telephone carrier's costs for provision of service to these
providers by eliminating the payment of reciprocal compensation to carriers
terminating calls to these providers. The FCC has pending a proceeding to
encourage the development of cost-based compensation mechanisms for the
termination of calls to Internet service providers. Meanwhile, state agencies
will determine whether carriers receive reciprocal compensation for these calls.
If new compensation mechanisms increase the costs to carriers of terminating
calls to Internet service providers or if states eliminate reciprocal
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compensation payments, the affected carriers could increase the price of service
to Internet service providers to compensate, which could raise the cost of
Internet access to consumers.
In addition, although the FCC to date has determined that providers of
Internet services should not be required to pay interstate access charges, this
decision may be reconsidered in the future. This decision could occur if the FCC
determines that the services provided are basic interstate telecommunications
services and no longer subject to the exemption from access charges that are
currently enjoyed by providers of enhanced services. Access charges are assessed
by local telephone companies to long-distance companies for the use of the local
telephone network to originate and terminate long- distance calls, generally on
a per minute basis. The FCC has stated publicly that it would be inclined to
hold the provision of phone-to-phone Internet protocol telephony to be a basic
telecommunications service and therefore subject to access charges and universal
service contribution requirements. In a Notice of Inquiry released September 29,
1999, the FCC again asked for comments on the regulatory status of Internet
telephony. Specifically, the FCC asked commentator to address whether Internet
telephony service generally, and phone-to-phone service in particular, may be
regulated as a basic telecommunications service. If the FCC concludes that any
or all Internet telephony should be regulated as basic communications service,
it eventually could require that Internet telephony providers must contribute to
universal service funds and pay access charges to local telephone companies. The
imposition of access charges or universal service contributions would
substantially increase our costs of serving dial-up customers.
To our knowledge, there are currently no domestic and few foreign laws
or regulations that prohibit voice communications over the Internet. State
public utility commissions may retain jurisdiction to regulate the provision of
intrastate Internet telephony services. A number of countries that currently
prohibit competition in the provision of voice telephony have also prohibited
Internet telephony. Other countries permit but regulate Internet telephony. If
Congress, the FCC, state regulatory agencies or foreign governments begin to
regulate Internet telephony, such regulation may materially adversely affect our
business, financial condition or results of operations.
In addition, access to our services may also be limited in foreign
countries where laws and regulations otherwise do not prohibit voice
communication over the Internet. We have negotiated agreements to provide our
services in various countries. No assurances can be given that we will continue
to be successful in these negotiations.
Regulation of the Internet
Congress has recently adopted legislation that regulates certain
aspects of the Internet, including online content, user privacy, taxation,
access charges, liability for third-party activities and jurisdiction. In
addition, a number of initiatives pending in Congress and state legislatures
would prohibit or restrict advertising or sale of certain products and services
on the Internet, which may have the effect of raising the cost of doing business
on the Internet generally. The European Union has also enacted several
directives relating to the Internet, one of which addresses online commerce. In
addition, federal, state, local and foreign governmental organizations are
considering other legislative and regulatory proposals that would regulate the
Internet. Increased regulation of the Internet may decrease its growth, which
may negatively impact the cost of doing business via the Internet or otherwise
materially adversely affect our business, results of operations and financial
condition.
The Federal Trade Commission (the "FTC") has adopted regulations
regarding the collection and use of personal identifying information obtained
from minors when accessing Web sites, and may adopt additional online privacy
regulations. These regulations may include requirements that companies establish
certain procedures to disclose and notify users of privacy and security
policies, obtain consent from users for certain collection and use of
information and to provide users with the ability to access, correct and delete
personal information stored by the company. These regulations may also include
enforcement and redress provisions. There can be no assurance that we will adopt
policies that conform with any regulations adopted by the FTC. Moreover, even in
the absence of those regulations, the FTC has begun investigations into the
privacy practices of companies that collect information on the Internet. One
investigation resulted in a consent decree pursuant to which an Internet company
agreed to establish programs to implement the principles noted above. We may
become subject to a similar investigation, or the FTC's regulatory and
enforcement efforts may adversely affect the ability to collect demographic and
personal
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information from users, which could have an adverse effect on our ability to
provide highly targeted opportunities for advertisers and electronic commerce
marketers. Any of these developments would materially adversely affect our
business, results of operations and financial condition.
The European Union has adopted a directive that imposes restrictions on
the collection and use of personal data. Under the directive, citizens of the
European Union are guaranteed rights to access their data, rights to know where
the data originated, rights to have inaccurate data rectified, rights to
recourse in the event of unlawful processing and rights to withhold permission
to use their data for direct marketing. The directive could, among other things,
affect United States companies that collect information over the Internet from
individuals in European Union member countries, and may impose restrictions that
are more stringent than current Internet privacy standards in the United States.
In particular, companies with offices located in European Union countries will
not be allowed to send personal information to countries that do not maintain
adequate standards of privacy. The directive does not, however, define what
standards of privacy are adequate. As a result, the directive may adversely
affect the activities of entities such as us that engage in data collection from
users in European Union member countries.
INTELLECTUAL PROPERTY
We regard our copyrights, service marks, trademarks, trade dress, trade
secrets and similar intellectual property as critical to our success, and we
rely on trademark and copyright law, trade secret protection and confidentiality
and/or license agreements with our employees, customers, partners and others to
protect our proprietary rights. We pursue the registration of our trademarks and
service marks in the United States and have applied for the registration of
certain of our trademarks and service marks.
EMPLOYEES
As of September 30, 1999, we had 36 full-time employees and one
part-time employee. We also employ a limited number of independent contractors
and temporary employees on a periodic basis. Our employees are not represented
by a labor union and we consider our labor relations to be good.
THE REORGANIZATION TRANSACTIONS
On September 22, 1999, we completed the acquisition of all of the
outstanding shares of AxisTel, two-thirds of the outstanding shares of e.Volve
and $8.0 million of e.Volve debentures, and approximately 17% of the outstanding
shares of i2v2.com pursuant to the terms of an Agreement and Plan of
Reorganization dated September 22, 1999 (the "Reorganization Agreement"). In
connection with the Reorganization:
(a) Mick Y. Wettreich ("Wettreich") sold 8.5 million of his shares
of our common stock to participants in the Reorganization. The
Infinity Entities purchased an aggregate of $8,225,000 of such
shares.
(b) IEOH was merged into one of our subsidiaries that had been
formed to acquire IEOH. As a result of the merger, IEOIL and
IESL, the two shareholders of IEOH, received an aggregate of
14,562,193 shares of our common stock. Immediately prior to
the reorganization, IEOH owned 1,200 shares of common stock of
e.Volve representing one-third of outstanding equity interests
in e.Volve, a warrant to purchase shares of e.Volve (the "IEOH
Warrants") and a 50% interest in e.Volve debentures in an
aggregate principal amount of $4,020,000 (the "IEOH
Debentures"), 1,449 class A shares of common stock that when
exercised and combined with one class B share of common stock
represented 50% of the outstanding equity interest in AxisTel,
and 1,832,880 shares of common stock representing
approximately 17% of the outstanding equity interest in
i2v2.com.
(c) The shareholders of AxisTel, other than IEOH, contributed
their stock in AxisTel to eVentures in exchange for 6,381,000
shares of our common stock.
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(d) IIL contributed to eVentures 1,200 shares of common stock
representing one-third of the outstanding equity interest in
e.Volve, a warrant to purchase shares of e.Volve (the "IIL
Warrants") and a 50% interest in e.Volve debentures in an
aggregate principal amount of $4,020,000 (the " IIL
Debentures") in exchange for 5,682,807 shares of our common
stock. All of the warrants have been cancelled.
The Infinity Entities are investment funds whose assets are managed by
HW Capital, L.P. and HW Partners, L.P. Immediately prior to the Reorganization,
Wettreich owned 10,145,830 shares of the 10,330,610 shares of our common stock
outstanding and was our controlling shareholder. As of December 16, 1999, the
Infinity Entities owned approximately 29 million shares of our outstanding
common stock, representing approximately 63.1% of our outstanding shares.
Upon the consummation of the reorganization, Daniel Wettreich resigned
as our sole director and appointed Messrs. Fred A. Vierra, Clark K. Hunt, Olaf
Guerrand-Hermes, Mark R. Graham and Barrett N. Wissman to serve on our board of
directors. Information about these individuals appears on pages 30-31 of this
Form 10. Also, Mr. Wettreich resigned as our president, and the following
persons were appointed as our officers:
Fred Vierra -Chairman of the Board
Barrett N. Wissman -President and Chief Executive Officer
Stuart Chasanoff -Vice President of Business Development,
General Counsel and Secretary
John Stevens Robling, Jr. -Vice President and Chief Financial Officer
Samuel Litwin -Managing Director of Communications Holdings
Mitchell Arthur -Managing Director of Communications Holdings
Information about these persons appears on pages 30-32 of this Form 10.
Subsequent to, but as a continuation of, the Reorganization, on October
19, 1999, we consummated the acquisition of the outstanding shares of e.Volve
not owned by us, representing one third of the outstanding equity interests in
e.Volve. As a result of this acquisition, e.Volve became one of our wholly owned
subsidiaries. This acquisition was consummated pursuant to an Agreement and Plan
of Exchange dated as of October 19, 1999 (the "Exchange Agreement").
Acquired Businesses
Pursuant to the Reorganization Agreement, we acquired all of the
outstanding shares of AxisTel, two-thirds of the outstanding shares of e.Volve,
and approximately 17% of the outstanding shares of i2v2.com. We issued an
aggregate of 26,626,000 shares of our common stock to acquire these assets.
Prior to the Reorganization, the Infinity Entities (through IEOH and IIL)
collectively held (a) shares representing approximately 67% of the outstanding
equity interests in e.Volve, warrants to purchase additional shares of capital
stock of e.Volve and certain debentures of e.Volve, and (b) 50% of the
outstanding shares of AxisTel, and may be viewed as having controlled both
e.Volve and AxisTel. However, each person's participation in the reorganization
was voluntary. We determined the number of shares to be issued to each
participant in the reorganization after consideration of the relative values of
each of the entities involved and arm's-length negotiations with the
shareholders of e.Volve and AxisTel (other than the Infinity Entities). At the
closing of the Exchange Agreement, we issued to the former shareholders of
e.Volve an aggregate of 5,831,253 shares. We determined the number of shares to
be issued to each participant in the acquisition after considering the value of
the interests exchanged and arms'-length negotiations with the other
shareholders of e.Volve.
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RISK FACTORS
Investors considering acquiring shares of our common stock should
consider carefully risks associated with our forward-looking statements, as well
as the following investment considerations. Any of the following risks, as well
as other risks and uncertainties that are not yet identified or that we
currently believe are immaterial, could harm our business, financial condition
and operating results, could cause the trading price of our common stock to
decline and could result in the complete loss of any investment.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this Form 10 that are
subject to risks and uncertainties. These statements generally include the words
"believe," "expect," "anticipate," "intend," "estimate" or similar expressions.
These statements reflect our current views with respect to future events that
are subject to certain risks, uncertainties and assumptions, including without
limitation any statements regarding the following: market opportunities,
strategies, competition, expected activities, additional financing, strategic
alliances and projected expenditures. If one or more of these risks or
uncertainties materialize, or should our assumptions prove incorrect, actual
results may vary materially from those described in this Form 10. We cannot
assure our investors that the anticipated results will occur, that these
judgments or assumptions will prove correct or that unforeseen developments will
not occur.
WE MAY HAVE FUTURE CAPITAL NEEDS AND MAY NOT BE ABLE TO OBTAIN SUITABLE
FINANCING
We expect positive developments in our operations and financial
condition as a result of our business strategy. However, we may exhaust our
existing cash resources within twelve months for capital expenditures, strategic
investments and working capital. Due to our limited operating history and the
nature of the Internet industry, our future capital needs are difficult to
predict. We may require additional capital to fund any of the following:
o advertising, maintenance and expansion;
o sales, marketing, research and development;
o unanticipated opportunities;
o operating losses from changing business conditions;
o operating losses from unanticipated competitive pressures;
o strategic investments; and
o strategic alliances.
We cannot assure our investors that adequate levels of additional
financing will be available at all or on acceptable terms. Any additional
financing could result in significant dilution to our existing stockholders. If
we are unable to raise additional capital, our growth and development could be
impeded. If we do not have sufficient capital, we may not be able to take
advantage of growth opportunities, respond to competitive pressures or pursue
our business plan. Our failure to have sufficient capital could have a material
adverse effect on our business, operating results and financial condition.
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GOVERNMENTAL REGULATIONS REGARDING THE INTERNET MAY BE PASSED, WHICH COULD
IMPEDE OUR BUSINESS.
The legal and regulatory environment that pertains to the Internet is
uncertain and is changing rapidly as the use of the Internet increases. For
example, in the United States, the FCC is considering whether to impose
surcharges or additional regulations upon certain providers of Internet
telephony.
In addition, regulatory treatment of Internet Telephony outside the
United States varies from country to country. There can be no assurance that
there will not be interruptions in Internet Telephony in these and other foreign
countries or that we will be able to return to the level of service we had in
each of these countries prior to any interruptions. Other similar actions in
foreign countries may adversely affect our continuing ability to offer services
in other countries, causing us to lose customers and revenue.
New regulations could increase our costs of doing business and prevent
us from delivering our products and services over the Internet, which could
adversely effect our customer base and our revenue. The growth of the Internet
may also be significantly slowed. This could delay growth in demand for our
products and services and limit the growth of our revenue. In addition to new
regulations being adopted, existing laws may be applied to the Internet. See
"Business - Government Regulation." New and existing laws may cover issues that
include:
o sales and other taxes;
o access charges;
o user privacy;
o pricing controls;
o characteristics and quality of products and services;
o consumer protection;
o contributions to the universal service fund, an
FCC-administered fund for the support of local telephone
service in rural and high cost areas;
o cross-border commerce;
o copyright, trademark and patent infringement; and
o other claims based on the nature and content of Internet
materials.
DEPENDENCE ON SELECT SUPPLIERS AND CUSTOMERS
We depend on a select group of suppliers and customers. If we cannot
maintain these relationships on favorable terms, or if these relationships
terminate, we would have to enter into new relationships. We may not be able to
replace any of its suppliers or customers on reasonable terms, if at all. If we
cannot replace these important relationships, it could lose business, which may
adversely affect our revenues. For example, since a majority of our business is
dependent on Qwest, we would suffer adverse financial consequences should we
lose our business with Qwest. Even if we replace any relationships or enters
into new relationships, we may incur increased costs in order to pay for these
relationships.
These other parties may not regard their relationship with us as
important to their business. Therefore, they could elect to terminate their
relationship with us in the future or develop competitive services.
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IF WE FAIL TO MANAGE OUR GROWTH AND INTEGRATE OUR ACQUIRED BUSINESSES, OUR
BUSINESS WILL BE ADVERSELY AFFECTED
We are in essence a new company formed by the combination of two
separate and distinct businesses with separate and distinct management teams:
AxisTel and e.Volve. We are faced with significant integration issues with
respect to these businesses and their management teams. We may not be successful
in integrating these management teams, and we may not be able to hire and retain
the quality of personnel we need to sustain our business. To the extent that we
continue to grow internally or through strategic alliances, we will be faced
with many risks, including risks associated with the establishment of new
operations, web sites and personnel; the diversion of resources from our
existing businesses; and our management's ability to manage increased traffic.
The Reorganization has resulted in significant growth of our operations. To
manage this growth, we will be required to implement and improve our operating
and financial systems and controls, and to expand, train and manage our employee
base. We will be dependent upon our management to assume and perform the
management functions formerly performed by management of each of the parties to
the Reorganization. To the extent that our management is unable to assume or
perform these combined duties, our business, results of operations and financial
condition could be adversely affected. There can be no assurance that the
management, systems and controls currently in place or any steps taken to
improve such management, systems and controls will be adequate in the future. In
addition, the integration of the acquired entities and their operations will
require our management to make and implement a number of strategic and
operational decisions. The timing and manner of the implementation of these
decisions will materially impact our business operations.
WE MUST RECRUIT AND RETAIN KEY MANAGEMENT AND TECHNICAL PERSONNEL TO BE
COMPETITIVE
Our success depends to a significant extent on the continued
contributions, experience and knowledge of our senior management team and key
technical and marketing personnel. Our success also depends upon our ability to
identify, attract, hire, train, retain and motivate highly skilled technical,
managerial, sales and marketing personnel. No assurance can be given that we
will be able to successfully attract, assimilate or retain a sufficient number
of qualified personnel. The failure to do so could have a material adverse
effect on our business.
OPERATING INTERNATIONALLY EXPOSES US TO FLUCTUATIONS IN FOREIGN CURRENCIES AND
POLITICAL INSTABILTY
We intend to build on our current relationships in Syria, Mexico,
India, Sri Lanka and other countries and to expand our existing operations
outside of the United States. International operations are subject to inherent
risks, including:
o potentially weaker protection of intellectual property rights;
o political instability
o unexpected changes in regulations and tariffs
o varying tax consequences; and
o fluctuations in exchange rates.
In particular, because our agreements with our Mexican suppliers are
denominated in Mexican pesos, we may be exposed to fluctuations in the Mexican
peso, as well as to downturns in the Mexican economy, all of which may adversely
affect our profitability.
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WE OPERATE IN AN INDUSTRY WITH EVOLVING TECHNOLOGY TRENDS AND INDUSTRY STANDARDS
Our success, in part, depends upon our ability to develop and provide
new services that meet customers' changing requirements. The Internet service
industry has been characterized by significant technological changes, frequent
new system and product enhancements, evolving industry standards and changes in
customer needs that have had and will continue to have a significant impact on
the industry and industry participants. While the communications industry has
moved at a relatively moderate pace, we believe that most carriers are adopting
new technologies and that the communications industry will take on
characteristics similar to the Internet service industry in the near future. New
technologies and standards could render existing systems obsolete and ultimately
result in lost revenues. Our future success will depend, in part, on our ability
to effectively use leading technologies, continue to develop our technological
expertise, enhance our currently planned services, develop and implement new
services that meet changing customer needs, anticipate changes and influence and
respond to emerging industry standards and other technological changes on a
timely and cost effective basis. No assurance can be made that we will keep pace
with ever changing technological trends and evolving industry standards.
OUR MARKET IS RAPIDLY EVOLVING
The market for Internet-based products and services has only recently
begun to develop. This market is rapidly evolving and is speculative in nature.
Our market is typical for a new and rapidly evolving industry, and demand and
market acceptance for our services are subject to a high level of uncertainty
and risk. Our business prospects must be considered in light of the risks,
expenses and difficulties frequently encountered by companies in the new and
rapidly evolving market for Internet-based products and services. Some of the
risks include our ability to design, build, operate and expand our communication
networks; create awareness of our brand, products and services; obtain strategic
relationships and alliances; effectively compete with existing and unforeseen
competitors; and develop products and services to meet the evolving needs of our
customers.
WE HAVE AN UNPROVEN BUSINESS MODEL
We are unable to predict the extent of demand for our services. Our
ability to generate revenues also depends somewhat upon whether we can establish
strategic relationships with telecommunications carriers or systems integrators
to provide us with an adequate revenue stream. If we cannot achieve or sustain
an adequate revenue stream or if our services do not achieve or sustain broad
market acceptance, our business, operating results and financial condition will
be materially adversely affected. Our ability to generate future revenues
depends on a number of factors, many of which are beyond our control, including
among other things, the risk factors described in this Form 10. Therefore, we
are unable to forecast our revenues with any degree of accuracy.
WE EXPECT TO FACE STRONG COMPETITION FROM ANTICIPATED AND UNFORESEEN COMPETITORS
We believe that the primary competitive factors in providing
communication products and services via the Internet include name recognition,
variety of value-added products and services, ease of use, pricing, quality of
service, availability of customer support, reliability, technical expertise and
experience. Our success will depend upon our ability to provide quality,
reliable communications services to our customers, along with cutting-edge
technology and value-added Internet products and services. Our failure to
compete successfully would have a material adverse effect on our business,
results of operations and financial condition. Many of our potential competitors
in the Internet and communication businesses have longer operating histories,
significantly greater financial, technical and marketing resources, greater name
recognition and larger existing customer bases than we do. These competitors may
be able to respond more quickly to new or emerging technologies and changes in
customer requirements and devote greater resources to the development, promotion
and sale of their products or services. We cannot assure our investors that we
will be able to successfully compete.
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WE HAVE A LIMITED OPERATING HISTORY
Although we have been in existence since 1987, our business operations
were insignificant before the Reorganization because we were an inactive
company, and thus we have a limited operating history. We have had no material
assets or operations, except for the interests in AxisTel, e.Volve, ICT and
i2v2.com obtained in the Reorganization, and the November 1999 investment in
Fonbox. All of these companies were recently formed and have limited operating
histories.
WE HAVE INCURRED HISTORICAL LOSSES AND MAY NOT HAVE ANY FUTURE PROFITS
We have incurred and may continue to incur operating losses while we
expand and build our business. Additionally, companies in which we have made
strategic investments may incur similar operating losses. As start-up companies,
these companies will continue to incur significant increases in expenses. We
also anticipate that a substantial portion of other companies in which we make
strategic investments will incur operating losses. These operating losses may
adversely impact our business and financial condition, including the value of
our strategic investments.
OUR COMMON STOCK HAS A LIMITED TRADING HISTORY AND AN ILLIQUID MARKET
There has only been a limited public market for our common stock. We
cannot predict the extent to which an active trading market will develop or how
liquid that market might become. The price of our common stock issued in the
reorganization may not be indicative of prices that will prevail in the trading
market.
WE INTEND TO MAKE STRATEGIC INVESTMENTS IN COMPANIES WE DO NOT WHOLLY OWN
We hold approximately 16% of the outstanding stock of i2v2.com, 8.0% of
the outstanding equity interests in Fonbox, and 50% of ICT. We do not control
the management or policies of these companies. Although we have representation
on the board of directors of i2v2.com and Fonbox, no assurance can be given that
our representatives will be able to influence their future direction in a manner
which results in increased value to us through our minority ownership interests.
THE INFINITY ENTITIES OWN A MAJORITY OF OUR COMMON STOCK AND MAY HAVE CONFLICTS
OF INTEREST
The Infinity Entities own a majority of our shares of capital stock.
The Infinity Entities, therefore, may exercise significant control over our
business, policies and affairs and, in general, determine the outcome of any
corporate transaction or other matters submitted to the stockholders for
approval, all in a manner that could conflict with the interests of other
shareholders.
SYSTEMS ON WHICH WE RELY MAY NOT PROPERLY FUNCTION IN THE YEAR 2000
Like many businesses, we rely upon computers for the daily conduct of
our business. Many software applications and operational programs are not
designed to recognize calendar dates beginning in the year 2000. The failure of
such applications or systems to properly recognize the dates beginning in the
year 2000 could result in miscalculations or system failures. We have not tested
all of our systems. In addition, there can be no assurance that the systems of
other companies and vendors on which we rely or other companies on the Internet
will not have an adverse affect on our systems. Any failures or delays by our
own systems, systems of other companies on which we rely, or other third-parties
in recognizing or processing dates beginning in the year 2000 could have a
material adverse effect on our business, financial condition or results of
operation.
WE DO NOT PLAN TO PAY DIVIDENDS ON OUR CAPITAL STOCK
We have never paid a dividend on our capital stock and do not expect to
pay dividends in the future. We anticipate that we will retain any earnings used
in the development of new services or the expansion of business
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operations. There can be no assurance that we will ever recognize a gain from
our business operations or pay a dividend on our capital stock.
THE SHARES ELIGIBLE FOR FUTURE SALE MAY DECREASE THE PRICE OF OUR COMMON STOCK
If our shareholders sell substantial amounts of their common stock in
the public market, including shares issued upon the exercise of outstanding
options, then the market price of our common stock could fall. Restrictions
under the securities laws and certain lock-up agreements currently in effect
limit the number of shares of common stock available for sale in the public
market. The holders of shares received in the Reorganization and private
placement of our common and preferred stock have agreed not to sell in the
public market any of our shares for two years after the reorganization without
the prior written consent of our principal stockholders. These principal
stockholders may, in their discretion, release all or any portion of the
securities subject to the lock-up agreements. However, these holders have demand
or piggy-back registration rights. We also may shortly file a registration
statement to register all shares of common stock under our stock option plans
which, if declared effective, would permit the shares of common stock issued
upon exercise of stock options under our option plan to be resold in the public
market without restriction.
OUR RIGHT TO ISSUE PREFERRED STOCK AND ANTI-TAKEOVER PROVISIONS UNDER DELAWARE
LAW COULD MAKE A THIRD PARTY ACQUISITION OF US DIFFICULT
Our certificate of incorporation provides that our board of directors
may issue preferred stock without shareholder approval. The issuance of
preferred stock could make it more difficult for a third-party to acquire us
without the approval of its board. Additionally, Delaware corporate law imposes
certain restrictions on corporate control transactions that could make it more
difficult for a third-party to acquire us without the approval of our board.
Available Information
The Company is subject to the information reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and in
accordance therewith files reports and other information with the Securities and
Exchange Commission, as amended (the "Commission"). Such filings can be
inspected and copied at the Public Reference Section of the commission located
at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549 and
at regional public reference facilities maintained by the Commission located at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and at Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of
such material can be obtained from the Public Reference Section of the
Commission at prescribed rates. Such material may also be accessed
electronically by means of the commission's home page on the Internet
(http://www.sec.gov).
Item 2. Financial Information
Selected Financial Data
The financial information and other statistical data contained herein
represent the financial condition and results of operations of (i) e.Volve for
all periods prior to July 1, 1998 and (ii) 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 30, 1999. As a result, throughout this Form 10,
our financial statements as of any date and for any period beginning July 1,
1998 and ending on or prior to September 30, 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 i2v2.com and (b) our balance sheet as of September 30, 1999 reflects
the acquisition of Axistel. Financial information and other data as of any date
after September 30, 1999 is financial information and other data of eVentures.
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For accounting purposes prior to July 1, 1998, the accounting acquiror
had no interest in e.Volve.
"Pro Forma" results are unaudited and reflect the results of AxisTel
for the year ended June 30, 1999 and the three months ended September 30, 1999,
as though the reverse merger and acquisition of AxisTel had occurred on July 1,
1998 (the transaction closed on September 22, 1999). The unaudited pro forma
results are not necessarily indicative of future results, or actual results of
operations that would have occurred had the reverse merger and acquisition been
made on July 1, 1998.
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e.VOLVE INFINITY ENTITIES
------------------------------- ---------------------------------------------------
INCEPTION YEAR ENDED YEAR ENDED 3 MONTHS 3 MONTHS
THROUGH ENDED ENDED
CONSOLIDATED STATEMENTS OF OPERATIONS DATA JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1999 SEPT. 30, 1998 SEPT. 30, 1999
------------- ------------- ------------- -------------- --------------
Net revenue $ 921,599 $ 1,713,403 $ 27,248,273 $ 4,205,662 $ 8,675,719
Direct costs 578,944 1,944,073 23,311,584 3,495,587 8,729,520
Selling, general and administrative 718,362 4,505,798 7,551,131 1,588,526 1,816,032
------------ ------------ ------------ ------------ ------------
Loss from operations before other (income)
expense and provision for taxes (375,707) (4,736,468) (3,614,442) (878,451) (1,869,833)
Interest expense, net -- 105,099 1,704,459 359,435 519,231
Equity in loss of unconsolidated
subsidiaries -- -- 33,776 -- 18,730
Foreign currency (gain) loss -- -- 126,575 8,238 (6,502)
Debt discount and other -- 12,604 (16,930) 7,946 911,027
------------ ------------ ------------ ------------ ------------
Loss from operations before taxes (375,707) (4,854,171) (5,462,322) (1,254,070) (3,312,319)
Provision for taxes -- -- -- -- --
============ ============ ============ ============ ============
Net loss $ (375,707) $ (4,854,171) $ (5,462,322) $ (1,254,070) $ (3,312,319)
============ ============ ============ ============ ============
Net loss per share - (basic and
diluted) $ (0.34) $ (0.08) $ (0.17)
Weighted average shares outstanding -
(basic and diluted) 16,000,000 16,000,000 19,744,397
PRO FORMA
--------------------------------
YEAR ENDED 3 MONTHS
ENDED
CONSOLIDATED STATEMENTS OF OPERATIONS DATA JUNE 30, 1999 SEPT. 30, 1999
------------- --------------
Net revenue $ 35,215,916 $ 14,695,002
Direct costs 30,308,717 14,805,280
Selling, general and administrative 12,690,917 3,669,538
------------ ------------
Loss from operations before other (income)
expense and provision for taxes (7,783,718) (3,779,816)
Interest expense, net 473,675 34,369
Equity in loss of unconsolidated
subsidiaries 33,776 18,730
Foreign currency (gain) loss 126,575 (6,502)
Debt discount and other 2,083,070 --
------------ ------------
Loss from operations before taxes (10,500,814) (3,826,413)
Provision for taxes 300 --
============ ============
Net loss $(10,501,114) $ (3,826,413)
============ ============
Net loss per share - (basic and
diluted) $ (0.28) $ (0.15)
Weighted average shares outstanding -
(basic and diluted) 37,863.610 37,863,610
INFINITY ENTITIES
e.VOLVE ----------------------------- PRO FORMA
AS OF AS OF AS OF AS OF
CONSOLIDATED BALANCE SHEET DATA JUNE 30, JUNE 30, SEPT. 30, SEPT. 30,
------------ ------------ ------------ ------------
1998 1999 1999 1999
------------ ------------ ------------ ------------
Cash and cash equivalents $ 2,417,216 $ 39,379 $ 6,346,023 $ 11,463,066
Working (deficit) capital (715,832) (6,590,569) (3,412,117) 3,576,095
Total assets 4,305,175 15,661,317 41,663,441 58,442,990
Capital lease obligations, net of current portion 487,665 2,031,513 1,750,160 1,750,160
Long term debt 5,410,000 6,828,948 -- --
Total shareholders' equity (5,121,478) (2,859,313) 25,999,660 47,086,646
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Management's Discussion and Analysis of Financial Condition and Results of
Operations
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS AND NOTES. THE RESULTS HEREIN ARE NOT NECESSARILY
INDICATIVE OF THE RESULTS TO BE EXPECTED IN ANY FUTURE PERIODS. THIS DISCUSSION
CONTAINS FORWARD-LOOKING STATEMENTS BASED ON CURRENT EXPECTATIONS, WHICH INVOLVE
RISKS AND UNCERTAINTIES. ACTUAL RESULTS AND THE TIMING OF CERTAIN EVENTS MAY
DIFFER SIGNIFICANTLY FROM THOSE PROJECTED IN SUCH FORWARD-LOOKING STATEMENTS DUE
TO A NUMBER OF FACTORS.
OVERVIEW
The financial information and other statistical data contained herein
represent the financial condition and results of operations of (i) e.Volve for
all periods prior to July 1, 1998 and (ii) 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 30, 1999. As a result, throughout this Form 10,
our financial statements as of any date and for any period beginning July 1,
1998 and ending on or prior to September 30, 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 i2v2.com and (b) our balance sheet as of September 30, 1999 reflects
the acquisition of Axistel. Financial information and other data as of any date
after September 30, 1999 is financial information and other data of eVentures.
We were originally incorporated in 1987 as "Adina, Inc." We allowed our
corporate existence to lapse in March 1996 and were subsequently reinstated as
"eVentures Group, Inc." in August 1999. From 1987 until the Reorganization, we
were an inactive company. As a result of the Reorganization, our business is now
based on the operations of two wholly owned subsidiaries, e.Volve and strategic
investments in three companies.
NET REVENUES. Net revenues are generated through the sale of
international Internet telephony minutes on a wholesale basis to other U.S.
long-distance providers. The Company's agreements with its wholesale customers
are short term in duration and the rates charged to 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. The Company's three largest
customers accounted for substantially all its net revenues.
DIRECT COSTS. Direct costs include per minute termination charges and
lease payments and fees for fiber optic cable. Prior to September 1999, the
Company only provided international telecommunication services from the United
States to Mexico. The majority of the 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. During September 1999
we began providing international telecommunication services from the United
States to India. All direct costs related to the India operation is billed in US
dollars. 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. The Company maintains a corporate office and two switch facilities.
Due to the international nature of its business, travel and development costs
have been significant and could continue to increase as we seek to expand our
network.
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SUMMARY OF OPERATING RESULTS
The table below summarizes the Company's operating results:
Fiscal Year Ended June 30,
------------------------------------------------------------------
1997 % 1998 % 1999 %
--------- ----- ----------- ------ ----------- ------
Revenues $ 921,599 100.0% $ 1,713,403 100.0% $27,248,273 100.00%
Direct costs 578,944 62.8% 1,944,073 113.5% 23,311,584 85.6%
--------- ----- ----------- ------ ----------- ------
Gross profit 342,655 37.2% (230,670) (13.5)% 3,936,689 14.4%
Selling, general and
administrative expenses 718,362 77.9% 4,505,798 263.0% 7,551,131 27.7%
--------- ----- ----------- ------ ----------- ------
Loss from operations (375,707) (40.8)% (4,736,468) (276.4)% (3,614,442) (13.3)%
Other (income) expenses
Interest expense, net -- 0.0% 105,099 6.1% 1,704,459 6.3%
Write off of unamortized
debt discount -- 0.0% -- 0.0% -- 0.0%
Equity in loss of
unconsolidated -- 0.0% -- 0.0% 33,776 0.1%
Foreign currency (gain) -- 0.0% -- 0.0% 126,575 0.5%
Other -- 0.0% 12,604 0.7% (16,930) (0.1)%
--------- ----- ----------- ------ ----------- ------
-- 0.0% 117,703 6.8% 1,847,678 7.9%
--------- ----- ----------- ------ ----------- ------
Loss from operation before
provision for taxes (375,707) (40.8)% (4,854,171) (283.3)% (5,462,322) (20.0)%
Provision for taxes -- 0.0% -- 0.0% -- 0.0%
--------- ----- ----------- ------ ----------- ------
Net loss $(375,707) (40.8)% $(4,854,171) (283.3)% $(5,462,322) (20.0)%
========= ===== =========== ====== =========== ======
Three Months Ended September 30,
-----------------------------------------------
1998 % 1999 %
----------- ------ ----------- ------
Revenues $ 4,205,662 100.00% $ 8,675,719 100.00%
Direct costs 3,495,587 83.1% 8,729,520 100.6%
----------- ------ ----------- ------
Gross profit 710,075 16.9% (53,801) (0.6)%
Selling, general and
administrative expenses 1,588,526 37.8% 1,816,032 20.9%
----------- ------ ----------- ------
Loss from operations (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 unamoritzed
debt discount
Equity in loss of -- 0.0% 917,615 10.6%
unconsolidated -- 0.0% 18,730 0.2%
Foreign currency (gain) 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%
----------- ------ ----------- ------
Loss from operation before
provision for taxes (1,254,070) (29.8)% (3,312,319) (38.2)%
Provision for taxes -- 0.0% -- 0.0%
----------- ------ ----------- ------
Net loss $(1,254,070) (29.8)% $(3,312,319) (38.2)%
=========== ====== =========== ======
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1998
NET REVENUES. Net 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 Mexico and the startup of providing
VOIP services to India during September 1999, offset by a decrease in the
average net revenue per minute as a result of increased competition in the
Mexican market.
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 from an increase in termination fees associated with the increase in
traffic transmitted to Mexico, additional costs related to the termination of
traffic in India and an increase in costs for fiber optic connections between
our points of presence. As a percentage of revenues, direct costs during the
three months ended September 30, 1999 increased to 100.6% from 83.1%.
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 and general operating activities, and an increase in
depreciation expense.
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 the
purchase of e.Volve's outstanding debentures by eVentures and the subsequent
elimination upon consolidation of these debentures in our consolidated
balance sheet.
EQUITY IN LOSS OF UNCONSOLIDATED SUBSIDIARIES. Equity in loss of
unconsolidated subsidiaries was $18,730 during the three months ended September
30, 1999. These losses occurred at a joint venture formed e.Volve in April 1999.
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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.
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.
FISCAL YEAR ENDED JUNE 30, 1999 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1998
NET REVENUES. Net revenues increased to $27.2 million during the year
ended June 30, 1999 from $1.7 million during the year ended June 30, 1998, an
increase of 1,490.3%. This primarily resulted from a successful launch in July
1998 of our enhanced communications services and an increase in the traffic
transmitted to Mexico.
DIRECT COSTS. Direct costs increased to $23.3 million during the year
ended June 30, 1999 from $1.9 million during the year ended June 30, 1998, an
increase of 1,099.1%. This increase in direct costs resulted from an increase in
termination fees associated with the increase in traffic transmitted to Mexico
and an increase in the fees for the fiber optic connections between our points
of presence. As a percentage of revenues, direct costs during the year-ended
June 30, 1999 decreased to 85.6% from 113.5% during the year-ended June 30,
1998.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses increased to $7.6 million during the year ended June 30,
1999 from $4.5 million during the year ended June 30, 1998, an increase of
67.6%. This increase resulted primarily from an increase in the operating staff
and general operating activities, and an increase in depreciation costs.
INTEREST EXPENSE, NET. Interest expense, net increased to $1.7 million
during the year ended June 30, 1999 from $105,099 during the year ended June 30,
1998, a increase of 1,521.8%. This increase was a result of higher charges
related to new equipment capital leases and interest on the debentures.
EQUITY IN LOSS OF UNCONSOLIDATED SUBSIDIARIES. Equity in loss of
unconsolidated subsidiaries was $33,776 during the year ended June 30, 1999.
These losses occurred at a joint venture the Company formed in April 1999.
FOREIGN CURRENCY (GAIN) LOSS. Foreign currency (gain) loss during the
year ended June 30, 1999 was a loss of $126,575.
OTHER. Other income was $16,930 during the year ended June 30, 1999
compared with an expense of $12,604 during the year ended June 30, 1998.
FISCAL YEAR ENDED JUNE 30, 1998 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1997
NET REVENUES. Net revenues increased to $1.7 million during the year
ended June 30, 1998 from $921,599 during the year ended June 30, 1997, an
increase of 85.9%. This primarily resulted from an increase in the minutes
transmitted to Mexico.
DIRECT COSTS. Direct costs increased to $1.9 million during the year
ended June 30, 1998 from $578,944 during the year ended June 30, 1997, an
increase of 235.8%. This increase in direct costs resulted from an increase in
the total minutes transmitted to Mexico. As a percentage of revenues, direct
costs during the year-ended June 30, 1998 increase to 113.5% from 62.8% during
the year-ended June 30, 1997.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses increased to $4.5 million during the year ended June 30,
1998 from $718,362 during the year ended June 30, 1997, an increase of 527.2%.
This increase resulted primarily from an increase in the operating staff and
general operating activities, and an increase in depreciation costs.
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INTEREST EXPENSE, NET. Interest expense, net was $105,099 during the
year ended June 30, 1998. This expense was a result of charges related to
capital leases of new equipment.
OTHER. Other expense was $12,604 during the year ended June 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have funded the operations of the Company primarily
through cash from operations and from the private placement of common stock,
preferred stock, warrants to purchase common stock and debt. As of September 30,
1999, we have raised a total $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 $6.0 million. Proceeds from these issuances
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 $10.5 million,
including cash, cash equivalents and short-term investments of $7.4 million, and
a working capital deficit of $3.4 million. Current assets included restricted
cash of $1.8 million and a tax refund receivable of $2.4 million.
CASH FLOWS FROM OPERATING ACTIVITIES:
Our operating activities generated cash of $26,000 during the period
between inception and June 30, 1997, used cash of $1.8 million during the year
ended June 30, 1998, used cash of $1.4 million during the year ended June 30,
1999, and generated cash $152,801 during the three months ended September 30,
1999. During the period between inception and June 30, 1997 cash flows from
operating activities primarily resulted from a combination of increases in
accounts payable, non-cash expenses, and increases in other accrued expenses,
offset by net losses and increases in accounts receivable and other receivables.
During the year ended June 30, 1998 cash used in operating activities primarily
resulted from a net loss, offset by non-cash expenses, increases in accounts
payable and customer deposits. During the year ended June 30, 1999 cash used in
operating activities primarily resulted from a net loss, an increase in tax
refund receivable and the securing of two letters of credit with restricted
cash, offset by increases in accounts payable and customer deposits, and
depreciation and amortization. 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 and an increase in restricted cash.
CASH FLOWS FROM INVESTING ACTIVITIES:
Our cash flow used by investing activities was $13,363 during the
period between inception and June 30, 1997, $1.8 million during the year ended
June 30, 1998, and $1.3 million during the year ended June 30, 1999, and we
generated cash flow from investing activities of $350,426 during the three
months ended September 30, 1999. During the period between inception and June
30, 1997 cash used by investing activities primarily resulted from deposits.
During the year ended June 30, 1998 cash used by investing activities primarily
resulted from investments in affiliates, purchases of fixed assets and the
purchase of securities. During the year ended June 30, 1999 cash used by
investing activities primarily resulted from purchases of fixed assets and
deposits, offset by proceeds from the sale of securities. During the three
months ended September 30, 1999 cash generated by investing activities primarily
consisted of cash acquired in the reverse merger acquisitions offset by uses to
purchase equipment, fund a recently formed joint venture, and make certain
deposits.
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CASH FLOWS FROM FINANCING ACTIVITIES:
Our cash flow from financing activities was $100 between the period
between inception and June 30, 1997, $6.0 million during the year ended June 30,
1998, $322,408 during the year ended June 30, 1999, and $5.8 million during the
three months ended September 30, 1999. During the period between inception and
June 30, 1997 cash provided by financing activities was immaterial. During the
year ended June 30, 1998 cash provided by financing activities was generated
primarily through the issuance of $6.0 of debentures. During the year ended June
30, 1999 cash provided by financing activities was generated through the
issuance of $2.0 million of debentures, offset by capital lease payments. During
the three months ended September 30, 1999 cash provided was attributable to the
issuance of $6.0 million of common stock and preferred stock, offset by capital
lease payments.
RECENTLY ADOPTED ACCOUNTING STANDARDS
See Note 3 to the Consolidated Financial Statements.
GENERAL
Our business plans will continue to require a substantial amount of
capital to fund its expansion of existing and recently acquired markets,
continuing to develop its network and fund operating losses and debt and capital
lease service requirements. We also 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 in the future. 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. There can be no assurance
that additional financing will be available or, if available, that financing can
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 short-term investments are expected to provide sufficient
liquidity to meet our capital requirements for approximately the next twelve
months.
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 $5.7 million of
capital leases BA Capital Corp. and Arrendadora BankAmerica, S.A.
SUBSEQUENT EVENTS
On October 5, 1999 we allowed a vendor to draw on our $1.1 million
letter of credit to settle certain accounts payable due to the vendor.
On October 15, 1999 we entered into an agreement to exchange common
stock to a vendor to settle certain accounts payable due to the vendor in the
amount of $3.2 million.
On November 18 and 26 and December 15 of 1999 we raised an aggregate of
$7.0 million in a private placement of preferred stock.
On November 30, 1999 we agreed to issue shares of common stock to
extinguish $1.1 million of notes payable to a vendor.
IMPACT OF THE YEAR 2000
The "year 2000 issue" generally describes the various problems that may
result from the improper processing of dates and date-sensitive calculations by
computers and other equipment as a result of computer hardware and software
using two digits to identify the year in a date. If a computer program or other
piece of equipment fails to
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27
properly process dates including and after the year 2000, date-sensitive
calculations may be inaccurate as a result of those computers and software
failing to distinguish dates in the 2000's from dates in the 1900's. The failure
to process dates could result in system failures or miscalculations causing
disruptions in operations including, among other things, a temporary inability
to process transactions, send invoices or engage in similar normal business
activities.
STATE OF READINESS. We have identified two areas for review: (i)
internal issues (including our information technology ("IT") assets and non-IT
systems); and (ii) external issues (including third-party manufactured products
sold by us, and issues with customers, vendors and suppliers). We are in the
process of contacting manufacturers and suppliers of IT and non-IT assets used
internally by us for services such as customer billing, customer service and
financial reporting, including manufacturers and suppliers of computer
equipment, software programs, telephone systems, data systems, systems
comprising our enterprise networks and equipment used to provide services to
customers. These contacts will help us to determine the extent to which these
systems could cause a material adverse effect on our operations in the event
that the systems fail to properly process date-sensitive calculations following
the year 2000. We are also actively identifying potential external issues which
could have an impact on our operations. These include issues with (i) the
functioning of third-party manufactured products sold by us to our customers;
(ii) significant customer systems, including customer-owned and operated systems
and systems that are connected to our networks; (iii) vendors and suppliers such
as credit facility providers, third-party service providers (e.g., local and
long distance wholesale providers and interconnection providers) and employee
benefit plan providers (e.g., 401(k) plan administrators).
Our evaluation of its state of year 2000 readiness is not complete. As
a result, we may in the future identify a significant internal or external year
2000 issue which, if not remediated in a timely manner, could have a material
adverse effect on our business, financial condition and results of operations.
COSTS. Other than time spent by our personnel which could be spent on
other matters, we have not incurred any significant costs in identifying year
2000 issues. We do not anticipate any significant further costs. Because no
material year 2000 issues have yet been identified, and therefore no contingency
plans have been finalized, we cannot reasonably estimate further costs relating
to remediation of any year 2000 issues at this time, or costs of contingency
plans. As we continue to gather information regarding its year 2000 issues, we
will reevaluate its ability to estimate costs associated with the year 2000
issue. There can be no assurance that as additional year 2000 issues are
addressed, our costs to correct such issues will be consistent with historical
costs.
RISKS OF YEAR 2000 ISSUES. Because no material year 2000 issues have
yet been identified, we cannot reasonably ascertain the extent of the risks
involved in the event that any one system fails to process date-sensitive
calculations accurately. Potential risks include the inability to process
customer billing accurately or in a timely manner, the inability to provide
accurate financial reporting to management, auditors, investors and others,
litigation costs associated with potential suits from customers and investors,
delays in implementing other IT projects as a result of work by internal
personnel on year 2000 issues, and delays in receiving payment or equipment from
customers or suppliers as a result of their systems' failure. Any one of these
risks, if they materialize, could individually have a material adverse effect on
our business, financial condition or results of operations.
As almost all of our IT and non-IT systems and products relating to our
internal and external issues are manufactured or supplied by third parties which
are outside of our control, there can be no assurance that all of those third
parties' systems will be year 2000 ready. If some or all of our internal and
external systems fail, or if any critical IT or non-IT systems are overlooked or
are not year 2000 ready in a timely manner, there could be a material adverse
effect on our business, financial condition or results of operations.
CONTINGENCY PLANS. Because no material year 2000 issues have yet been
identified, no contingency plans have yet been finalized.
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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.
Item 3. Properties
We are headquartered at One Evertrust Plaza in Jersey City, NJ and
maintain facilities as described in the following chart. We believe that our
existing facilities are adequate for our current needs and that suitable
additional or alternative space will be available in the future on commercially
reasonable terms.
LOCATION COMPANY SQUARE FEET DESCRIPTION OF USE LEASE EXPIRATION
-------- ------- ----------- ------------------ ----------------
Jersey City, NJ eVentures 10,800 Switch and network operations center March 1, 2009
e.Volve Executive and administrative officers 5-year renewal option
AxisTel
Mexico City, Mexico e.Volve 2,324 Switch and network operations center November 2002
5-year renewal option
Overland, KS e.Volve 3,573 Switch, engineering, administrative January 2005
network operations center
Item 4. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information with respect to the
beneficial ownership of our outstanding common stock as of December 16, 1999 by:
o each person who is the beneficial owner of more than 5% of our
capital stock;
o each of our directors;
o each of our named executive officers; and
o all of our named executive officers and directors as a group.
All of the shares indicated in the table are shares of common stock.
Percentage
Number of Shares Beneficially
Holders Beneficially Owned Owned(1)
- ------- ------------------ --------
IEO Investments Limited ("IEOIL")(2) 11,816,200 25.8%
Infinity Emerging Subsidiary Limited("IESL")(3) 8,683,800 19.0
Infinity Investors Limited("IIL")(4) 8,500,000 18.6
Clark K. Hunt(5) 20,638,913 45.1
Barrett N. Wissman(6) 17,512,713 38.3
Fred A. Vierra(7) 25,000 *
Stuart Chasanoff(8) 57,500 *
Mark Graham(9) 175,000 *
Stuart Subotnik(10) 250,000 *
John Stevens Robling, Jr.(11) 120,000 *
Samuel Litwin(12) 2,000,000 4.4
Mitchell Arthur(13) 2,000,000 4.4
Officers and Directors as a Group
(9 Persons) 33,991,413 74.3
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* Represents less than one percent.
(1) Percentage of beneficial ownership is based on 45,207,673 shares of
common stock outstanding at December 15, 1999, 200,000 shares of common
stock issuable upon conversion of 1,000 shares of our Series A
Convertible Preferred Stock and 514,246 shares of common stock issuable
upon conversion of 7,000 shares of Series B stock. On November 11,
1999, we issued a notice to the holder of the Series A Convertible
preferred stock exercising our right to convert those shares into
200,000 shares of our common stock, but we have not yet issued those
shares. Also, on October 15, 1999, we agreed to issue approximately
240,000 shares of common stock to a vendor in exchange for $3.2 million
of accounts payable owed to such vendor and on November 30, 1999 we
agreed to issue 125,000 shares of common stock to a different vendor in
exchange for $1,100,000 of notes payable owed to such vendor. All of
these issuances have been approved by our board of directors as of
December 15, 1999. If all of such shares had been issued, we would have
had 46,486,919 shares of common stock outstanding. All percentage
calculations assume that all shares of our Series B stock have been
converted into shares of our common stock.
(2) The address of IEOIL is Hunkins Waterfront Plaza, Main Street P.O. Box
556, Charlestown, Nevis, West Indies.
(3) The address of IESL is Hunkins Waterfront Plaza, Main Street P.O. Box
556, Charlestown, Nevis, West Indies.
(4) The address of IIL is Hunkins Waterfront Plaza, Main Street P.O. Box
556, Charlestown, Nevis, West Indies.
(5) Represents 11,816,200 shares of common stock owned by IEOIL, 8,683,800
shares of common stock owned by IESL, 103,913 shares of common stock
owned by HW Capital, L.P., and 35,000 shares of common stock owned by
Mr. Hunt. Mr. Hunt disclaims beneficial ownership of the shares of
common stock held by IEOIL and IESL. Mr. Hunt's address is 4000
Thanksgiving Tower, 1601 Elm Street, Dallas, Texas 75201.
(6) Represents 8,683,800 shares of common stock owned by IESL, 8,500,000
shares of common stock owned by IIL, 103,913 shares of common stock
owned by HW Capital, L.P., 200,000 shares of common stock owned by the
Sienna Trust, and 25,000 shares of common stock owned by Mr. Wissman.
Mr. Wissman disclaims beneficial ownership of the shares of common
stock held by IESL and IIL. Mr. Wissman's address is 4000 Thanksgiving
Tower, 1601 Elm Street, Dallas, Texas 75201.
(7) Represents 25,000 shares of common stock owned by Mr. Vierra and his
wife as joint tenants. Mr. Vierra's address is 6400 W. Fiddler's Green
Circle, Suite 710, Englewood, Colorado 80111.
(8) Mr. Chasanoff's address is 4000 Thanksgiving Tower, 1601 Elm Street,
Dallas, Texas 75201.
(9) Represents 125,000 shares of common stock owned by Pinnacle
Investments, Ltd. and 50,000 shares of common stock owned by Mr.
Graham. Mr. Graham's address is 500 College, Haverford, Pennsylvania
19041.
(10) Mr. Subotnik's address is 215 East 67th Street, 7th Floor, New York,
New York 10021.
(11) Mr. Robling's address is 1 Evertrust Plaza, 8th Floor, Jersey City, NJ
07302.
(12) Mr. Litwin's address is 1 Evertrust Plaza, 8th Floor, Jersey City, NJ
07302.
(13) Mr. Arthur's address is 1 Evertrust Plaza, 8th Floor, Jersey City, NJ
07302.
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Item 5. Directors and Executive Officers
The following persons are our directors and executive officers:
Name Age Position
- ---- --- --------
Fred A. Vierra 68 Chairman of the Board
Barrett N. Wissman 37 President and Chief Executive Officer, Director
Clark K. Hunt 34 Director
Mark R. Graham 41 Director
Olaf Guerrand-Hermes 35 Director
Stuart Subotnick 57 Nominee for Board of Directors
Jan Robert Horsfall 39 Chief Internet Strategist, Nominee for Board of Directors
Stuart Chasanoff 34 Vice President of Business Development,
General Counsel and Secretary
John Stevens Robling, Jr. 49 Vice President, Chief Financial Officer, Treasurer and
Assistant Secretary
Samuel Litwin 44 Managing Director of Communications Holdings
Mitchell Arthur 32 Managing Director of Communications Holdings
DIRECTORS
Fred A. Vierra, 67, has been our Chairman of the Board and one of our
directors as of September 22, 1999. He was Chief Executive Officer of
Tele-Communications International, Inc., the international arm of
Tele-Communications, Inc. ("TCI"), from 1994 to 1997. He was also Vice Chairman
of the Board of Directors until November 1998. Prior to joining TCI, Mr. Vierra
was President and Chief Operating Officer of United Artists Entertainment
Company ("UAEC"), where he was in charge of all day-to-day operations and
ongoing strategies for the corporation. In this position, Mr. Vierra also
directed the activities of both UAEC's cable television and theater division
presidents. He also served as President of United Cable Television Corporation,
which was merged into UAEC in 1989. Mr. Vierra began his career in the cable
industry as Executive Vice President, Investment Banking, for Daniels &
Associates, the leading financial services company for the cable industry. Mr.
Vierra has served on the Boards of Turner Broadcasting, Discovery Channel,
Princes Holdings Ltd., Australas Media Ltd., Torneos y Competencias S.A.,
Tele-Communications International, Inc., and Telewest plc. Currently, Mr. Vierra
is Chairman of the Board of VeloCom Inc. and a Board member of Flextech plc,
Formus Communications, Inc., and Jones International Networks, Ltd.
Barrett N. Wissman, 37, has been our President and Chief Executive
Officer and one of our directors as of September 22, 1999. He is sole manager of
HW Partners, L.P., and a Managing Director of HW Capital, L.P. and related
investment advisory companies. Prior to co-founding these entities, Mr. Wissman
served as Chief Executive Officer of Athena Products Corporation, a manufacturer
and marketer of chemicals, fertilizers and household consumer products and its
subsidiaries and affiliates (collectively, "Athena") and oversaw all aspects of
Athena's operations, including administration, finance, marketing and
production. Mr. Wissman ultimately orchestrated the sale of Athena's assets,
including the licensing of several of Athena's manufacturing processes and
trademarks. From 1985 to 1987 Mr. Wissman was an analyst at Lazard Freres & Co.,
L.L.C. in the areas of international mergers and acquisitions and international
project finance. Mr. Wissman holds Bachelor of Arts degrees, cum laude, in
economics and political science from Yale University and a Master of Arts degree
in music from Southern Methodist University.
Clark K. Hunt, 34, has been one of our directors as of September 22,
1999. He is President of Hunt Financial Group, L.L.C., a Dallas, Texas based
financial service firm and is a manager of HW Capital, L.P., Hunt Financial
Partners, L.P. and related investment advisory companies. Prior to co-founding
these entities, Mr. Hunt was an analyst at Goldman, Sachs & Co. in New York and
Los Angeles. At Goldman Sachs, he participated in financing transactions with an
aggregate value in excess of $1 billion. These transactions included mergers,
acquisitions, initial public offerings, cross-currency swaps and leveraged
buy-outs. Mr. Hunt is also involved with several
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family controlled enterprises including venture capital investor Hunt Capital
Group, real estate and mining conglomerate, Hunt Midwest Enterprises, and Hunt
Sports Group. Hunt Sports Group is the management company responsible for
overseeing the Hunt family's investments in the Kansas City Chiefs of the
National Football League, the Chicago Bulls of the National Basketball
Association and two franchises in the newly launched Major League Soccer. Mr.
Hunt serves as a director of United Petroleum Corporation and Granite Golf
Corporation. Mr. Hunt attended Southern Methodist University, where he graduated
first in his class with a Bachelor of Business Administration and was a two-time
recipient of the University's highest academic award, the Provost Award for
Outstanding Scholar.
Mark R. Graham, 41, has been one of our directors as of September 22,
1999. He has been a private investor based in Philadelphia, Pennsylvania since
1997. Mr. Graham co-founded Drake Goodwin & Graham, a private equity investment
firm, in 1992 and served as a director until 1997. Prior to co-founding Drake
Goodwin & Graham, Mr. Graham was employed with Morgan Stanley in its Mergers &
Acquisitions department, serving as an associate and thereafter as a Vice
President from 1987 to 1992. Mr. Graham served as an associate with E.F. Hutton
LBO Inc., the leveraged buyout group of E.F. Hutton & Co. from 1984 to 1987.
From 1983 to 1984, Mr. Graham was an associate attorney with Bracewell &
Patterson, Houston, Texas. Mr. Graham received a Bachelor of Arts in History,
cum laude, from the University of Michigan and a Juris Doctor degree from
Georgetown University Law Center.
Olaf Guerrand-Hermes, 35, has been one of our directors as of September
22, 1999. He has been investing privately in Europe and in the United States
since the early 1990s. He is a Managing Partner at Blue Growth Capital, LLC, an
investment partnership. Prior to organizing Blue Growth Capital, Mr.
Guerrand-Hermes was Managing Director of International Equities at The Athena
Group, a private international investment management company. At The Athena
Group, Mr. Guerrand-Hermes was primarily responsible for international projects
as well as raising equity capital for proposed investments. Prior to joining The
Athena Group, Mr. Guerrand-Hermes was Vice President at Nomura Securities
International, Inc., specializing in structured finance products such as
commercial mortgage backed securities. In addition to his experience in the
field of finance, Mr. Guerrand-Hermes was an associate with Sullivan & Cromwell,
a New York law firm, where he was involved in a variety of international
transactions, including public offerings and private placements in the United
States by European and other foreign companies and governments. Mr.
Guerrand-Hermes is a member of the New York bar, a graduate of New York
University School of Law and holds two masters from the University of
Pantheon-Assas (Paris II) in Paris, France. Mr. Guerrand-Hermes is a member of
the board of directors of various companies including Hermes-Sellier.
Stuart Subotnik, 57, is a nominee to our Board of Directors and has
accepted a position as one of our directors effective as of January 1, 2000. Mr.
Subotnik has been retained as a consultant to eVentures for the period prior to
his joining our board as of the special meeting held by the Board of Directors
dated October 14, 1999. He is a general partner and an owner of Metromedia
Company. He is also Chief Executive Officer of Metromedia International Group,
Chairman of Big City Radio, Inc. and a director of Metromedia Fiber Network,
Inc. Mr. Subotnik will act on a consulting basis with eVentures until January 1,
2000 when he formally takes his seat on our board. Since 1981, Mr. Subotnick has
operated investments in businesses such as long distance providers, motion
picture companies, restaurant chains, hotels, a diesel pump manufacturer,
medical equipment research groups, software developers, Internet providers,
laser disc distributors and Major League Soccer.
Jan Robert Horsfall, 39, is a nominee to our Board of Directors and
has accepted a position as one of our directors effective as of January 1, 2000.
Mr. Horsfall is also our Chief Internet Strategist as of the special meeting
held by the Board of Directors dated October 14, 1999. Mr. Horsfall is Chief
Executive Officer and President of i2v2.com, a company 16% owned by eVentures
Group, Inc. and also known as PhoneFree.com. Prior to his position with i2v2.com
and eVentures and between 1996 and 1999, Mr. Horsfall was Vice President of
Marketing for Lycos Inc., where he was responsible for all marketing, public
relations, database marketing, product management, advertising and promotion.
Prior to joining Lycos, Mr. Horsfall was Vice President of Consumer Brands at
The Valvoline Company, a division of Ashland, Inc. Mr. Horsfall has a Bachelor
of Science degree from Colorado State University.
EXECUTIVE OFFICERS THAT ARE NOT DIRECTORS
Stuart Chasanoff, 34, has been our Vice President of Business
Development, General Counsel and Secretary as of September 22, 1999. Prior to
joining eVentures, Mr. Chasanoff was Senior Vice President and General Counsel
to HW Partners, L.P., a Texas limited partnership that manages pooled investment
vehicles for
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32
high net worth and institutional investors. At HW Partners, Mr. Chasanoff was
responsible for developing investments in a portfolio of publicly held microcap
companies and privately held start up companies in a variety of fields,
including telecommunications, high technology manufacturing, entertainment and
retailing. Mr. Chasanoff also oversaw the development of various investment
vehicles and was involved in all phases of HW Partners' day to day operations.
Between 1990 and 1994, and again in 1996, Mr. Chasanoff was an associate
corporate attorney with the New York office of White & Case specializing in
mergers and acquisitions, capital markets, corporate reorganizations and
financial services. Additionally, he served as in-house counsel at PepsiCo.,
Inc. from 1994 to 1995, practicing in the areas mergers and acquisitions,
capital markets, international joint ventures and derivative transactions. Mr.
Chasanoff has been a director of United Petroleum Corporation a Florida based
chain of convenience stores, since November 12, 1999, a director of Granite Golf
Group, Inc. a Scottsdale, Arizona based golf course management company, since
November 1998 and a director of Tamboril Cigar Company, a Miami based
manufacturer of cigars, since December 1998. Mr. Chasanoff is a member of the
New York bar, a 1990 cum laude graduate of the Fordham University School of Law
and a 1987 graduate of the University of Virginia with a Bachelor of Arts degree
in Political and Social Thought.
John Stevens Robling, Jr., 49 has been our Vice President, Chief
Financial Officer and Assistant Secretary as of September 22, 1999 and our
Treasurer as of September 22, 1999. Mr. Robling is also currently serving as
Chief Financial Officer of i2v2, one of the investment holdings of eVentures
Group, Inc. Prior to his appointment in these positions, Mr. Robling was Chief
Financial Officer of Axistel Communications, Inc., and he continues to hold this
position. Before joining Axistel in 1998, Mr. Robling was an independent
financial advisor and specialized in offering private equity investment services
to various clients. From 1992 to 1997, Mr. Robling was a principal, board
member, and member of the investment committee of Hamilton Lane Advisors, Inc.
("Hamilton Lane"). Hamilton Lane is a private equity consulting firm
headquartered in Philadelphia, Pennsylvania. Prior to joining Hamilton Lane, Mr.
Robling was a Vice President at Lazard Freres & Co. in its International and
Mergers and Acquisitions departments. In these capacities, he assisted clients
in 18 financial advisory or capital markets assignments which had an overall
transaction value in excess of $3 billion dollars. He was also a member of the
Country Advisory Group, an informal partnership among Lazard Freres & Co., S.G.
Warburg and Lehman Brothers which advised the sovereign governments of
developing countries. In connection with these engagements, Mr. Robling provided
financial advisory services to national telecommunications authorities and
multi-national telecommunications companies. Mr. Robling received an MBA from
the University of Chicago and graduated with distinction from Georgetown
University, where he majored in economics.
Samuel Litwin, 44, has been our Managing Director of Communications
Holdings as of the special meeting held by the Board of Directors dated
September 22, 1999. He is also Chief Executive Officer of AxisTel
Communications, Inc., a company wholly owned by eVentures Group, Inc.
Mitchell Arthur, 32, has been our Managing Director of Communications
Holdings as of the special meeting held by the Board of Directors dated
September 22, 1999. He is also President of AxisTel Communications, Inc., a
company wholly owned by eVentures Group, Inc.
Committee of the Board of Directors
Our Board of Directors has established an Audit Committee consisting of
Messrs. Vierra and Guerrand-Hermes, and a Compensation Committee, consisting of
Messrs. Graham, Hunt and Wissman. Neither committee has held any meetings as of
December 15, 1999.
Item 6. Executive Compensation
Summary Compensation Table for Fiscal Year 2000
Prior to September 22, 1999, we did not have any employees. Daniel L.
Wettriech served as our President during the fiscal year ended April 30, 1999
and continued as President until the Reorganization. The following
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33
table identifies the officers who we believe will be our most highly compensated
executive officers during fiscal year 2000. All of the named executive officers
listed below have served as executive officers of eVentures since September 22,
1999. In addition, all of the named executive officers listed below are being
compensated by eVentures during fiscal 2000, except for Barrett N. Wissman who
receives a salary of $120,000 from HW Partners. We are obligated to reimburse
HW Partners for Mr. Wissman's salary pursuant to the Management Services
Agreement described in Item 7 below.
Annual Long Term
Compensation Compensation ($)
- -------------------------------------------------------------------------------------------------------------------------------
Name and Principal Position Fiscal Salary($) Bonus($) Restricted Securities LTIP All Other
Year Stock Underlying Payouts Compensation
Award(s)($) Options/SARs ($) ($)
(#)
- -------------------------------------------------------------------------------------------------------------------------------
Barrett N. Wissman 2000 $120,000 None None 100,000 None None
President and Chief
Executive Officer
- -------------------------------------------------------------------------------------------------------------------------------
Stuart Chasanoff 2000 $160,000 discretionary None 500,000 None None
Vice President of Business
Development, General Counsel
and Secretary
- -------------------------------------------------------------------------------------------------------------------------------
John Stevens Robling Jr. 2000 $180,000 discretionary None 425,000 None None
Vice President, Chief
Financial Officer, Treasurer
and Assistant Secretary
- -------------------------------------------------------------------------------------------------------------------------------
Samuel Litwin 2000 $180,000 discretionary None 425,000 None None
Managing Director of
Communications Holdings
- -------------------------------------------------------------------------------------------------------------------------------
Mitchell Arthur 2000 $180,000 discretionary None 425,000 None None
Managing Director of
Communications Holdings
- -------------------------------------------------------------------------------------------------------------------------------
Option Grants During Fiscal Year 2000
Prior to September 22, 1999, we did not grant any stock options. We
have never granted any stock appreciation rights ("SARs"). The following table
describes the options to acquire shares of our common stock granted to the
individuals named above during fiscal year 2000 to date. All of the named
executive officers listed below have served as our executive officers since
September 22, 1999:
- --------------------
-33-
34
- -----------------------------------------------------------------------------------------------------------
Number of % of Total Potential Realizable
Securities Options/SARs Value at Assumed
Underlying Granted to Annual Rates of
Name eVentures Employees Exercise or Stock Price
Options/SARs in Fiscal Year Base Price Expiration Appreciation for
Granted (#) (%)(2) ($/Sh) Date Option Term(1)
- -----------------------------------------------------------------------------------------------------------
5% ($) 10% ($)
- -----------------------------------------------------------------------------------------------------------
Barrett N. Wissman 100,000 4.71% $10 9/22/2009 $713,456 $1,136,059
President and Chief
Executive Officer
- -----------------------------------------------------------------------------------------------------------
Stuart Chasanoff 500,000 23.53% $2.50, 9/22/2009
Vice President of $5.00
Business Development $7.50
General Counsel and
Secretary Total $3,567,272 $5,680,285
- -----------------------------------------------------------------------------------------------------------
John Stevens Robling Jr. 425,000 20.00% $10 9/22/2009 $3,032,187 $4,828,252
Vice President, Chief
Financial Officer,
Treasurer and Assistant
Secretary
- -----------------------------------------------------------------------------------------------------------
Samuel Litwin 425,000 20.00% $10 9/22/2009 $3,032,187 $4,828,252
Managing Director of
Communications Holdings
- -----------------------------------------------------------------------------------------------------------
Mitchell Arthur 425,000 20.00% $10 9/22/2009 $3,032,187 $4,828,252
Managing Director of
Communications Holdings
- -----------------------------------------------------------------------------------------------------------
(1) Assumes that the fair market value of our common stock on the date of
each grant was $4.38 per share, which was the average of the closing bid and
asked price of the common stock on that date.
(2) Percentage of total options granted to employees in fiscal year 2000 is
based on 1,875,000 options granted to employees in accordance with employment
agreements entered into in connection with the Reorganization Plan, 150,000
options received by Jan Robert Horsfall as part of the consideration for his
employment as our Chief Internet Strategist and his agreement to serve as one of
our directors, and 100,000 options received by Stuart Subotnik as part of the
consideration for his agreement to act as a our consultant and his agreement to
serve as one of our directors.
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35
Aggregated Option Exercises and Year-End Option Values in Fiscal Year 2000
The following table describes the value of our options exercised in
fiscal year 2000 and the value of unexercised options held by our officers at
December 16, 1999. 1 None of the other individuals named in the Summary
Compensation Table for fiscal year 2000 were granted options to purchase our
shares prior to September 22, 1999.
- ----------------------------------------------------------------------------------------------------------------------------
Number of Shares Number of Securities Value of Unexercised
Acquired on Value Underlying Unexercised Options in-the-Money Options at
Names Exercise(1)(#) Realized($) at Fiscal Year End(1)(#) Fiscal Year-End($)
--------------------------------------------------------------
Exercisable/Unexercisable Exercisable/Unexercisable
- ----------------------------------------------------------------------------------------------------------------------------
Barrett N. Wissman _ _ _ _ N/A N/A
President and Chief
Executive Officer
- ----------------------------------------------------------------------------------------------------------------------------
Stuart Chasanoff _ _ _ _ N/A N/A
Vice President of Business
Development General Counsel
and Secretary
- ----------------------------------------------------------------------------------------------------------------------------
John Stevens Robling Jr. _ _ _ _ N/A N/A
Vice President, Chief
Financial Officer, Treasurer
and Assistant Secretary
- ----------------------------------------------------------------------------------------------------------------------------
Samuel Litwin _ _ _ _ N/A N/A
Managing Director of
Communications Holdings
- ----------------------------------------------------------------------------------------------------------------------------
Mitchell Arthur _ _ _ _ N/A N/A
Managing Director of
Communications Holdings
- ----------------------------------------------------------------------------------------------------------------------------
(1) (Covers the period between September 22, 1999 and December 20, 1999,
which is the period during which these persons were directors)
(2) Subsequent to our Fiscal year end, we granted options to each of the
named individuals (see chart on page (38)).
Compensation of Directors
On September 22, 1999, pursuant to our 1999 Omnibus Securities Plan
described below, we granted a total of 600,000 options to purchase shares of our
common stock to our newly appointed directors. In addition, on October 14, 1999,
pursuant to our 1999 Omnibus Securities Plan described below, we granted an
additional 350,000 options to purchase shares of our common stock to Stuart
Subotnik and Jan Robert Horsfall, in connection with their agreement to serve as
our directors. Other than as provided by our 1999 Omnibus Securities Plan
described below and the reimbursement of reasonable expenses incurred with
attending board and committee meetings, we have not yet adopted specific
policies on directors' compensation and benefits as of the date of this filing.
Employment Agreements
Barrett N. Wissman is employed as our President and Chief Executive
Officer pursuant to a Management Services Agreement with HW Partners, L.P. dated
as of September 22, 1999. See "Item 7-Related Party Transactions".
Stuart Chasanoff, our Vice President of Business Development, General
Counsel and Secretary, is employed pursuant to an employment agreement that was
entered into on September 22, 1999. The agreement commenced on September 22,
1999 and will expire on September 21, 2002, and will automatically be extended
for additional terms of successive one year periods unless either we or Mr.
Chasanoff notifies the other in writing at least sixty days prior to the
expiration of the then current term that the extension will not take effect. Mr.
Chasanoff will receive an annual base salary of (a) $160,000 for the period
October 1, 1999 through September 21, 2000;
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36
(b) $172,800 for the period September 22, 2000 through September 21, 2001; and
(c) $186,624 for the period September 22, 2001 through September 21, 2002. Mr.
Chasanoff's employment agreement provides him with the eligibility to receive
discretionary bonuses payable by us on such terms and conditions as determined
by the board of directors or the compensation committee of such board. In
addition, Mr. Chasanoff's employment agreement also grants him an option to
purchase 500,000 shares of our common stock, pursuant to our 1999 Omnibus
Securities Plan described below. These options have an exercise price and shall
vest as follows: (a) $2.50 per share for 166,666 shares which shall vest on
September 21, 2000; (b) $5.00 per share for $166,667 shares which shall vest on
September 21, 2001; and (c) $7.50 per share for 166,667 shares which shall vest
on September 21, 2002. These options will vest immediately (a) if we terminate
Mr. Chasanoff's employment without cause, (b) if Mr. Chasanoff terminates his
employment for good reason or (c) if the options are accelerated upon a change
of control of our company. Mr. Chasanoff's employment may be terminated for
cause, without cause, by voluntary resignation, death or disability. If at least
thirty days prior to the expiration of the employment term we have failed to
offer to extend the term for a period of at least one year on substantially
identical terms as set forth in the agreement, then Mr. Chasanoff shall be
entitled to receive payments of an amount equal to his then monthly rate of base
salary for a period of six months following the date of termination.
Mitchell Arthur, our Managing Director of Communications Holdings and
the President of AxisTel Communications, Inc., a company wholly owned by
eVentures Group, Inc., is employed by AxisTel Communications, Inc. pursuant to
an employment agreement that was entered into on October 28, 1998 and amended
and restated on September 22, 1999. The amended and restated employment
agreement commenced on September 22, 1999 and shall continue for twenty-four
months, expiring on September 21, 2001. Upon the end of this initial term,
AxisTel has agreed to offer to extend the term of employment for one additional
year ending September 21, 2002 on substantially identical terms and base salary
applicable at the time of expiration of the initial term of employment, but
without the requirement for the issuance of any additional stock options. In
addition, the employment agreement may be renewed by mutual agreement of the
parties at the end of each term for additional one year periods. Under the
amended and restated employment agreement, Mr. Arthur will receive an annual
base salary of $180,000 during each fiscal year of the term of employment. This
compensation shall be reviewed at least annually by our board of directors, and
any appropriate increases to this base salary may be made at the sole discretion
of our board. Mr. Arthur's employment agreement provides him with the
eligibility to receive discretionary bonuses payable by us on such terms and
conditions as determined by our board of directors or the compensation committee
of such board. In addition, Mr. Arthur's employment agreement also grants him an
option to purchase 425,000 shares of our common stock, pursuant to our 1999
Omnibus Securities Plan described below. These options have an exercise price of
$10 per share and shall vest as follows: (a) 141,166 shares (1/3) shall vest on
September 21, 2000; (b) 141,167 shares (1/3) shall vest on September 21, 2001;
and (c) 141,167 shares (1/3) which shall vest on September 21, 2002. These
options will vest immediately (a) if we terminate Mr. Arthur's employment
without cause, (b) if we fail to extend, as agreed, Mr. Arthur's term of
employment for an additional year after the expiration of the initial term or
(c) if the options are accelerated upon a change of control of our company. Mr.
Arthur's employment may be terminated for cause, without cause, by voluntary
resignation, death or disability. If AxisTel terminates Mr. Arthur's employment
during the term of the agreement without cause, then Mr. Arthur shall be
entitled to receive his base salary then in effect for the remainder of the term
and the contractual restriction on Mr. Arthur's ability to sell any shares of
our common stock set forth in the registration rights agreement executed on
September 22, 1999 shall terminate and cease to apply to Mr. Arthur .
Mr. Samuel Litwin, our Managing Director of Communications Holdings and
the President of AxisTel Communications, Inc., a company wholly owned by
eVentures Group, Inc., is employed by AxisTel Communications, Inc. pursuant to
an employment agreement that was entered into on October 28, 1998 and amended
and restated on September 22, 1999. The amended and restated employment
agreement commenced on September 22, 1999 and shall continue for twenty-four
months, expiring on September 21, 2001. Upon the end of this initial term,
AxisTel has agreed to offer to extend the term of employment for one additional
year ending September 21, 2002 on substantially identical terms and base salary
applicable at the time of expiration of the initial term of employment, but
without the requirement for the issuance of any additional stock options. In
addition, the employment agreement may be renewed by mutual agreement of the
parties at the end of each term for additional one year periods. Under the
amended and restated employment agreement, Mr. Litwin will receive an annual
base salary of $180,000 during each fiscal year of the term of employment. This
compensation shall be reviewed at least
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37
annually by our board of directors, and any appropriate increases to this base
salary may be made at the sole discretion of our board. Mr. Litwin's employment
agreement provides him with the eligibility to receive discretionary bonuses
payable by us on such terms and conditions as determined by our board of
directors or the compensation committee of such board. In addition, Mr. Litwin's
employment agreement also grants him a stock option to purchase 425,000 shares
of our common stock, pursuant to our 1999 Omnibus Securities Plan described
below. These options have an exercise price of $10 per share and shall vest as
follows: (a) 141,166 shares (1/3) shall vest on September 21, 2000; (b) 141,167
shares (1/3) shall vest on September 21, 2001; and (c) 141,167 shares (1/3)
which shall vest on September 21, 2002. These options will vest immediately (a)
if we terminate Mr. Litwin's employment without cause, (b) if we fail to extend,
as agreed, Mr. Litwin's term of employment for an additional year after the
expiration of the initial term or (c) if the options are accelerated upon a
change of control of our company. Mr. Litwin's employment may be terminated for
cause, without cause, by voluntary resignation, death or disability. If AxisTel
terminates Mr. Litwin's employment during the term of the agreement without
cause, then Mr. Litwin shall be entitled to receive his base salary then in
effect for the remainder of the term and the contractual restriction on Mr.
Litwin's ability to sell any shares of our common stock set forth in the
registration rights agreement executed on September 22, 1999 shall terminate and
cease to apply to Mr. Litwin.
At present, none of the other named executive officers or key employees is party
to an employment agreement with us.
1999 Omnibus Securities Plan
The Board of Directors and our stockholders adopted and approved our
1999 Omnibus Securities Plan (the "Omnibus Plan") as of September 22, 1999.
Under the Omnibus Plan, our officers, directors, key employees and consultants,
together with those of our subsidiaries, are eligible to receive stock options,
restricted and unrestricted stock awards, dividend equivalent rights, interest
equivalents, stock appreciation rights, and performance stock awards. No person
can be granted in any calendar year awards under the Omnibus Plan covering more
than 500,000 shares of our common stock.
We have authorized and reserved 15 percent of our issued and
outstanding shares of common stock, at any time, for delivery upon the exercise
of stock options, or under other awards, granted pursuant to the Omnibus Plan,
as that number of shares is determined in calculating our fully diluted earnings
per share for our fiscal year immediately preceding such time; however, we may
not deliver more than a total of 4,000,000 shares of our common stock upon the
exercise of "incentive stock options." The shares of our common stock that may
be issued under the Omnibus Plan may be either authorized and unissued shares or
previously issued shares held as treasury shares. Options to purchase 2,450,000
shares of our common stock were granted on September 22, 1999 in relation to the
Reorganization Plan, and options to purchase 350,000 shares were granted on
October 14, 1999 to eligible individuals. As of December 16, 1999, no options
granted under the Omnibus Plan have been exercised, and no types of awards other
than options have been granted under the Omnibus Plan. These options granted
under the Omnibus Plan have a weighted average exercise price of 8.75 per share.
The following table summarizes, for each option granted and outstanding under
the Omnibus Plan as of December 16, 1999, the date of grant, recipient, vesting
schedule, exercise price and total number of shares covered by such option.
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- ----------------------------------------------------------------------------------------------------------------------
Vesting Schedule
----------------------------------------------------------
Grant Date Name Total Number of Number of Shares Date Vesting Exercise Price
Shares Granted Vesting
- ----------------------------------------------------------------------------------------------------------------------
September 22, 1999 Stuart Chasanoff 500,000 166,666 September 21, 2000 $2.50
----------------------------------------------------------
166,667 September 21, 2001 $5.00
----------------------------------------------------------
166,667 September 21, 2002 $7.50
- ----------------------------------------------------------------------------------------------------------------------
September 22, 1999 Samuel L. Litwin 425,000 141,166 September 21, 2000 $10.00
----------------------------------------------------------
141,167 September 21, 2001 $10.00
----------------------------------------------------------
141,167 September 21, 2002 $10.00
- ----------------------------------------------------------------------------------------------------------------------
September 22, 1999 Mitchell Arthur 425,000 141,166 September 21, 2000 $10.00
----------------------------------------------------------
141,167 September 21, 2001 $10.00
----------------------------------------------------------
141,167 September 21, 2002 $10.00
- ----------------------------------------------------------------------------------------------------------------------
September 22, 1999 John Stevens 425,000 141,166 September 21, 2000 $10.00
Robling, Jr.
----------------------------------------------------------
141,167 September 21, 2001 $10.00
----------------------------------------------------------
141,167 September 21, 2002 $10.00
- ----------------------------------------------------------------------------------------------------------------------
September 22, 1999 Annette Dickson 15,000 5,000 September 21, 2000 $2.50
----------------------------------------------------------
5,000 September 21, 2001 $2.50
----------------------------------------------------------
5,000 September 21, 2002 $2.50
- ----------------------------------------------------------------------------------------------------------------------
September 22, 1999 William Carroll 60,000 20,000 September 21, 2000 $2.50
----------------------------------------------------------
20,000 September 21, 2001 $2.50
----------------------------------------------------------
20,000 September 21, 2002 $2.50
- ----------------------------------------------------------------------------------------------------------------------
September 22, 1999 Fred Vierra 200,000 100,000 September 21, 1999 $10.00
----------------------------------------------------------
100,000 September 21, 2000 $10.00
- ----------------------------------------------------------------------------------------------------------------------
September 22, 1999 Clark Hunt 100,000 50,000 September 21, 1999 $10.00
----------------------------------------------------------
50,000 September 21, 2000 $10.00
- ----------------------------------------------------------------------------------------------------------------------
September 22, 1999 Barrett N. 100,000 50,000 September 21, 1999 $10.00
Wissman ----------------------------------------------------------
50,000 September 21, 2000 $10.00
- ----------------------------------------------------------------------------------------------------------------------
September 22, 1999 Mark Graham 100,000 50,000 September 21, 1999 $10.00
----------------------------------------------------------
50,000 September 21, 2000 $10.00
- ----------------------------------------------------------------------------------------------------------------------
September 22, 1999 Olaf Guerrand- 100,000 50,000 September 21, 1999 $10.00
Hermes
----------------------------------------------------------
50,000 September 21, 2000 $10.00
- ----------------------------------------------------------------------------------------------------------------------
50,000 October 14, 1999 $10.00
October 14, 1999 Jan Robert 100,000 50,000 October 14, 2000 $10.00
Horsfall ----------------------------------------------------------
50,000 October 14, 2000 $10.00
150,000 50,000 October 14, 2001 $10.00
50,000 October 14, 2002 $10.00
- ------------------------------------------ ----------------------------------------------------------
50,000 October 14, 1999 $10.00
October 14, 1999 Stuart Subotnik 100,000 50,000 October 14, 2000 $10.00
- ----------------------------------------------------------------------------------------------------------------------
- --------------------
The Omnibus Plan is administered by the Board of Directors. Subject to
the provisions of the Omnibus Plan, the Board of Directors has the authority to
determine the type of award, when and to whom awards will be granted, the number
of shares covered by each award and the terms and conditions of each such award.
The Board of Directors interprets the Omnibus Plan and may at any time adopt the
rules and regulations for the Omnibus Plan as it deems advisable. The Board of
Directors may accelerate the vesting or right to exercise a previously granted
award, in accordance with the terms of the Omnibus Plan. The Omnibus Plan grants
the Board of Directors the authority to appoint a stock plan committee,
comprised of at least two members of the Board of Directors, and delegate to
such committee the administration of the Omnibus Plan, subject to the right of
the Board of Directors to exercise duties and responsibilities delegated to the
stock plan committee under the Omnibus Plan. At the discretion of the Board of
Directors, this stock plan committee may be the same as the compensation
committee of the Board of Directors.
Stock Options. Stock options may be granted and will become exercisable
under the terms and conditions determined by the Board of Directors in
accordance with the Omnibus Plan. Options granted under the Omnibus Plan may be
"incentive stock options," within the meaning of Section 422 of the Internal
Revenue Code, or "non-qualified stock options," which are not intended to
receive the special income tax treatment accorded incentive stock options under
the Internal Revenue Code. The Board of Directors may impose such restrictions
on the ownership and transferability of the shares purchasable upon the exercise
of an option as it deems appropriate. Options granted under the Omnibus Plan
have an exercise price per share at least equal to the fair market value of a
share of our common stock on the date of grant. However, the Board of Directors
may, subject to certain limitations in the Omnibus Plan, amend the exercise
price of an outstanding option to be not less than the fair market value of our
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common stock on the date of such amendment. Once vested, options granted under
the Omnibus Plan may be exercised for a period of up to ten years from the date
of grant. Options (and other awards requiring payment by the holder) under the
Omnibus Plan may be paid by the recipient in cash or any other consideration
permitted by law and authorized by the Board of Directors (including, without
limitation, using shares of our capital stock previously purchased by the
recipient or a broker-assisted or similar exercise procedure). Furthermore, the
Board of Directors may authorize loans to individuals to finance their exercise
of vested options.
Restricted Stock Awards. The Board of Directors has the authority to
grant restricted stock awards entitling the recipient to acquire shares of our
common stock at par value or such other purchase price, and subject to such
restrictions and conditions, as the Board of Directors may determine at the time
of grant. Upon delivery of the shares of restricted stock, a recipient shall
have all the rights of a stockholder with respect to such shares, subject to the
restrictions established by the Board of Directors at the time of grant, as
described below. All shares of restricted stock shall be subject to such
restrictions as the Board of Directors shall provide and may include
restrictions concerning voting rights and transferability and restrictions based
on duration of employment or engagement with us or our affiliates. The Board of
Directors may also impose such restrictions and conditions on shares of
restricted stock granted under the Omnibus Plan as it deems appropriate, which
may be based on continuing employment or other business relationships with us or
one of our affiliates or the achievement of pre-established, objective
performance goals that are determined over a measurement period established by
the Board of Directors and relate to one or more performance criteria described
in the Omnibus Plan. Restricted stock awarded under the Omnibus Plan may not be
sold, transferred, assigned or encumbered and may not be disposed of, except by
will or the laws of descent and distribution, for a period of time determined by
the Board of Directors until all restrictions lapse. If the recipient of a
restricted stock award under the Omnibus Plan fails to satisfy applicable
conditions established by the Board of Directors in the award, the restricted
stock may be forfeited and revert back to us or we may repurchase such shares of
restricted stock at a cash price per share equal to the price paid by the
recipient for such shares. Restricted stock shall vest and become free of
restrictions on the date, and/or by satisfaction of conditions, specified by the
Board of Directors on the date of grant.
Unrestricted Stock Awards. The Board of Directors also has the
authority to grant or sell an unrestricted stock award to any eligible person,
pursuant to which such person may receive shares of our common stock free of any
vesting restrictions under the Omnibus Plan. Unrestricted stock awards may be
granted or sold as a bonus in respect to past services or other valid
consideration or in lieu of any cash compensation to such an eligible person.
Performance Stock Awards. The Board of Directors may grant performance
stock awards to eligible individuals under the Omnibus Plan. Performance stock
awards entitle the recipient to acquire shares of our common stock upon the
attainment of objective performance goals, established in advance by the Board
of Directors, based on performance criteria set forth in the Omnibus Plan.
Dividend Equivalent Rights and Interest Equivalents. The Board of
Directors may grant to eligible individuals dividend equivalent rights with
other awards under the Omnibus Plan or independent of any other awards. Dividend
equivalent rights entitle the recipient to receive cash or additional shares of
our common stock based on cash dividends that would be paid on a specified
number of shares of our common stock. Settlement of certain awards may, if
permitted by the Board of Directors, be deferred under the Omnibus Plan, and,
during the period of such deferral, such awards may be credited with interest
equivalents as specified in the award agreement.
Stock Appreciation Rights. The Omnibus Plan also permits the Board of
Directors to grant stock appreciation rights with respect to all or any portion
of the shares of common stock covered by options granted under the Omnibus Plan,
or, independent of options, with respect to a specified number of shares of
common stock. A stock appreciation right may be exercised only when the related
option is exercisable (or, in the case of an independent stock appreciation
right, as specified in the applicable award agreement). Upon exercise of a stock
appreciation right, the recipient will receive for each share for which such
stock appreciation right is exercised, an amount, in cash or common stock, as
determined by the Board of Directors, equal to the excess of the fair market
value of a share of common stock on the date the stock appreciation right is
exercised over the exercise price per share of the option to which the stock
appreciation right relates (or, in the case of an independent stock appreciation
right, the exercise price stated in the applicable award agreement).
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Other Provisions of the Plan. Except in the event of his or her death,
the recipient of an award under the Omnibus Plan may not transfer such award
until shares of our common stock have been issued to such recipient and all
restrictions applicable to such shares have lapsed, unless such transfer is
approved by the Board of Directors in accordance with the terms of the Omnibus
Plan. Incentive stock options granted under the Omnibus Plan may not be
transferred if such transfer would disqualify the option from "incentive stock
option" treatment under the Internal Revenue Code.
The Board of Directors will make appropriate adjustments in the maximum
number and kind of shares available for issuance under the Omnibus Plan, the
maximum number of shares that can be covered by awards granted to an individual
in any one year under the Omnibus Plan, and the number and kind of shares, and
price per share, subject to awards outstanding under the Omnibus Plan in the
event of certain changes in our capital, such as a stock dividend, merger,
recapitalization, spin-off, or extraordinary dividend.
The Omnibus Plan and awards granted, whether or not vested, will
automatically terminate in the event that there is a reorganization or a
transaction involving a "change in control" of our company (as defined in the
Omnibus Plan), unless a provision is made in writing for the continuance of the
Omnibus Plan and for the assumption or substitution of such awards in connection
with such transaction, or the Board of Directors provides for the acceleration
of vesting or exercisability of outstanding awards and/or conversion of such
awards into a right to receive cash or other consideration that could be
received in such change in control with respect to the shares of common stock
underlying such award (net of any exercise price). If the Omnibus Plan and any
outstanding awards granted thereunder shall terminate by reason of such a change
in control without provision for assumption or substitution, or acceleration, or
conversion of outstanding awards, then any holder of an outstanding award shall
have the immediate right, as the Board of Directors may designate, to exercise,
claim or convert his or her award to the full extent not theretofore exercised,
claimed or converted. In the event we consummate any merger, consolidation or
other reorganization not involving such a "change in control," outstanding
awards under the Omnibus Plan may thereafter be exercised or claimed only for
the kind and amount of securities, cash and/or other consideration that could
have been received in such transaction by a holder of the number of shares of
common stock covered by such award.
The Board of Directors may amend or terminate the Omnibus Plan and may
amend any award previously granted under the Omnibus Plan. However, if required
by any law, regulation or stock exchange rule, no such change in the Omnibus
Plan shall be effective without the approval of our stockholders. In addition,
no such change may materially impair an award previously granted, except with
the written consent of the recipient of such award.
No awards may be granted under the Omnibus Plan after September 22,
2009; however, awards granted prior to such date will remain in effect
thereafter, until they are exercised or terminate or expire in accordance with
their terms.
Compensation Committee Interlocks and Insider Participation
We did not have a compensation committee during the Fiscal year ended
June 30, 1999. Compensation decisions relating to our executive officers, key
employees and other senior personnel were made primarily by our Board of
Directors.
Item 7. Certain Relationships and Related Transactions
Reorganization
In connection with the Reorganization, we issued and sold shares of our
common stock to the Infinity Entities as consideration in connection with the
acquisition of shares of certain of our subsidiaries and investments, and the
acquisition of certain debentures of e.Volve.
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e.Volve Shares.
On June 11, 1998, the Company entered into a securities purchase
agreement with the IEOH and IIL (the "Securities Purchase Agreement"), pursuant
to which e.Volve issued and sold 1,200 shares of its common stock, representing
one third of the outstanding capital stock of e.Volve, to each of IEOH and IIL
for $0.01 per share, and e.Volve assumed certain liabilities incurred by IEOH
and IIL in connection with the abandoned acquisition of Touch Tone America by
e.Volve.
e.Volve Debentures.
In connection with the Securities Purchase Agreement, e.Volve entered
into a debenture agreement under which e.Volve issued an aggregate of $6.0
million of debentures to IEOH and IIL (the "Debenture Agreement"). The Debenture
Agreement was amended on August 19, 1998, February 9, 1999, April 15, 1999,
April 29, 1999, and April 30, 1999 to increase the amounts available to e.Volve
by $850,000, $390,000, $200,000, $500,000, and $100,000, respectively.
e.Volve issued debentures (the "Debentures") under the Debenture
Agreement aggregating $8,040,000 to IEOH and IIL during 1998 and 1999. The
Debentures bear interest at 8% per annum, and generally mature within a two-year
period following issuance.
The Debentures issued on June 11, 1998, August 19, 1998 and April 15,
1999 were repayable monthly with accrued interest at various amounts, with all
unpaid principal and interest due on maturity at June 30, 1999. At June 30,
1999, e.Volve was in default of its payment obligations in connection with these
Debentures. IEOH and IIL waived their right to demand repayment of these
Debentures.
The Debenture issued on February 9, 1999 was payable in full on
June 30, 1999. In the event the amount is not paid in full by that date, the
balance is convertible into common stock of e.Volve at the option of the lender,
at a conversion price of $2,778 per share, which was the deemed fair value of
shares at the issue date. The April 29 and 30, 1999 debentures were repayable on
the respective maturity dates of August 27, 1999 and August 28, 1999.
On September 22, 1999, in connection with the Reorganization, we
acquired the Debentures from IEOH and IIL and the Debentures were restructured
into a single debenture with a maturity date of December 31, 1999. As a result
of such purchase, the Debentures eliminate in consolidations.
e.Volve Warrants.
In connection with amendment to the Debenture Agreement on April 15,
1999, e.Volve issued warrants to purchase shares of e.Volve common stock (the
"Warrants") to IEOH and IIL granting them the right to acquire an aggregate of
340 shares of common stock of e.Volve. The Warrants had an exercise price of
$2,778 per share and had an expiration date of April 15, 2004. These warrants
were cancelled in connection with the Reorganized Warrants.
AxisTel Notes.
On October 28, 1998, AxisTel issued notes to IEOL in an aggregate
amount of $2,000,000 pursuant to a note agreement (the "Note Agreement").
Pursuant to the Note Agreement, AxisTel issued additional notes to IEOL in the
amounts of $500,000 and $1,000,000 on March 10, 1999 and April 19, 1999,
respectively. Interest on the notes is calculated at 8% per annum and is payable
monthly. The outstanding principal balance and any unpaid interest shall be due
and payable on October 28, 2000. The notes are secured by all assets and equity
interests of AxisTel.
As of December 31, 1998, AxisTel had not met, but was subsequently
granted waivers with respect to, certain reporting requirements under such
notes.
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AxisTel Shares.
In connection with the Note Agreement, AxisTel issued one share of
Class B common stock of AxisTel to IEOL at a purchase price of $1.00. Such share
of Class B common stock carries voting rights entitling IEOL to vote 50% of all
issued and outstanding shares of the common stock of AxisTel.
AxisTel Warrants.
In connection with the Note Agreement, AxisTel issued warrants to
purchase 1,499 shares of Class B common stock, par value $.01 per share, of
AxisTel at an exercise price of $2,333.33 per share. The warrants were valued at
approximately $274,000 using the Black-Scholes model and AxisTel recorded the
amount as a debt discount, with a related credit to additional paid-in capital.
The debt discount is being amortized over the life of the loan. As of December
31, 1998, the balance of the debt discount, net of amortization, was $251,075.
On September 22, 1999, IEOL exercised its warrants to purchase 1,499
Class A shares of AxisTel. Such shares, in addition the share of Class B common
stock owned by IEOL, represent 50% of the outstanding shares of AxisTel. IEOL
exchanged its shares in AxisTel for shares of eVentures.
Stockholders' Equity
As a result of the options granted during the three months ending
September 30, 1999, the Company recorded deferred compensation of $1,319,000 on
September 22, 1999 with a related credit to additional paid in capital. The
amount of the deferred compensation was based upon the intrinsic value of
options granted to employees which had an exercise price lower than the market
price of the underlying stock on the day of the grant. The deferred compensation
will be amortized over the three-year vesting period and recorded as
compensation expense in the statement of operations.
Management Services Agreement
In September 1999, we entered into a Management Services Agreement with
HW Partners, L.P., a Texas limited partnership ("HWP"), the general partner of
which is an entity controlled by two of our directors, Barrett Wissman and Clark
Hunt. Under this agreement, we pay for Barrett Wissman, Susan Blaine, and Judith
Brooks York, all employees of HWP, to provide various management services. It is
estimated that the Company will pay HWP over $60,000 in Fiscal 2000.
Employment Agreements
The Company is party to employment agreements with Stuart Chasanoff,
Mitchell Arthur and Samuel Litwin. See "Item 6 -- Employment Agreements".
Joint Venture
On April, 19, 1999, the Company entered into a non-formalized joint
venture agreement ("JVA") with Dataten Technologies to form Innovative Calling
Technologies, LLC ("ICT") with each party owning 50% of ICT. The Company does
not exercise majority control of the joint venture and thus accounts for its
investments pursuant to the equity method. Under the equity method, the Company
initially records its investment at cost and adjusts the carrying amount of the
investment to recognize its share of the income or losses of the joint venture
after the date of acquisition. Joint venture income and losses are allocated in
accordance with each party's respective ownership interest. During Fiscal 1999,
the Company recorded an initial investment of $125,130, reduced by equity in
loss of unconsolidated subsidiary of $33,776.
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Transactions with Affiliates
During Fiscal 1998 and 1999, the Company shared office space, payroll
and certain other administrative expenses with an affiliate ("Orix Systems").
During that period, the Company paid Orix Systems $408,734, $676,227 and
$156,597 respectively, with respect to such expenses.
AxisTel had notes payable to one of its stockholders aggregating
$10,000 at December 31, 1997 and two of its stockholders aggregating $25,000 at
December 31, 1998. Interest is calculated at 5% per annum. The outstanding
principal balance and any unpaid interest was due and payable on October 28,
1999, and the notes were therefore classified as short term.
Advances from Shareholder
Advances due from a shareholder relate to advances made by the Majority
Shareholder of the Old Company. The advances are non-interest bearing and are
due on demand. As of June 30, 1998 and 1999, advances due from the shareholder
totaled $60,920 and $0, respectively.
Recent Sales of Unregistered Securities
The Company issued and sold unregistered securities in several
transactions to related parties. See "Item 10 - Recent Sales of Unregistered
Securities."
Other Transactions
Revenues for AxisTel included revenues for the year ended December 31,
1998 from Debit Card Technologies, Inc. ("Debit Card") totaling approximately
$264,000. Debit Card is wholly owned by an employee's spouse. All revenues for
the period August 28, 1997 (inception) to December 31, 1997 were received from
Debit Card.
Item 8. Legal Proceedings
In March 1998, Orix Global Communications ("Orix"), a subsidiary of the
Company, filed a lawsuit against Eltrax, Inc. ("Eltrax") in Clark County
District Court for the State of Nevada for breach of contract and other related
claims, alleging that Eltrax failed to deliver equipment and services pursuant
to an agreement between the parties. Eltrax counterclaimed for breach of
contract and damages of $381,802. The matter is currently before the United
States District Court for the District of Nevada for pre-trial motions.
In November 1999, IXC Communications, Inc. ("IXC") threatened to filed
a lawsuit against Orix alleging a breach of contract and damages in the amount
of $330,153.50 if payment or payment arrangements for said amount are not made
within thirty (30) days. No lawsuit has yet been filed.
In November 1998, representatives of Mexico's Federal
Telecommunications Commission ("COFETEL") entered the premises of the Company's
wholly owned subsidiary, Latin Gate, and attempted to confiscate Latin Gate's
equipment pursuant to a visitation order under a verification administrative
proceeding (procedimiento administrativo de verificacion). Latin Gate filed a
Federal constitutional court action known as juicio de amparo against COFETEL in
a Mexican Federal district court (juzgado de distrito), principally alleging
that the visitation order failed to comply with Mexican constitutional
requirements and that the search and seizure were illegal under Mexican law. A
juicio de amparo has two stages: the suspension of the acts of authority
complained of and a constitutional review. The former stage has two phases:
temporary restraining order (suspension provisional) and a final restraining
order (suspension definitiva). The purpose of the constitutional review is to
determine whether the acts of authority complained of are constitutional. Should
the court determine that the acts of authority complained of are
unconstitutional, a final judgment (sentencia final) is rendered, the principal
effect of which is the granting of the protection of the Federal courts against
such acts. On November 24, 1998, Latin Gate obtained a temporary restraining
order which preserved the status quo of the Latin Gate equipment and suspended
the administrative
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proceeding, therefore prohibiting COFETEL from re-entering Latin Gate's
premises. On December 21, 1998, Latin Gate obtained a final restraining order
(suspension definitiva). On May 24, 1999, a final judgment was rendered by the
district court in favor of Latin Gate, which judgment declared COFETEL's acts
unconstitutional and, as a consequence, granted Latin Gate the protection of the
Federal courts. On July 7, 1999, COFETEL appealed, through a recurso de
revision, to a higher court (tribunal colegiado de circuito) seeking the review
of the district court judgment. It is anticipated that a ruling with respect to
such appeal would be rendered sometime in late January 2000. It may not be
possible to ascertain the definitive outcome of this matter but Latin Gate
continues to defend itself in Mexican courts. The loss of Latin Gate's equipment
might have an adverse effect on the Company's financial condition. The cost of
litigation, regardless of the outcome, may have an adverse effect on the
Company's financial condition.
In September 1999, Yurie Systems Inc. ("Yurie") filed a lawsuit in the
United States District Court of Maryland against Orix, a subsidiary of the
Company, claiming Orix owed Yurie approximately $283,497 arising from a previous
sale of telecommunications equipment from Yurie to Orix in June and July of
1997. Orix denies the claim because it never agreed to accept the equipment. The
equipment has failed field testing and did not meet either Orix's or Yurie's
standards. Orix has filed a counterclaim for lost business opportunities and
lost profits in an amount to be determined at trial. Discovery will begin soon.
Item 9. Market Price of and Dividends on the Registrant's Common Equity and
Related Stockholder Matters
Our common stock is traded on the NASDAQ OTC Bulletin Board (the
"OTCBB") under the symbol EVNT. Prior to August 25, 1999, our common stock
traded on the OTCBB under the symbol ADII and our former name, Adina, Inc. Until
recently, the market for the stock has been relatively inactive. The range of
high and low bid quotations for the quarters since April, 1997 are taken from
the "pink sheets" of the National Quotation Bureau. They reflect inter-dealer
prices, without retail mark-up, mark-down or commission, and may not necessarily
represent actual transactions.
BID PRICE
---------------------
Quarter Ending Low High
-------------- --- ----
September 30, 1999 1.38 12.50
June 30, 1999(1) 1.50 1.50
April 30, 1999 0.02734 0.625
January 31, 1999 0.02734 0.02734
October 31, 1998 0.02734 0.02734
July 31, 1998 0.02734 0.02734
April 30, 1998 0.015625 0.25
January 31, 1998 0.015625 0.25
October 31, 1997 0.015625 0.25
July 31, 1997 0.015625 0.25
(1) Represents the transition period between April 30, 1999 and June 30,
1999.
The last sale price reported for the common stock on the OTCBB on
December 17, 1999 was $30.00. As of December 16, 1999, there were
approximately 890 shareholders of record of our common stock.
Dividend Policy
The holders of our common stock are entitled to receive dividends at
such time and in such amounts as may be determined by our Board of Directors.
However, we have not paid any dividends in the past and do not intend to pay
cash dividends on our capital stock for the foreseeable future. Instead, we
intend to retain all earnings for use in the operation and expansion of our
business.
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45
Item 10. Recent Sales of Unregistered Securities
In the past three years, we have issued and sold unregistered
securities in the transactions described below.
On May 15, 1997, we issued 42,450,000 shares of common stock to Daniel
Wettreich, then the President of Adina, Inc., in exchange for a majority of the
outstanding common shares of Alexander Mark Investments (USA), Inc. ("AMI") in a
transaction exempt from the registration requirements of the Securities Act
pursuant to Regulation D, Section 4(2) and/or Rule 506 promulgated pursuant to
the Securities Act. No general solicitations were made in connection with this
transaction.
On April 28, 1998, we issued and sold 11,700,000 shares of common stock
to Forsam Venture Funding, Inc., a private company of which Mr. Wettreich was a
director and officer, for $117,000 in a transaction exempt from the registration
requirements of the Securities Act pursuant to Regulation D, Section 4(2) and/or
Rule 506 promulgated pursuant to the Securities Act. No general solicitations
were made in connection with this transaction.
On September 22, 1999, in connection with the Reorganization, we issued
and sold:
(i) an aggregate of 14,562,193 shares of common stock to IEOIL and
IESL as merger consideration for all of the equity interests
in IEOH;
(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 IEOH; and
(iii) 5,682,807 shares of common stock to IIL 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 Regulation D, Section 4(2) and/or
Rule 506 promulgated pursuant to the Securities Act.
On September 22, 1999, we issued and sold 1,000 shares of Series A
Compatible Preferred stock to an investor for $1,000,000 in a transaction exempt
from the registration requirements of the Securities Act pursuant to Regulation
D, Section 4(2) and/or Rule 506 promulgated pursuant to the Securities Act. No
general solicitations were made in connection with this transaction.
On September 22, 1999, we issued and sold an aggregate of 2,482,500
shares of common stock to 25 investors for $4,965,000 in a transaction exempt
from the registration requirements of the Securities Act pursuant to Regulation
D, Section 4(2) and/or Rule 506 promulgated pursuant to the Securities Act. No
general solicitations were made in connection with this transaction.
On October 15, 1999 we entered into an agreement to exchange common
stock to a vendor to settle certain accounts payable due to the vendor in the
amount of $3.2 million.
On October 19, 1999, pursuant to the Exchange Agreement, we issued and
sold an aggregate of 5,831,253 shares to certain 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 Regulation D, Section 4(2) and/or Rule 506
promulgated pursuant to the Securities Act.
On November 11, 1999, we gave notice of the exercise of our option to
convert the shares of our Series A preferred stock into 200,000 shares of our
common stock to the holder of the shares of our Series A preferred stock upon
conversion of such Series A preferred stock in a transaction exempt from the
registration requirements of the Securities Act pursuant to Section 3(a)(9).
On November 19, 1999, we issued and sold 2,500 shares of our Series B
preferred stock to an investor for $2,500,000 in a transaction exempt from the
registration requirements of the Securities Act pursuant to Section 4(2)
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46
of the Securities Act, Regulation D and/or Rule 506 promulgated pursuant to the
Securities Act. No general solicitations were made in connection with this
transaction.
On November 24, 1999, we issued and sold 3,725 shares of our Series B
preferred stock to an investor for $3,725,000 in a transaction exempt from the
registration requirements of the Securities Act pursuant to Regulation D,
Section 4(2) and/or Rule 506 promulgated pursuant to the Securities Act. No
general solicitations were made in connection with this transaction.
On November 30, 1999 we agreed to issue shares of common stock to
extinguish $1.1 million of notes payable to a vendor.
On December 15, 1999, we issued and sold 775 shares of our Series B
preferred stock to an aggregate of 14 investors for $775,000 in a transaction
exempt from the registration requirements of the Securities Act pursuant to
Regulation D, Section 4(2) and/or Rule 506 promulgated pursuant to the
Securities Act. No general solicitations were made in connection with this
transaction.
Item 11. Description of Registrant's Securities to be Registered
Authorized Capital Stock
The Certificate of Incorporation authorizes 80,000,000 shares of
capital stock consisting of:
75,000,000 shares of common stock, $0.00002 par value; and
5,000,000 shares of preferred stock, $0.00002 par value, of which:
o 1,200 shares have been designated as Series A convertible
preferred stock; and
o 25,000 shares have been designated as Series B convertible
preferred stock.
On December 16, 1999, 45,207,673 shares of our common stock, no shares
of our Series A Convertible Preferred Stock and 7,000 shares of our Series B
Convertible Preferred Stock were outstanding. On that date, there were
approximately 890 holders of our common stock and 16 holders of our Series B
convertible preferred stock.
Common Stock
General. As of December 16, 1999, there were 45,207,673 shares of
common stock outstanding. An additional 514,246 shares of common stock are
issuable upon conversion of our outstanding Series B convertible preferred
stock.
Voting Rights. The holders of common stock are entitled to one vote per
share. Stockholders are not entitled to vote cumulatively for the election of
directors, and no other class of outstanding capital stock is entitled to vote
in any election of directors. The Infinity Entities hold 64.1 % of our common
stock and have effective control of us through the voting power of their shares
of our outstanding capital stock. Therefore, the Infinity Entities have the
ability to elect all of our directors and to effect or prevent certain corporate
transactions which require majority approval of the common stock, including
mergers and other business combinations.
Dividends and Liquidation. Holders of common stock have an equal right
to receive dividends when and if declared by the board of directors out of
legally available funds. In the event of a liquidation, dissolution or winding
up, holders of the shares of common stock are entitled to share equally,
share-for-share, in the assets available for distribution after payment of all
creditors and the liquidation preferences of our preferred stock.
-46-
47
Other Provisions. Holders of common stock have no preemptive rights to
subscribe to any additional securities of any class which we may issue and there
are no redemption provisions or sinking fund provisions applicable to the common
stock, nor is the common stock subject to calls or assessments by us. The
rights, preferences, and privileges of the holders of common stock are subject
to and may be adversely affected by, the rights of the holders of any series of
preferred stock.
Preferred Stock
The Certificate of Incorporation provides that eVentures may issue up
to 5,000,000 shares of preferred stock in one or more series as may be
determined by the board of directors of eVentures who may establish the number
of shares to be included in each such series, fix the designation, powers,
preferences and relative rights of the shares of each such series and any
qualifications, limitations, or restrictions thereof, and increase or decrease
the number of shares of any such series without any further vote or action by
the stockholders. 1,200 shares of the preferred stock have been designated as
Series A and 25,000 shares of the preferred stock have been designated as Series
B. The board of directors may authorize, without stockholder approval, the
issuance of preferred stock with voting and conversion rights that could
adversely affect the voting power and other rights of holders of common stock.
Preferred stock could be issued quickly with terms designated to delay or
prevent a change in control of eVentures or to make the removal of management
more difficult. This could have the effect of decreasing the market price of the
common stock.
On September 22, 1999, we issued and sold 1,000 shares of Series A
convertible preferred stock pursuant to a Series A Subscription Agreement. On
November 11, 1999, we exercised our right to convert the 1,000 outstanding
shares of Series A convertible preferred stock into an aggregate of 200,000
shares of our common stock. The shares of our Series A convertible preferred
stock have been canceled and we may not reissue them.
On November 19, 1999 and November 24, 1999, we issued and sold an
aggregate of 6,225 shares of our Series B convertible preferred stock pursuant
to two Series B Subscription Agreements.
On December 15, 1999, we issued and sold 775 shares of Series B
convertible preferred stock pursuant to a Series B Subscription Agreement.
We believe that the ability of the board to issue one or more series of
preferred stock will provide us with flexibility in structuring possible future
financings and acquisitions, and in meeting other corporate needs that might
arise. The authorized shares of preferred stock, as well as shares of common
stock, will be available for issuance without further action by our
stockholders, unless such action is required by applicable law or the rules of
any stock exchange or automated quotation system on which our securities may be
listed or traded.
Although the board has no intention at the present time of doing so, it
could issue a series of preferred stock that could, depending on the terms of
such series, impede the completion of a merger, tender offer or other takeover
attempt. The board will make any determination to issue such shares based on its
judgment as to our best interests and the best interests of our stockholders.
The board could issue preferred stock having terms that could discourage an
acquisition attempt through which an acquirer may be able to change the
composition of the board, including a tender offer or other transaction that
some, or a majority, of our stockholders might believe to be in their best
interests or in which stockholders might receive a premium for their stock over
the then current market price.
Certain Anti-Takeover Effects. Certain provisions of the certificate of
incorporation and bylaws, summarized in the following paragraphs, may be
considered to have an anti-takeover effect and may delay, deter or prevent a
tender offer, proxy contest or other takeover attempt that a stockholder might
consider to be in such stockholder's best interest, including such an attempt
that might result in payment of a premium over the market price for shares held
by stockholders.
The Amended and Restated Bylaws provide that a special meeting of
stockholders may be called by the Chief Executive Officer or the Board of
Directors. In addition, a special meeting of stockholders must be called by the
Chief Executive Officer or Secretary at the written request of the stockholders
owning ten percent (10%) of our capital stock issued and outstanding and
entitled to vote.
-47-
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Section 203 of the Delaware General Corporation Law provides that,
subject to certain exceptions specified therein, an "interested stockholder" of
a Delaware corporation shall not engage in any business combinations, including
mergers or consolidations or acquisitions of additional shares of the
corporation, with the corporation for a three-year period following the date
that such stockholder becomes an interested stockholder unless:
prior to such date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
upon consummation of the transaction that resulted in the stockholder
becoming an "interested stockholder," the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced (excluding certain shares); or
on or subsequent to such date, the business combination is approved by
the board of directors of the corporation and authorized at an annual
or special meeting of stockholders by the affirmative vote of at least
66.67% of the outstanding voting stock that is not owned by the
interested stockholder.
Except as otherwise specified in Section 203 of the Delaware General
Corporation Law, an interested stockholder is defined to include (x) any person
that owns (or, within the prior three years, did own) 15% or more of the
outstanding voting stock of the corporation, or is an affiliate or associate of
the corporation and was the owner of 15% or more of the outstanding voting stock
of the corporation at any time within three years immediately prior to the date
of determination and (y) the affiliates and associates of any such person.
Under certain circumstances, Section 203 of the Delaware General
Corporation Law makes it more difficult for a person who would be an interested
stockholder to effect various business combinations with a corporation for a
three-year period. We have not elected to be exempt from the restrictions
imposed under Section 203 of the Delaware General Corporation Law. The
provisions of Section 203 of the Delaware General Corporation Law may encourage
persons interested in acquiring us to negotiate in advance with the board, since
the stockholder approval requirement would be avoided if a majority of the
directors then in office approves either the business combination or the
transaction which results in any such person becoming an interested stockholder.
Such provisions also may have the effect of preventing changes in our
management. It is possible that such provisions could make it more difficult to
accomplish transactions that our stockholders may otherwise deem to be in their
best interests.
Transfer Agent and Registrar
The Stock Transfer Company of America will be the transfer agent and
registrar for the common stock.
Item 12. Liability and Indemnification of Directors and Officers.
The Certificate of Incorporation contains a provision that is designed
to limit directors' liability to the extent permitted by the Delaware General
Corporation Law ("DGCL"). Specifically, directors will not be held liable to
eVentures or its stockholders for monetary damages for any breach of fiduciary
duty as a director, except for liability as a result of:
any breach of the duty of loyalty to eVentures or eVentures
stockholders;
actions or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
payment of an improper dividend or improper repurchase of eVentures
stock under Section 174 of the Delaware General Corporation Law; or
actions or omissions pursuant to which the director received an
improper personal benefit.
-48-
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Section 102 of the DGCL, as amended, allows a corporation to eliminate
the personal liability of directors of a corporation to the corporation or its
stockholders for monetary damages for a breach of fiduciary duty as a director,
except where the director breached his duty of loyalty, failed to act in good
faith, engaged in intentional misconduct or knowingly violated a law, authorized
the payment of a dividend or approved a stock repurchase in violation of
Delaware corporate law or obtained an improper personal benefit.
The principal effect of the limitation of liability provision is that a
stockholder is unable to prosecute an action for monetary damages against a
director of eVentures unless the stockholder can demonstrate one of the
specified bases for liability. The provision, however, does not eliminate or
limit director liability arising in connection with causes of action brought
under the federal securities laws. The Certificate of Incorporation does not
eliminate a director's duty of care. The inclusion of this provision in the
Certificate of Incorporation may discourage or deter stockholders or management
from bringing a lawsuit against directors for a breach of their fiduciary
duties, even though such an action, if successful, might otherwise have
benefited eVentures and its stockholders. This provision should not affect the
availability of equitable remedies such as injunction or rescission based upon a
director's breach of the duty of care.
Also, Section 174 of the DGCL provides, among other things, that a
director, who willfully or negligently approves of an unlawful payment of
dividends or an unlawful stock purchase or redemption, may be held liable for
such actions. A director who was either absent when the unlawful actions were
approved or dissented at the time, may avoid liability by causing his or her
dissent to such actions be entered in the books containing the minutes of the
meetings of the board of directors at the time such action occurred or
immediately after such absent director receives notice of the unlawful acts.
In addition, the Certificate of Incorporation and the Amended and
Restated By-Laws also provide that eVentures will indemnify its directors and
officers, and may indemnify any of its employees and agents, to the fullest
extent permitted by Delaware law. eVentures is generally required to indemnify
its directors and officers for all judgments, fines, penalties, settlements,
legal fees and other expenses incurred in connection with pending, threatened or
completed legal proceedings because of the director's or officer's position with
eVentures or another entity that the director or officer serves at eVentures's
request, subject to certain conditions, and to advance funds to its directors
and officers to enable them to defend against such proceedings.
Section 145 of the DGCL provides, among other things, that the Company
may indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding (other
than an action by or in the right of the Company) by reason of the fact that the
person is or was a director, officer, agent or employee of the Company or is or
was serving at the Company's request as a director, officer, agent or employee
of another corporation, partnership, joint venture, trust or other enterprise,
against expenses, including attorneys' fees, judgment, fines and amounts paid in
settlement actually and reasonably incurred by the person in connection with
such action, suit or proceeding. The power to indemnify applies (a) if such
person is successful on the merits or otherwise in defense of any action, suit
or proceeding, or (b) if such person acted in good faith and in a manner he
reasonably believed to be in the best interest, or not opposed to the best
interest, of the Company, and with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. The power to
indemnify applies to actions brought by or in the right of the Company as well
but only to the extent of defense expenses (including attorneys' fees but
excluding amounts paid in settlement) actually and reasonably incurred and not
to any satisfaction of judgment or settlement of the claim itself, and with the
further limitation that in such actions no indemnification shall be made in the
event of any adjudication of negligence or misconduct in the performance of his
duties of the Company, unless the court believes that in light of all the
circumstances indemnification should apply.
-49-
50
At present, there is no pending or threatened litigation or proceeding
involving any director or officer, employee or agent of eVentures where such
indemnification will be required or permitted.
Item 13. Financial Statements and Supplementary Data
See pages F-1 to F-45 of this Form 10.
Item 14. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item 15. Financial Statements and Exhibits
(a) Financial Statements.
The following financial statements are Exhibits to the Form
10:
(i) Consolidated Financial Statements of eVentures Group,
Inc. as of June 30, 1998 and 1999 and as of September
30, 1999 and for the years ended June 30, 1997, 1998
and 1999 and for the three months ended September 30,
1998 and 1999;
(ii) Unaudited Financial Statements of AxisTel
Communications, Inc. as of December 31, 1997 and 1998
and June 30, 1999 and for the period from August 28,
1997 (inception) to December 31, 1997, the year ended
December 31, 1998 and for the six months ended June
30, 1998 and 1999;
(iii) Unaudited Pro Forma Combined Consolidated Balance
Sheet of eVentures Group, Inc. as of September 30,
1999; and
(iv) Unaudited Pro Forma Condensed Combined Consolidated
Statements of Operations of eVentures Group, Inc. for
the year ended June 30, 1999 and for the three months
ended September 30, 1999.
(b) Exhibits
2.1 Agreement and Plan of Reorganization, dated as of September
22, 1999, among the Registrant, eVentures Holdings, L.L.C.,
IEO Holdings Limited, Infinity Investors Limited, Mick Y.
Wettreich, the purchasers listed on Schedule 1-A thereto and
the Contributing Persons listed on Schedule 1-B thereto
(incorporated by reference to Exhibit 2.1 to the report filed
on Form 8-K on October 7, 1999).
2.2 Agreement and Plan of Exchange, dated as of October 19, 1999,
among eVentures Group, Inc., and the persons set forth on
Schedule 1 thereto (incorporated by reference to Exhibit 2.1
to the report filed on Form 8-K on November 3, 1999).
3.1 Certificate of Incorporation of eVentures, dated November 19,
1987.
-50-
51
3.2 Certificate of Amendment, dated April 27, 1994, to the
Certificate of Incorporation.
3.3 Certificate of Amendment, dated as of October 20, 1997, to the
Certificate of Incorporation.
3.4 Certificate of Renewal dated August 19, 1999 for eVentures
Group, Inc.
3.5 Certificate of Amendment, dated September 17, 1999, to the
Certificate of Incorporation (incorporated by reference to
Exhibit 3.2 to the report filed on Form 8-K on October 7,
1999).
3.6 Amended and Restated Certificate of Designation of Rights,
Preferences and Privileges of Series A Convertible Preferred
Stock, dated October 14, 1999.
3.7 Certificate of Designation of Rights, Preferences and
Privileges of Series B Convertible Preferred Stock, dated as
of November 10, 1999.
3.8 Certificate of Amendment, dated as of December 15, 1999, to
the Certificate of Designation of Rights, Preferences and
Privileges of Series B Convertible Preferred Stock.
3.9 Amended and Restated By-Laws of eVentures Group, Inc.
(incorporated by reference to Exhibit 3.1 to the report filed
on Form 8-K on October 7, 1999).
4.1 Registration Rights Agreement, dated as of September 22, 1999,
among the Registrant and the persons and entities set forth on
Schedule 1 thereto (the "First Registration Rights Agreement")
(incorporated by reference to Exhibit 4.1 to the report filed
on Form 8-K on October 7, 1999).
4.2 Addendum to the First Registration Rights Agreement, dated as
of October 19, 1999, among eVentures Group, Inc., the persons
set forth on Schedule 1 thereto and the other parties to the
First Registration Rights Agreement.
4.3 Registration Rights Agreement, dated as of November 19, 1999,
between eVentures Group, Inc. and Geronimo Partners, L.P.
4.4 Schedule identifying other agreements, the dates thereof and
the parties thereto, substantially identical to the
Registration Rights Agreement, dated as of November 19, 1999,
between eVentures Group, Inc. and Geronimo Partners, L.P.
10.1 Securities Purchase Agreement, dated as of June 11, 1998,
among Orix Global Communications, Inc., certain of its
shareholders and the purchasers named thereunder.
10.2 Debenture, dated as of June 11, 1998.
10.3 Letter Agreement, dated as of August 19, 1998 between Orix
Global Communications and Infinity Investors Limited.
10.4 Debenture, dated as of August 19, 1998.
10.5 Letter Agreement, dated as of February 9, 1999 between Orix
Global Communications and Infinity Investors Limited.
10.6 Debenture, dated as of February 9, 1999.
10.7 Letter Agreement, dated as of April 15, 1999 among Orix Global
Communications, Inc., Infinity Investors Limited and the
Founders (as defined therein).
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52
10.8 Amended and Restated Debenture, dated as of April 15, 1999.
10.9 Letter Agreement, dated as of April 29, 1999 between Orix
Global Communications and Infinity Investors Limited.
10.10 Debenture, dated as of April 29, 1999.
10.11 Letter Agreement, dated as of April 30, 1999, between Orix
Global Communications, Inc. and Infinity Investors Limited.
10.12 Debenture, dated as of April 30, 1999.
10.13 Lease Agreement, dated December, 1998, between AxisTel
International, Inc. and Evergreen America Corporation.
10.14 Lease Agreement, dated November 24, 1997, between Orix Global
Communications, Inc. and Trust F/3959 of Banco del Atlantico.
10.15 Assignment Agreement, dated April 1, 1998, among Orix Global
Communications, Inc., Latin Gate de Mexico S.A. de C.V. and
Trust F/3959 of Banco del Atlantico.
10.16 Office Lease, dated January 23, 1998, between Orix Global
Communications, Inc. and 2526 Investment Co.
10.17 Lease Agreement, dated July 30, 1999, between e.Volve
Technology and Green Valley Executive Suites LLC.
10.18 Lease Agreement, dated September 1, 1999, between e.Volve
Technology and Green Valley Executive Suites LLC.
10.19 Lease Agreement, dated as of October 1, 1999, between AxisTel
Communications, Inc. and Telecommunications Finance Group.
10.20 Guaranty Agreement by eVentures Group, Inc. as inducement to
Telecommunications Finance Group to provide a lease to
AxisTel Communications, Inc., dated as of October 13, 1999.
10.21 Management Services Agreement, dated as of September 22, 1999,
between eVentures Group, Inc. and HW Partners, L.P.
10.22 1999 Omnibus Securities Plan, dated as of September 22, 1999.
10.23 Employment Agreement, dated as of September 22, 1999, between
eVentures Group, Inc. and Stuart J. Chasanoff.
10.24 Amended and Restated Employment and Noncompetition Agreement,
dated as of September 21, 1999, between AxisTel
Communications, Inc. and Samuel L. Litwin.
10.25 Amended and Restated Employment and Noncompetition Agreement,
dated as of September 22, 1999, between AxisTel
Communications, Inc. and Mitchell Arthur.
21.1 Subsidiaries of eVentures Group, Inc.
27.1 Financial Data Schedule.
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53
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
eVentures Group, Inc.
December 20, 1999
By /s/ JOHN STEVENS ROBLING, JR.
------------------------------
Name: John Stevens Robling, Jr.
Title: Chief Financial Officer
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54
eVENTURES GROUP, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets as of June 30, 1998 and 1999 and September 30, 1999
(Unaudited) F-3
Consolidated Statements of Operations for the years ended June 30, 1997,
1998 and 1999 and for the three months ended September 30, 1998 and 1999
(Unaudited) F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended
June 30, 1997, 1998 and 1999 and for the three months ended September 30,
1998 and 1999 (Unaudited) F-5
Consolidated Statements of Cash Flows for the years ended June 30, 1997, 1998 and
1999 and for the three months ended September 30, 1998 and 1999 (Unaudited) F-6
Notes to Consolidated Financial Statements F-10
Report of Independent Certified Public Accountants (AxisTel) F-33
AxisTel Balance Sheets as of December 31, 1997 and 1998 and June 30, 1999
(Unaudited) F-34
AxisTel Statements of Income and Retained Earnings for the period from August 28,
1997 (inception) to December 31, 1997 ("the 1997 Period"), the year ended
December 31, 1998 and for the six months ended June 30, 1998 and 1999
(Unaudited) F-35
AxisTel Statements of Cash Flows for the 1997 Period, the year ended December 31,
1998 and for the six months ended June 30, 1998 and 1999 (Unaudited) F-37
AxisTel Notes to Financial Statements F-40
Unaudited Pro Forma Consolidated Financial Information P-1
Unaudited Pro Forma Consolidated Balance Sheet as of September 30, 1999 P-2
Unaudited Pro Forma Consolidated Financial Information P-3
Unaudited Pro Forma Consolidated Statements of Operations for the Year Ended June
30, 1999 and for the three months ended September 30, 1999 P-4
F-1
55
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders
eVentures Group, Inc.
Jersey City, NJ
We have audited the accompanying balance sheet of eVentures Group, Inc. (the
"Company") as of June 30, 1999 and the related statements of operations,
shareholders' equity (deficit) and cash flows for the year then ended ("Company
Period"). We have also audited the balance sheet as of June 30, 1998 and the
statements of operations, shareholders' equity (deficit) and cash flows of Old
Company (see Note 1) for each of the years in the two-year period ended June 30,
1998 ("Old Company Periods"). These financial statements are the responsibility
of the Company's and Old Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 1 to the financial statements, the Old Company business was
acquired in a transaction accounted for as a purchase. As a result of this
transaction, the financial information for the period after the sale is
presented on a different cost basis than that for the period before the sale
and, therefore, is not comparable.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company at June 30, 1999,
and the results of its operations and its cash flows for the Company Period in
conformity with generally accepted accounting principles. Further, in our
opinion, the Old Company financial statements referred to above present fairly,
in all material respects, the financial position at June 30, 1998 and the
results of its operations and its cash flows for the Old Company Periods in
conformity with generally accepted accounting principles.
BDO Seidman, LLP
New York, New York
November 30, 1999
F-2
56
eVENTURES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
================================================================================
OLD COMPANY THE COMPANY
-------------- --------------------------------
AS OF
SEPTEMBER
AS OF JUNE 30, AS OF JUNE 30, 30, 1999
1998 1999 (UNAUDITED)
-------------- -------------- -------------
ASSETS
CURRENT ASSETS
Cash $ 2,417,216 $ 39,379 $ 6,346,023
Accounts receivable 104,422 6,129 1,158,221
Other receivables 5,821 11,164 71,988
Prepaid expenses and other -- 13,250 189,933
Deposits 35,141 242,310 299,071
VAT tax receivable -- 2,757,368 2,436,268
Available-for-sale securities 250,556 -- --
------------- ------------- -------------
2,813,156 3,069,600 10,501,504
------------- ------------- -------------
LONG-TERM ASSETS
Restricted cash -- 1,107,437 1,820,752
Property and equipment, net 1,447,244 6,219,874 7,429,945
VAT receivable 44,775 -- --
Investment in affiliate -- 91,354 140,746
Investment in i2v2 -- 2,100,144 2,100,144
Goodwill, net -- 3,072,908 19,591,050
Other -- -- 79,300
------------- ------------- -------------
1,492,019 12,591,717 31,161,937
------------- ------------- -------------
$ 4,305,175 $ 15,661,317 $ 41,663,441
============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 1,831,863 $ 4,609,806 $ 7,716,609
Accrued other 525,297 1,477,757 2,037,272
Accrued interest payable 13,412 383,163 25,512
Advances from shareholder 60,920 -- --
Customer deposits and deferred revenues 200,000 1,272,682 2,106,447
Notes payable -- -- 26,250
Debentures, current portion 590,000 -- --
Capital leases, current portion 307,496 1,916,761 2,001,531
------------- ------------- -------------
3,528,988 9,660,169 13,913,621
------------- ------------- -------------
LONG-TERM LIABILITIES
Debentures, net of current portion 5,410,000 6,828,948 --
Capital leases, net of current portion 487,665 2,031,513 1,750,160
------------- ------------- -------------
5,897,665 8,860,461 1,750,160
------------- ------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock 25,100 36 757
Preferred stock -- -- --
Additional paid-in capital 83,300 4,310,144 36,933,715
Accumulated deficit (5,229,878) (7,169,493) (10,481,812)
Deferred compensation -- -- (453,000)
------------- ------------- -------------
(5,121,478) (2,859,313) 25,999,660
------------- ------------- -------------
$ 4,305,175 $ 15,661,317 $ 41,663,441
============= ============= =============
See accompanying notes to the consolidated financial statements.
F-3
57
eVENTURES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
================================================================================
OLD COMPANY THE COMPANY
---------------------------- ---------------------------------------------
THREE THREE
MONTHS MONTHS
ENDED ENDED
SEPTEMBER SEPTEMBER
YEAR ENDED YEAR ENDED YEAR ENDED 30, 1998 30, 1999
JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1999 (UNAUDITED) (UNAUDITED)
------------- ------------- ------------- ------------- -------------
Revenues $ 921,599 $ 1,713,403 $ 27,248,273 $ 4,205,662 $ 8,675,719
Direct Costs 578,944 1,944,073 23,311,584 3,495,587 8,729,520
------------ ------------ ------------ ------------ ------------
Gross Profit (Loss) 342,655 (230,670) 3,936,689 710,075 (53,801)
Selling, general, and administrative expenses 718,362 4,505,798 7,551,131 1,588,526 1,816,032
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Loss from operations, before other (income) expense (375,707) (4,736,468) (3,614,442) (878,451) (1,869,833)
------------ ------------ ------------ ------------ ------------
Other (income) expense
Interest income -- (6,084) (55,417) (12,711) (13,341)
Interest expense -- 111,183 1,759,876 372,146 532,572
Write off of unamortized debt discount -- -- -- -- 917,615
Equity in loss of unconsolidated affiliate -- -- 33,776 -- 18,730
Foreign currency (gain) loss -- -- 126,575 8,238 (6,502)
Other -- 12,604 (16,930) 7,946 (6,588)
------------ ------------ ------------ ------------ ------------
-- 117,703 1,847,880 375,619 1,442,486
------------ ------------ ------------ ------------ ------------
Net Loss $ (375,707) $ (4,854,171) $ (5,462,322) $ (1,254,070) $ (3,312,319)
============ ============ ============ ============ ============
Net loss per share (basic and diluted) $ (.34) $ (.08) $ (.17)
------------ ------------ ------------
Weighted average number of shares outstanding 16,000,000 16,000,000 19,744,397
------------ ------------ ------------
See accompanying notes to the consolidated financial statements.
F-4
58
eVENTURES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
================================================================================
PREFERRED STOCK COMMON STOCK ADDITIONAL
----------------------------- ----------------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
------------ ------------ ------------ ------------ ------------
OLD COMPANY
Balance July 1, 1996 -- -- 1,000 $ 100 $ --
Issuance of shares for fixed assets,
at book value -- -- 200 25,000 --
Net loss -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance, June 30, 1997 -- -- 1,200 25,100 --
Gift of stock to employees -- -- -- -- 83,300
Net loss -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance, June 30, 1998 -- -- 1,200 $ 25,100 $ 83,300
============ ============ ============ ============ ============
THE COMPANY
Issuance of common stock, July 1, 1998 -- $ -- 3,600 $ 36 $ --
Fair value of shares issued in connection
with debentures -- -- -- -- 2,000,000
Fair value of warrants granted in connection
with debentures -- -- -- -- 210,000
Cost investment in i2v2 -- -- -- -- 2,100,144
Net loss -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance, June 30, 1999 -- -- 3,600 36 4,310,144
REVERSE MERGER
Net effect of reverse merger (Unaudited)
(Note 1) 1,000 -- 37,860,010 721 32,170,571
Intrinsic value of stock options -- -- -- -- 453,000
Net loss (unaudited) -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance, September 30, 1999 (Unaudited) 1,000 $ -- 37,863,610 $ 757 $ 36,933,715
============ ============ ============ ============ ============
TOTAL
ACCUMULATED DEFERRED STOCKHOLDERS'
DEFICIT COMPENSATION EQUITY/(DEFICIT)
------------ ------------ ----------------
OLD COMPANY
Balance July 1, 1996 $ -- $ -- $ 100
Issuance of shares for fixed assets,
at book value -- -- 25,000
Net Loss (375,707) -- (375,707)
------------ ------------ ------------
Balance, June 30, 1997 (375,707) -- (350,607)
Gift of stock to employees -- -- 83,300
Net loss (4,854,171) -- (4,854,171)
------------ ------------
Balance, June 30, 1998 $ (5,229,878) -- $ (5,121,478)
============ ============ ============
THE COMPANY
Issuance of common stock, July 1, 1998 $ -- -- $ 36
Fair value of shares issued in connection
with debentures (1,707,171) -- 292,829
Fair value of warrants granted in connection
with debentures -- -- 210,000
Cost investment in i2v2 -- -- 2,100,144
Net loss (5,462,322) -- (5,462,322)
------------ ------------ ------------
Balance, June 30, 1999 (7,169,493) -- (2,859,313)
Net effect of reverse merger (Unaudited)
(Note 1) -- -- 32,171,292
Intrinsic value of stock options -- (453,000) --
Net loss (unaudited) (3,312,319) -- (3,312,319)
------------ ------------ ------------
Balance, September 30, 1999 (Unaudited) $(10,481,812) $ (453,000) $ 25,999,660
============ ============ ============
See accompanying notes to the consolidated financial statements.
F-5
59
eVENTURES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================
OLD COMPANY THE COMPANY
------------------------------ -------------
YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1999
------------- ------------- -------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $ (375,707) $(4,854,171) $(5,462,322)
Adjustments to reconcile net income to net cash
(used in) provided by net operating activities:
Depreciation and amortization -- 105,544 2,283,505
Other expenses 148,381 171,259 932,509
Write-off accounts receivable - Touchtone -- 615,232 --
Write-off certain intangible assets -- 420,000 --
Foreign currency (gain) loss -- -- 126,575
Equity in loss of unconsolidated affiliate -- -- 33,776
Change in operating assets and liabilities:
Accounts receivable (73,587) (30,835) 98,293
Other receivables (47,200) 41,379 (5,343)
Prepaid expenses and other -- -- (13,250)
VAT receivable -- (44,775) (2,611,318)
Restricted cash -- -- (1,107,437)
Accounts payable 306,113 1,525,750 2,550,093
Accrued other 68,000 75,495 301,695
Accrued interest payable -- 13,412 369,751
THE COMPANY
-------------------------------
THREE THREE
MONTHS MONTHS
ENDED ENDED
SEPTEMBER SEPTEMBER
30, 1998 30, 1999
(UNAUDITED) (UNAUDITED)
------------- -------------
CASH FLOW 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 --
Write-off accounts receivable - Touchtone -- --
Write-off certain intangible assets -- --
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) (713,315)
Accounts payable 835,036 1,170,492
Accrued other (53,406) 309,516
Accrued interest payable 129,220 142,508
See accompanying notes to financial statements.
F-6
60
eVENTURES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
================================================================================
OLD COMPANY THE COMPANY
---------------------------- -------------
YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1999
------------- ------------- -------------
Customer deposits -- 200,000 1,072,682
---------- ---------- ----------
Net cash (used in) provided by operating activities 26,000 (1,761,710) (1,430,791)
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Deposits (13,000) (22,141) (207,169)
Proceeds from sale of available-for-sale securities -- 26,000 246,580
Purchase of available-for-sale securities -- (277,057) --
Purchases of property and equipment (363) (518,944) (1,183,735)
Net cash acquired in reverse merger acquisitions -- -- --
Investment in Touchtone -- (615,232) --
Investment in UCI Teleport -- (420,000) --
Investment in ICT -- -- (125,130)
---------- ---------- ----------
Net cash (used in) provided by investing activities (13,363) (1,827,374) (1,269,454)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances - shareholders -- 60,920 (60,920)
Issuance of common stock and preferred stock 100 -- --
Proceeds from issuance of debenture -- 6,000,000 2,040,000
Payments on capital leases -- (67,357) (1,656,672)
---------- ---------- ----------
Net cash (used in) provided by financing activities 100 5,993,563 322,408
---------- ---------- ----------
THE COMPANY
-----------------------------
THREE THREE
MONTHS MONTHS
ENDED ENDED
SEPTEMBER SEPTEMBER
30, 1998 30, 1999
(UNAUDITED) (UNAUDITED)
------------- -------------
Customer deposits (200,000) 679,765
---------- ----------
Net cash (used in) provided by operating activities (2,087,784) 152,801
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Deposits 2,906 (56,761)
Proceeds from sale of available-for-sale securities 246,580 --
Purchase of available-for-sale securities -- --
Purchases of property and equipment (1,131,808) (574,379)
Net cash acquired in reverse merger acquisitions -- 1,049,688
Investment in Touchtone -- --
Investment in UCI Teleport -- --
Investment in ICT -- (68,122)
---------- ----------
Net cash (used in) provided by investing activities (882,322) 350,426
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances - shareholders 10,688 --
Issuance of common stock and preferred stock -- 6,000,000
Proceeds from issuance of debenture 850,000 --
Payments on capital leases (46,517) (196,583)
---------- ----------
Net cash (used in) provided by financing activities 814,171 5,803,417
---------- ----------
See accompanying notes to financial statements.
F-7
61
eVENTURES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
================================================================================
OLD COMPANY THE COMPANY
----------------------------- -----------------------------------------------
THREE THREE
MONTHS MONTHS
ENDED ENDED
SEPTEMBER SEPTEMBER
YEAR ENDED YEAR ENDED YEAR ENDED 30, 1998 30, 1999
JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1999 (UNAUDITED) (UNAUDITED)
------------- ------------- ------------- ------------- -------------
NET CHANGE IN CASH 12,737 2,404,479 (2,377,837) (2,155,935) $ 6,306,644
CASH AND CASH EQUIVALENTS, beginning of year -- 12,737 2,417,216 2,417,216 39,379
----------- ----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 12,737 $ 2,417,216 $ 39,379 $ 261,281 $ 6,346,023
=========== =========== =========== =========== ===========
Supplemental disclosure of cash flows information:
Cash paid for interest for:
Interest $ -- $ 98,000 $ 376,000 $ -- $ --
=========== =========== =========== =========== ===========
Taxes $ -- $ -- $ -- $ -- $ --
=========== =========== =========== =========== ===========
See accompanying notes to financial statements.
F-8
62
eVENTURES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
================================================================================
OLD COMPANY THE COMPANY
----------------------------------- ---------------
YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1999
------------- ------------- -------------
Supplemental schedule of non-cash investing and
financing activities
Issuance of common stock for property and equipment $ 25,000 $ -- $ --
================= ================= =================
Purchases of equipment under litigation $ 170,462 $ -- $ --
================= ================= =================
Purchases of equipment under capital leases $ -- $ 862,518 $ 4,809,785
================= ================= =================
Fair value of original issue discount on warrants
granted pursuant to certain of the debentures $ -- $ -- $ 210,000
================= ================= =================
Fair value of original issue discount on revaluation of
Company at July 1, 1998, arising from change in
ownership $ -- $ -- $ 2,000,000
================= ================= =================
Goodwill arising from change in ownership
and reverse merger acquisitions $ -- $ -- $ 3,414,343
================= ================= =================
Net assets of subsidiaries acquired through an issue
of stock $ -- $ -- $ --
================= ================= =================
THE COMPANY
--------------------------------------
THREE THREE
MONTHS MONTHS
ENDED ENDED
SEPTEMBER SEPTEMBER
30, 1998 30, 1999
(UNAUDITED) (UNAUDITED)
------------- -------------
Supplemental schedule of non-cash investing and
financing activities
Issuance of common stock for property and equipment $ -- $ --
================= =================
Purchases of equipment under litigation $ -- $ --
================= =================
Purchases of equipment under capital leases $ -- $ --
================= =================
Fair value of original issue discount on warrants
granted pursuant to certain of the debentures $ -- $ --
================= =================
Fair value of original issue discount on revaluation of
Company at July 1, 1998, arising from change in
ownership $ -- $ --
================= =================
Goodwill arising from change in ownership
and reverse merger acquisitions $ -- $ 16,639,971
================= =================
Net assets of subsidiaries acquired through an issue
of stock $ -- $ 1,241,162
================= =================
See accompanying notes to financial statements.
F-9
63
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER
30, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
1. ORGANIZATION, ORGANIZATION
BUSINESS AND
BASIS OF PRESENTATION eVentures Group, Inc., ("eVentures" or the
"Company") was incorporated in the state of
Delaware on June 24, 1987 and was a public
shell with no 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"), and approximately 17% of the
outstanding shares of i2v2.com, Inc.
("i2v2.com"), (collectively the "Acquired
Entities") and $8,540,159 Notes Receivable
including accrued interest ("Notes") from
e.Volve held by our 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 was owned by three
shareholders that are affiliated with each
other (the "Major Shareholders"). In October
1999, the remaining 33.33% of e.Volve was
acquired. (see Note 15)
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. Certain of these
interests, along with the Major
Shareholders' Notes receivable from e.Volve,
were sold to eVentures in exchange for the
Company's stock as part of the Transaction.
The remainder were acquired through a merger
of one of the Major Stockholders with a
wholly owned subsidiary of the Company. Also
as part of the Transaction, one of the
Major Stockholders exercised a warrant and
purchased a further 49.3% of AxisTel, and
sold this to eVentures in exchange for
eVentures stock. The remaining 50% of
AxisTel was then purchased from AxisTel's
founding shareholders.
BASIS OF PRESENTATION
The financial statements presented through
June 30, 1999 represent the combined
interests of the Major Shareholders in each
of the Acquired Entities prior to the
Transaction. This combination of the Major
Shareholders' interests in the Acquired
Entities is deemed to be the "Accounting
Acquirer". The financial statements as of
and for the three months ended September 30,
1999 reflect the consummation of the
Transaction, and therefore are consolidated
financial statements of eVentures and
Subsidiaries as of September 30, 1999 and
for the period
F-10
64
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER
30, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
1. ORGANIZATION, from September 22, 1999 through September
BUSINESS AND 30, 1999.
BASIS OF PRESENTATION
(CONTINUED) On June 11, 1998, the Major Shareholders or
predecessors in interest acquired their
66.67% interest in e.Volve. This transaction
was accounted for by eVolve as a purchase.
The operations of eVolve between June 11,
1998 and June 30, 1998 were immaterial, and,
therefore the date used for the effective
date of the purchase was July 1, 1998. The
financial statements through June 30, 1998
are described as "Old Company", and those
subsequent to June 30, 1998 are described as
"The Company". The cost basis of The Company
was assigned to the assets acquired based on
their estimated fair values at the
acquisition date. As a result, the financial
statements for the period subsequent to the
change of control are presented on a
different cost basis than those for prior
periods and, therefore, are not comparable.
BUSINESS
The Company provides Internet-based
communications services and operates
Internet-based communications networks, and
makes strategic investments in companies
which the Company believes have exceptional
growth prospects.
Operations
During the three years ended June 30, 1999,
the Company's operations were primarily those
of e.Volve and its wholly owned subsidiary,
Latin Gate de Mexico, S.A. de C.V. ("Latin
Gate"). e.Volve was incorporated on June 26,
1996 as Orix Global Communications, Inc.
Through June 30, 1999, its services included
the provision of international voice and data
applications over its fiber optic network,
primarily to Mexico. The network is scalable,
built around digital packet switching
equipment and incorporates Asynchronous
Transfer Mode ("ATM") and Internet Protocol
("IP") technologies. As part of the
Transaction, the Company acquired AxisTel.
AxisTel is developing international and
domestic voice and data applications similar
to those of e.Volve. AxisTel has the
additional business of retail communications
services, including prepaid telephony.
Strategic Investments
During the year ended June 30, 1999, the
Company acquired a minority interest in
i2v2.com (doing business as PhoneFree.com).
The Company also entered into a joint
venture to form Innovative Calling
Technologies, LLC ("ICT") -- See Note 3. The
degree of involvement of the Company in
management varies for each strategic
investment.
F-11
65
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER
30, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
2. RISKS AND CONCENTRATIONS OF CREDIT RISKS
UNCERTAINTIES
The Company has concentrations of credit
risk related cash, customers and vendors, as
follows:
CASH CONCENTRATIONS
The Company places its cash with high credit
quality institutions. Accounts at each
institution are insured by the Federal
Deposit Insurance Corporation ("FDIC") up to
$100,000. From time to time, the Company
maintains cash balances in excess of the
FDIC limit.
CUSTOMER CONCENTRATIONS
During the year ended June 30, 1997, e.Volve
received a significant portion of its
business from Star Communication, Inc.
("Star") and Total Communications, Inc.
("Total"). During the year ended June 30,
1997, sales to these customers totaled 87%
and 10% of e.Volve's revenues, respectively.
During Fiscal 1998, e.Volve received a
significant portion of its business from
Star and Total. During Fiscal 1998, sales to
these customers totaled 65% and 25% of
e.Volve's revenues, respectively. As of June
30, 1998, amounts due from Star and Total
totaled 96% and 0% of e.Volve's accounts
receivables, respectively.
During Fiscal 1999, e.Volve received a
significant portion of its business from
Qwest Communications, Inc. ("Qwest"), RSL
Communications, Inc. ("RSL") and Star.
During Fiscal 1999, sales to these customers
totaled 65%, 18% and 16% of e.Volve's
revenues, respectively. As of June 30, 1999,
there were no significant amounts due from
these customers. As of June 30, 1999,
deposits from Qwest totaled 100% of
e.Volve's customer deposits.
If the relationship between the Company and
these customers were altered, the future
results of operations and financial
condition could be adversely affected.
VENDOR CONCENTRATIONS
During the year ended June 30, 1997, e.Volve
purchased a significant portion of its
carrier and termination costs ("Direct
Costs") from four major vendors. During the
year ended June 30, 1997, purchases from
these four vendors totaled 45%, 22%, 12% and
10% of e.Volve's Direct Costs, respectively.
F-12
66
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER
30, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
2. RISKS AND During Fiscal 1998 and 1999, e.Volve
UNCERTAINTIES purchased a significant portion of its
(CONTINUED) Direct Costs from one vendor. During Fiscal
1998 and 1999, purchases from this vendor
totaled 75% and 92% of Direct Costs,
respectively. As of June 30, 1998 and 1999,
amounts due to this vendor totaled 54% and
62% of e.Volve's accounts payable,
respectively.
If the relationship between the Company and
these vendors was altered, the future
results of operations and financial
condition could be adversely affected.
GEOGRAPHIC CONCENTRATION
The Company provides data transport and
conversion services from the United States
to Mexico and India over the e.Volve
Network. Although the Company plans to
further expand data transport and conversion
services to other destination countries, the
Company's operations may remain concentrated
in the United States, Mexico and India for
the foreseeable future. The data transport
and conversion market for Mexico and India
is highly competitive and is occupied by
industry participants which are much larger
than the Company and have greater financial
resources and may have lower costs than the
Company. There can be no assurance that the
Company will be able to compete effectively
against such larger and better-capitalized
industry participants or that the Company
will be successful in pursuing other
destination countries with existing and
potential customers.
REGULATORY ENVIRONMENT
The Company provides "enhanced" or
"value-added" services to its international
customers and therefore is not subject to
regulation by the FCC or other international
telecommunication regulatory bodies within
its target markets. However, the use of the
Internet protocols to provide telephone
services is a recent market development.
Currently, the FCC is considering whether or
not to impose surcharges or additional
regulations upon certain providers of
Internet telephony. On April 10, 1998, the
FCC issued its Report to Congress concerning
its implementation of the universal service
provisions of the Telecommunications Act.
In the Report, the FCC indicated that it
would examine the question of whether
certain forms of "phone-to-phone" Internet
telephony are information services or
telecommunications services. It noted that
the FCC did not have, as of the date of the
Report, an adequate record on which to make
any definitive pronouncements, but that the
record before it suggested that certain
forms of phone-to-phone Internet telephony
appear to have the same functionality as
non-IP telecommunications services and lack
the characteristics that would render them
information services. If the FCC were to
determine that certain services are subject
to FCC regulations as telecommunications
services, the FCC noted that it may find it
reasonable
F-13
67
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER
30, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
2. RISKS AND to require ISPs to make universal service
UNCERTAINTIES contributions, pay access charges or to be
(CONTINUED) subject to traditional common carrier
regulation.
To the Company's knowledge, there are
currently no domestic and few foreign laws
or regulations that prohibit voice
communications over the Internet. Several
efforts have been made to enact federal
legislation that would either regulate or
exempt from regulation services provided
over the Internet. State public utility
commissions may also retain jurisdiction to
regulate the provision of intrastate
Internet telephony services, and could
initiate proceedings to do so. A number of
countries that currently prohibit
competition in the provision of voice
telephony have also prohibited Internet
telephony. Other countries permit but
regulate Internet telephony. If Congress,
the FCC, state regulatory agencies or
foreign governments begin to regulate
Internet telephony, there can be no
assurances that any such regulations will
not materially adversely affect the
Company's business, financial conditions or
results of operations.
TELECOMMUNICATIONS MARKET AND INDUSTRY
COMPETITION
Currently, the Company competes with (a) long
distance resellers and providers, including
large carriers such as AT&T, MCI/WorldCom,
Qwest, and Sprint; (b) foreign PTTs (Post
Telephone and Telegraph administrations); (c)
other providers of international long
distance services such as STAR
Telecommunications, Inc., Pacific Gateway
Exchange, Inc., RSL Communications Ltd. and
Telegroup, Inc.; (d) alliances that provide
wholesale carrier services, such as "Global
One" (Sprint, Deutsche Telekom AG, and France
Telecom S.A.) and Uniworld (AT&T,
Unisource-Telecom Netherlands, Telia AB,
Swiss Telecom PTT and Telefonica de Espana
S.A.); (e) new entrants to the domestic long
distance market such as RBOCs (Regional Bell
Operating Companies) in the U.S., who have
entered or have announced plans to enter the
U.S. interstate long distance market pursuant
to recent legislation authorizing such entry,
and utilities such as RWE Aktiengesellschaft
in Germany; and (f) small long distance
resellers.
Many of the Company's competitors are
significantly larger and have substantially
greater market presence, as well as greater
financial, technical, operational,
marketing, and other resources and
experience than the Company. The Company
competes for customers in the
telecommunications markets primarily based
on price and, to a lesser extent, the type
and quality of service offered. Increased
competition could force the Company to
reduce its prices and profit margins if its
competitors are able to procure rates or
enter into service agreements that are
comparable to or better than those the
Company obtains, or are able to offer
F-14
68
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER
30, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
2. RISKS AND other incentives to existing and potential
UNCERTAINTIES customers. Similarly, the Company has no
(CONTINUED) control over the prices set by its
competitors in the long distance resale
carrier-to-carrier market.
The Company could also face significant
pricing pressure if it experiences a
decrease in the volume of minutes that it
carries on its network, as the Company's
ability to obtain favorable rates and
tariffs from its carrier suppliers depends,
to a significant extent, on the Company's
total volume of international long distance
call traffic. There is no guarantee that the
Company will be able to maintain the volume
of international and domestic long distance
traffic necessary to obtain favorable rates
and tariffs. Although the Company has no
reason to believe that its competitors will
adopt aggressive pricing policies that could
adversely affect the Company, there can be
no assurance that such price competition
will not occur or that the Company will be
able to compete successfully in the future.
In addition, the Company is aware that its
ability to market its long distance resale
services depends upon the existence of
spreads between the rates offered by the
Company and those offered by the IXC's with
which it competes, as well as those from
which it obtains service. A decrease in such
spreads could have a material adverse effect
on the Company's business, financial
condition or results of operations.
FOREIGN CURRENCY
The Company currently provides data
transport and conversion services to certain
foreign countries and regions, primarily to
Mexico and India. The direct costs, profit
margins and competitive position of the
Company are consequently affected by the
strength of the currencies in countries
where it provides services relative to the
strength of the currencies in the countries
where its services are performed. The
Company's results of operations and
financial condition may be adversely
affected by fluctuations in foreign
currencies and by translations of the
financial statement of the Latin Gate from
local currencies into U. S. dollars.
Further, the Company's international
operations are generally subject to various
risks that are not present in domestic
operations, including restrictions on
dividends and repatriation of funds.
ACCOUNTS RECEIVABLE
The Company sells its data transport and
conversion services to customers throughout
the United States and in some foreign
countries. The Company performs periodic
credit evaluations of its customers and does
not obtain collateral with which to secure
its accounts receivables. The Company
maintains reserves for potential credit
losses based upon the Company's
F-15
69
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER
30, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
2. RISKS AND historical experience related to credit
UNCERTAINTIES losses. Although the Company expects to
(CONTINUED) collect amounts due, actual collections may
differ. As of June 30, 1998 and 1999, the
Company has not recorded a reserve for
potential credit losses, since accounts
receivable for such periods were
insignificant.
3. SUMMARY OF PRINCIPLES OF CONSOLIDATION
SIGNIFICANT
ACCOUNTING The consolidated financial statements
POLICIES include the accounts of the Company and all
wholly owned and majority-owned
subsidiaries. Investments in companies in
which (i) ownership interests range from 20
to 50 percent and (ii) the Company exercises
significant influence over operating and
financial policies are accounted for using
the equity method. Other investments,
including the investment in i2v2.com, are
accounted for using the cost method. All
significant intercompany accounts and
transactions have been eliminated.
UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS
The consolidated financial statements as of
September 30, 1999 and for the three months
ended September 30, 1998 and 1999 are
unaudited, and have been prepared on the
same basis as the audited financial
statements included herein. In the opinion
of management, such unaudited financial
statements include all adjustments
consisting of normal recurring accruals
necessary to present fairly the information
set forth therein. Results for interim
periods are not necessarily indicative of
results to be expected for an entire year.
DEPOSITS
Deposits represent security deposits for
facility leases, advance payments to vendors
for the purchases of property and equipment
and Direct Costs.
AVAILABLE-FOR-SALE SECURITIES
The Company accounts for its
available-for-sale securities in accordance
with Statement of Financial Accounting
Standards No. 115 ("SFAS 115"), "Accounting
for Certain Investments in Debt and Equity
Securities." SFAS 115 addresses the
accounting and reporting for investments in
equity securities which have readily
determinable fair values and all investments
in debt securities.
The Company's marketable equity securities
are classified as available-for-sale under
SFAS 115 and are reported at fair value,
with changes in the unrealized holding gain
or loss included in shareholders' deficit.
As of June 30, 1998, available-for-sale
securities consisted of a 5% Treasury Bill,
which
F-16
70
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER
30, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
3. SUMMARY OF totaled $250,556. During Fiscal 1999, the
SIGNIFICANT Company sold the Treasury Bill and
ACCOUNTING recognized a loss of $3,420. During any
POLICIES period presented, there were no unrealized
(CONTINUED) gains or loss on available-for-sale
securities.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost
and are depreciated using the straight-line
method over the estimated useful lives of
the related assets, ranging from five to
seven years. Maintenance and repairs are
charged to expense as incurred. Significant
renewals and betterments are capitalized. As
of the time of retirement or other
disposition of property and equipment, the
cost and accumulated depreciation are
removed from the accounts and any resulting
gain or loss is reflected in operations.
The Company assesses the recoverability of
property and equipment by determining
whether the depreciation and amortization of
property and equipment over its remaining
life can be recovered through projected
undiscounted future cash flows. The amount
of property and equipment impairment, if
any, is measured based on fair value and is
charged to operations in the period in which
property and equipment impairment is
determined by management. During the years
ended June 30, 1997 and 1998, the Company
recorded impairment losses on certain
property and equipment totaling $25,000 and
$278,324, respectively. The amount of the
impairment was the book value of assets which
were taken out of use during the related
periods. The impairment is recorded as a
component of selling, general and
administrative expenses.
INVESTMENT IN AFFILIATE
On April 19, 1999, the Company entered into
a joint venture with Dataten Technologies to
form Innovative Calling Technologies, LLC
("ICT") with each party owning 50% of ICT.
The Company does not exercise majority
control of the joint venture and thus
accounts for its investments pursuant to the
equity method. Under the equity method, the
Company initially records its investment at
cost and adjusts the carrying amount of the
investment to recognize its share of the
income or losses of the joint venture after
the date of acquisition. Joint venture
income and losses are allocated in
accordance with each party's respective
ownership interest. During Fiscal 1999, the
Company recorded an initial investment of
$125,130, reduced by equity in loss of
unconsolidated subsidiary of $33,776.
GOODWILL
Goodwill arising from a change in ownership
on July 1, 1998 and the Transaction (see
Note 1) is amortized on a straight-line
basis over a ten-year life.
F-17
71
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER
30, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
3. SUMMARY OF The Company assesses the recoverability of
SIGNIFICANT goodwill by determining whether the
ACCOUNTING amortization over its remaining life can be
POLICIES recovered through projected undiscounted
(CONTINUED) future cash flows. The amount of impairment,
if any, is measured based on fair value and
is charged to operations in the period in
which impairment is determined by
management. As of June 30, 1999, the
Company's management has not identified any
material impairment of goodwill.
REVENUE RECOGNITION AND CUSTOMER DEPOSITS
Revenues are recognized upon rendering of
services to customers. Nonrefundable
deposits received from customers are
deferred as customer deposits and are
recognized when the related services are
rendered.
FOREIGN CURRENCY GAIN OR LOSS
The financial statements of the Latin Gate
are remeasured into the U.S. dollar
functional currency for consolidation and
reporting purposes. Current rates of
exchange are used to remeasure monetary
assets and liabilities and historical rate
of exchange are used for nonmonetary assets
and related elements of expense. Revenue and
other expense elements are remeasured at
rates which approximate the rates in effect
on the transaction dates. Gains and losses
resulting from this remeasurement process
are recognized currently in the consolidated
statement of operations. During fiscal 1998
and 1999, there were no significant gains or
losses with respect to this remeasurement
process.
Mexican-based vendors invoice e.Volve in
Mexican pesos. Certain of these transactions
are remeasured at the time in which the
services are rendered to the Company and are
settled in US dollars at the time of payment
for such services, which results in foreign
currency gain or loss. During fiscal 1998
and 1999, foreign currency gains and losses
totaled $0 and $126,575, respectively.
INCOME TAXES
The Company accounts for income taxes in
accordance with Statement of Financial
Accounting Standards No.109 ("SFAS 109"),
"Accounting for Income Taxes." Under the
asset and liability method of SFAS 109,
deferred tax assets and liabilities are
recognized for the future tax consequences
attributable to differences between the
financial statements carrying amounts of
existing assets and liabilities and their
respective tax bases. Deferred tax assets
and liabilities are measured using enacted
tax rates expected to apply to taxable
income in the years in which those temporary
differences are
F-18
72
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER
30, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
3. SUMMARY OF expected to be recovered or settled. Under
SIGNIFICANT SFAS 109, the effect on the deferred tax
ACCOUNTING assets and liabilities of a change in tax
POLICIES rates is recognized in income in the period
(CONTINUED) that includes the enactment date. A
valuation allowance is provided for
significant deferred tax assets when it is
more likely than not that such assets will
not be recovered.
STOCK BASED COMPENSATION
The Financial Accounting Standards Board
issued Statement of Financial Accounting
Standards No. 123 ("SFAS#123"), "Accounting
for Stock Based Compensation," which defines
a fair value based method of accounting for
stock-based compensation. However, SFAS#123
allows an entity to continue to measure
compensation cost related to stock and stock
options issued to employees using the
intrinsic method of accounting prescribed by
Accounting Principles Board Opinion No. 25
("APB#25"), "Accounting for Stock Issued to
Employees". Entities electing to remain with
the accounting method of APB#25 must take
pro forma disclosures of net income and
earnings per share, as if the fair value
method of accounting defined in SFAS#123 had
been applied. The Company has elected to
account for its stock-based compensation to
employees under APB#25.
EARNINGS PER SHARE
The Financial Accounting Standards Board
issued Statement of Financial Accounting
Standards ("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. EPS is not
presented for the Old Company. For purposes
of computation of EPS, the shares issued for
the acquisition of e.Volve (16,000,000
shares) are deemed to have been in existence
for the entire period.
COMPREHENSIVE INCOME(LOSS)
The Financial Accounting Standards Board
issued Statement of Financial Accounting
Standards ("SFAS#130"), "Reporting
Comprehensive Income." This statement
establishes standards for reporting the
components of comprehensive income and
requires that all items that are required to
be recognized under accounting standards as
components of comprehensive income(loss) be
included in a financial statement that is
displayed with the same prominence as other
financial statements. Comprehensive income
F-19
73
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER
30, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
3. SUMMARY OF includes net income(loss) as well as certain
SIGNIFICANT items that are reported directly within a
ACCOUNTING separate component of stockholders' deficit
POLICIES and bypass net loss. The Company adopted the
(CONTINUED) provisions of this statement in Fiscal 1998.
These disclosure requirements had no impact
on the Company's financial statements.
EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS
The American Institute of Certified Public
Accountants has issued Statement of Position
98-5 ("SOP 98-5"), "Reporting on the Costs
of Start-Up Activities.". This SOP defines
start-up activities as those one-time
activities related to opening a new
facility, introducing a new product or
service, conducting business in a new
territory, conducting business with a new
class of customers, initiating a new process
in an existing facility, or commencing some
new operation. SOP 98-5 requires that these
start-up costs be expensed as incurred. This
SOP is effective for financial statements
for fiscal years beginning after December
15, 1998, and therefore was adopted on July
1, 1999 for the Company. The adoption of
SOP 98-5 has not materially impacted the
results of operations, financial position,
and financial statement disclosures, and is
not expected to have a significant impact on
future financial statements.
In June 1998, the Financial Accounting
Standards Board, issued Statement of
Financial Accounting Standards No. 133
("SFAS#133"); "Accounting for Derivative
Instruments and Hedging Activities,"
SFAS#133 requires companies to recognize all
derivatives as either assets or liabilities
in the statement of financial position and
measure those instruments at fair value.
SFAS#133 is effective for fiscal years
beginning after June 15, 2000. The Company
does not presently enter into any
transactions involving derivative financial
instruments and, accordingly, does not
anticipate the new standard will have any
effect on its financial statements for the
foreseeable future.
ACCOUNTING 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
reported periods. Actual results could
materially differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of financial instruments
approximated fair value as of June 30, 1998
and 1999 due to either short maturity or
terms similar to those available to similar
companies in the open market.
SEGMENT INFORMATION
The Company adopted SFAS No. 131,
"Disclosures about Segments of an Enterprise
and Related Information" for fiscal 1999. The
statement requires disclosure of certain
financial information related to operating
segments. The Company has determined that it
operates in one reportable segment (see
Note 1).
F-20
74
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER
30, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
4. RESTRICTED CASH Restricted cash consists of two certificates
of deposits (including accrued interest)
that serve as collateral on a certain letter
of credit totaling $1,061,000. As of June
30, 1999 and September 30, 1999, no amounts
were drawn down on such letter of credit. The
full amount of the letter of credit was
drawn down on October 5, 1999.
5. PROPERTY AND EQUIPMENT Property and equipment consist of the
following as of:
June 30,
1998 1999
------------ -----------
Leasehold Improvements $ 182,308 $ 257,217
Network equipment under capital leases 862,518 5,985,121
Other equipment 497,375 751,512
Furniture and fixtures 10,086 10,552
------------ -----------
1,552,287 7,004,402
Accumulated depreciation and (105,043) (784,528)
amortization
------------ ------------
$ 1,447,244 $ 6,219,874
============ ============
During the years ended June 30, 1997, 1998
and 1999, depreciation and amortization
expense totaled $0, $105,043 and $957,966,
respectively.
Property and equipment included assets under
capital leases at June 30, 1999 and 1998
with a cost of $5,985,121 and $862,518,
respectively, and accumulated amortization
of $757,900 and $35,642, respectively.
6. VAT RECEIVABLE VAT is a tax similar in nature to a sale
and/or use tax. VAT is assessed by vendors
operating in foreign countries, specifically
Mexico. The tax is paid by e.Volve directly
to the assessing vendor who remits the tax
to the Mexican taxing authority ("MTA").
Based on an injunction received from the
MTA, e.Volve is exempt from incurring this
tax. As of June 30, 1998 and 1999, VAT
receivable consists of amounts due and
payable to e.Volve by either the assessing
vendor or MTA (as applicable). Subsequent to
year-end, all such amounts due at year-end
have been refunded to e.Volve.
7. DEBENTURES During Fiscal 1998 and 1999, the Company
issued debentures aggregating $8,040,000 to
the Major Stockholders or predecessors in
interest. The debentures bear interest at 8%
per annum, and generally mature within a two
year period. The debenture agreement was
amended with each additional issue, in some
instances resulting in extended maturity
dates. The issues (as amended) were as
follows:
F-21
75
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER
30, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
7. DEBENTURES
(CONTINUED)
ISSUANCE DATE MATURITY DATE AMOUNT
---------------------- ---------------------- ------------------
June 11, 1998 June 30, 2000 $ 6,000,000
August 19, 1998 June 30, 2000 850,000
April 15, 1999 June 30, 2000 200,000
--------------
April 15, 1999 June 30, 2000 7,050,000
February 9, 1999 June 30, 1999 390,000
April 29, 1999 August 27, 1999 500,000
April 30, 1999 August 28, 1999 100,000
--------------
$ 8,040,000
==============
In connection with the June 11, 1998
debenture, the Company issued a total of 2400
common shares to one of the Major
Stockholders or predecessors in interest,
which gave such Major Stockholder a 66.7%
interest in the common shares of the Company.
(See Note 1). The value of the shares issued
was recorded at estimated fair value, and a
debt discount of $2,000,000 was recorded,
with an offsetting credit to Additional Paid
In Capital. The debt discount is amortized
over the contractual period of the related
debentures as a component of interest
expense.
The June 11, 1998, August 19, 1998 and April
15, 1999 debentures are repayable monthly
with accrued interest at various amounts,
with all unpaid principal and interest due
upon maturity. At June 30, 1999 the Company
was in default of its payment obligations in
connection with these debentures. The Major
Stockholders or predecessors in interest that
owned such debenture waived its right to
demand immediate repayment of these
debentures and subsequently sold its Notes
Receivable (see below).
The February 9, 1999 debenture is payable in
full (including interest) on the maturity
date. In the event the amount is not paid in
full by that date, the balance is
convertible into common stock of e.Volve at
the option of the lender, at a conversion
price of $2,778 per share, which was the
deemed fair value of shares at the issue
date.
The April 29 and 30, 1999 debentures are
repayable on the maturity date.
On September 22, 1999, as part of the
Transaction (see Note 1), the Major
Stockholders or predecessors in interest that
owned such debentures sold their related
notes receivable from e.Volve to eVentures
and, as a result, debentures are reflected as
long term liabilities on the June 30, 1998
and 1999 balance sheets. At the time of the
Transaction, the unamortized debt discount of
$917,615 on June 11, 1998 debenture was
written off. In addition, as part of this
transaction, the debentures were restructured
into a single debenture with a maturity date
of December 31, 1999. At September 30, 1999,
the amount of the
F-22
76
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER
30, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
7. DEBENTURES e.Volve's debentures and eVentures' notes
(CONTINUED) receivable eliminate on consolidation.
8. OBLIGATIONS UNDER The Company is a lessee under certain
CAPITAL LEASES noncancelable capital leases, which are
secured by certain property and equipment
(see Note 5). Terms of the leases call for
monthly payments ranging from $1,061 to
$32,711, including implicit rates ranging
from 10.0% to 13.6% per annum. Future
minimum lease payments under these capital
leases are as follows:
For the year ended June 30, 1999
-----------------
2000 $ 2,140,641
2001 1,313,304
2002 937,570
-----------------
4,391,515
Amount representing interest (443,241)
-----------------
Present value 3,948,274
Current portion (1,916,761)
-----------------
$ 2,031,513
=================
9. STOCKHOLDERS' EQUITY COMMON STOCK
(DEFICIT)
Common stock consisted of the following:
September 30, 1999
Common Stock ($.00002 par value,
75,000,000 shares authorized, 37,863,610
issued and outstanding)
June 30, 1999
Common Stock ($.01 par value, 3,600 shares
authorized, issued and outstanding)
June 30, 1998
Common Stock ($.1 par value, 3,600 shares
authorized, issued and outstanding)
PREFERRED STOCK
Series A Convertible Preferred Stock
consisted of the following:
September 30, 1999 Series A Convertible
Preferred Stock ($.00002 par value,
5,000 shares authorized, 1,000 shares
issued and outstanding)
F-23
77
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER
30, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
9. STOCKHOLDERS EQUITY STOCK OPTIONS
(DEFICIT)
(CONTINUED) e.Volve had a non-formalized stock option
plan (the "Plan"), whereby incentive stock
options may be granted to certain employees,
directors, officers and others to purchase
shares of e.Volve's common stock. Options
granted pursuant to the Plan vest at various
percentages within two years of the date of
grant and expire within five years from the
date of grant or upon termination of
employment (as defined).
During Fiscal 1999, the Company granted 90
stock options to an officer of the Company
with an exercise price of $2,778, of which
45 options vested immediately and the
remaining 45 options will become fully
vested on December 31, 1999. During Fiscal
1999, pursuant to an employment agreement
(see Note 12), the Company granted 90 stock
options to an Officer of the Company with an
exercise price of $7,077 (the deemed fair
value of the stock), of which 45 options
vested on March 8, 1999 and the remaining 45
options became fully vested on March 23,
1999. During Fiscal 1999, the Company
granted 600 stock options to certain
officers and employees of the Company with
an exercise prices of $2,778, of which 301
options vested on April 30, 1999 and the
remaining 299 options becoming fully vested
on April 1, 2000. With respect to the grant
of all such options, the Company did not
record non-cash compensation expense
pursuant to APB#25. As of June 30, 1999, 436
of such options were exercisable.
Pro forma information regarding net income
(loss) is required by SFAS 123, and has been
determined as if the Company had accounted
for its 780 stock options granted during
Fiscal 1999 under the fair value method
pursuant to SFAS 123, rather than the method
pursuant to APB#25 discussed herein. The
fair value for these options was estimated
at the date of grant using a Black-Scholes
option pricing model with the following
assumptions: stock price of $2,778 per
share; risk-free interest rates ranging from
5.1% to 5.4%(depending on the expected term
of the option and the date of grant);
dividend yield of 0.0%; volatility factor of
the expected market price of the Company's
common stock of 0.0% (due to no significant
market for trading of the Company's common
stock, volatility has been assessed at 0.0%;
the result of excluding volatility in
estimating an option's value is an amount
commonly termed minimum value); and expected
terms of 5 years.
The Black-Scholes valuation model was
developed for use in estimating the fair
value of traded options which have no
vesting restrictions and are fully
transferable. In addition, option valuation
models require the input of highly
subjective assumptions including the
expected stock price volatility. Because
the Company's employee stock options have
F-24
78
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER
30, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
9. STOCKHOLDERS EQUITY characteristics significantly different from
(DEFICIT) those of traded options, and because changes
(CONTINUED) in the subjective input assumptions can
materially affect the fair value estimate,
in management's opinion, the existing models
do not necessarily provide a reliable single
measure of the fair value of its employee
stock options.
For purposes of pro forma disclosure, the
estimated fair value of the options is
amortized to expense over the options'
vesting period. The Company's pro forma
information relative to e.Volve's option
plan is as follows:
F-25
79
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER
30, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
9. STOCKHOLDERS EQUITY
(DEFICIT)
(CONTINUED)
Fiscal
1999
--------------
PRO FORMA NET LOSS:
Net loss as reported $ (5,803,756)
Additional compensation
compensation expense under
SFAS#123 (453,000)
--------------
$ (6,256,756)
==============
During the years ended June 30, 1997 and
1998, no options were granted and therefore
proforma information has only been presented
for fiscal 1999.
On September 22, 1999, the Company terminated
the share option plans of e.Volve and AxisTel
and adopted a new share option plan (the
"Plan") for its employees, officers,
directors and consultants (whether or not
employees) as part of the Agreement and Plan
of Reorganization entered into in connection
with the Transaction (see Note 1). The Plan
provides for the grant of non-qualified share
options, of which, the exercise price shall
not be less than 100% of the fair market
value of the common shares on the date the
option is granted. The Plan provides that
options granted vest in two or three
installments: the first vest in equal annual
installments over a three-year period
commencing September 22, 1999, the second
vest in equal annual installments over a
two-year period commencing September 22,
1999.
The number of shares authorized for grants
under the Share Option Plan is 15% of
outstanding, provided that no more than
4 million options can be "incentive" stock
options. As of September 30, 1999, no options
were exercised.
The following options were granted during
the three months ended September 30, 1999:
Number of Exercise
Shares Price Date of issue Vesting Period
--------- -------- ------------------ --------------
241,666 $ 2.50 September 22, 1999 Three-years
166,667 $ 5.00 September 22, 1999 Three-years
166,667 $ 7.50 September 22, 1999 Three-years
1,275,000 $ 10.00 September 22, 1999 Three-years
600,000 $ 10.00 September 22, 1999 Two-years
---------
2,450,000
---------
As a result of the above, the Company
recorded deferred compensation of $453,000 on
September 22, 1999 with a related credit to
additional paid in capital. The amount of the
deferred compensation was based upon the
intrinsic value of options granted to
employees which had an exercise price lower
than the market price of the underlying stock
on the day of the grant. The deferred
compensation will be amortized over the three
year vesting period and recorded as
compensation expense in the statement of
operations.
WARRANTS
In connection with the issuance of the
Amended and Restated Debenture Agreement
dated April 15, 1999 (see Note 7), the
Company issued common stock purchase
warrants (the "Warrants") to the Debenture
Holder granting the right to acquire 340
shares of Common Stock. The Warrants have an
exercise price of $2,778 per share and
expire within five years of the date of
grant (as defined). As of June 30, 1999,
none of the Warrants have been exercised.
The Company has accounted for its 340 common
stock debenture warrants granted during
Fiscal 1999 at fair value. The Company has
estimated the fair value of the Warrants,
original issue discount ("OID"), at
$210,000. The OID has been reflected as an
increase in additional paid-in capital and
as a reduction of the February Debenture and
is being amortized to interest expense
utilizing the effective interest method over
the term of the Note. During Fiscal 1999,
amortization of OID on the February
Debentures totaled $40,281. The fair value
for these warrants was estimated at the date
of grant using a Black-Scholes option
pricing model with the following
assumptions: stock price of $2,778 per
share; risk-free interest rate of 5.0%
(based on the expected term of the option
and the date of grant); dividend yield of
0.0%; volatility factor of the expected
market price of the Company's common stock
of 0.0% (due to no significant market for
trading of the Company's common stock,
volatility has been assessed at 0.0%; the
result of excluding volatility in estimating
an option's value is an amount commonly
termed minimum value); and expected terms of
5 years.
F-26
80
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER
30, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
10. INCOME TAXES There is no provision for income tax expense
since the Company incurred net losses for
all periods presented.
Deferred tax assets of approximately
$1,015,000 and $2,226,000 as at June 30,
1998 and 1999 result primarily from Net
Operating Losses ("NOL's") and have been
fully offset by valuation allowances due to
the lack of certainty as to the ultimate
realization of any benefits resulting from
such NOLs.
As at June 30, 1999, e.Volve had NOLs of
approximately $6,547,000. Due to
restrictions on use of NOLs following a
change in ownership, these NOLs may not be
used by the Company prior to their
expiration, which is in various years
through 2018.
11. RELATED PARTY ADMINISTRATIVE EXPENSES
TRANSACTIONS
During the years ended June 30, 1997, 1998
and 1999, the Company shared office space,
payroll and certain other administrative
expenses with a related party ("Orix
Systems"). The Company paid Orix Systems
$408,734, $676,227 and $156,597, for the
years ended June 30, 1997, 1998, and 1999
respectively, with respect to such expenses
ADVANCES FROM SHAREHOLDER
Advances due from shareholder relate to
advances made by the majority shareholder of
the Old Company. The advances are
non-interest bearing and are due on demand.
As of June 30, 1998 and 1999, advances due
from shareholder totaled $60,920 and $0,
respectively.
F-27
81
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER
30, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
12. COMMITMENTS AND OPERATING LEASES
CONTINGENCIES
The Company is a lessee under certain
noncancelable operating leases. Terms of the
leases call for monthly payments ranging
from $400 to $10,000. Future minimum lease
payments under these noncancelable operating
leases are as follows:
For the year ended June 30, 1999
----------------
2000 $ 249,920
2001 165,358
2002 147,168
2003 114,137
2004 66,101
Thereafter 38,556
----------------
$ 781,240
================
During the years ended June 30, 1997, 1998
and 1999, the Company incurred rent expense
of $0, $55,100 and $308,900 respectively.
(see Note 11)
LITIGATION
The Company is a defendant in two lawsuits
arising out of the ordinary course of
business. In each case the plaintiff is
seeking damages against the Company primarily
for breach of contract. As of June 30, 1998
and 1999, the Company has expensed and
accrued a total of $381,802 and $665,299,
respectively, pursuant to these claims, which
is expected to be the Company's total
exposure. The related costs are included as a
component of selling, general and
administrative expenses.
In November 1998, representatives of Mexico's
Federal Telecommunications Commission
("COFETEL") entered the premises of the
Company's wholly owned subsidiary, Latin
Gate, and attempted to confiscate Latin
Gate's equipment pursuant to a visitation
order under a verification administrative
proceeding (procedimiento administrativo de
verificacion). Latin Gate filed a Federal
constitutional court action known as juicio
de amparo against COFETEL in a Mexican
Federal district court (juzgado de distrito),
principally alleging that the visitation
order failed to comply with Mexican
constitutional requirements and that the
search and seizure were illegal under Mexican
law. A juicio de amparo has two stages: the
suspension of the acts of authority
complained of and a constitutional review.
The former stage has two phases: temporary
restraining order (suspension provisional)
and a final restraining order (suspension
definitiva). The purpose of the
constitutional review is to determine whether
the acts of authority complained of are
constitutional. Should the court determine
that the acts of authority complained of are
unconstitutional, a final judgment (sentencia
final) is rendered, the principal effect of
which is the granting of the protection of
the Federal courts against such acts. On
November 24, 1998, Latin Gate obtained a
temporary restraining order which preserved
the status quo of the Latin Gate equipment
and suspended the administrative proceeding,
therefore prohibiting COFETEL from
re-entering Latin Gate's premises. On
December 21, 1998, Latin Gate obtained a
final restraining order (suspension
definitiva). On May 24, 1999, a final
judgment was rendered by the district court
in favor of Latin Gate, which judgment
declared COFETEL's acts unconstitutional and,
as a consequence, granted Latin Gate the
protection of the Federal courts. On July 7,
1999, COFETEL appealed, through a recurso de
revision, to a higher court (tribunal
colegiado de circuito) seeking a review of
the district court judgment. It is
anticipated that a ruling with respect to
such appeal would be rendered sometime in
late January 2000. It may not be possible to
ascertain the definitive outcome of this
matter but Latin Gate continues to defend
itself in Mexican courts. The loss of Latin
Gate's equipment might have an adverse effect
on the Company's financial condition. The
cost of litigation, regardless of the
outcome, may have an adverse effect on the
Company's financial condition. As of June 30,
1999 no amounts have been accrued for this
matter.
The Company is involved in other litigation
arising out of the ordinary course of
business. Management believes, based in part
on the advice of outside counsel, that these
matters will not have a material adverse
effect on the accompanying consolidated
financial statements.
CONSULTING AGREEMENT
On April 15, 1999, the Company entered into a
consulting agreement with an individual,
calling for monthly payments of approximately
$20,000 per month, terminating April 15,
2000.
F-28
82
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER
30, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
12. COMMITMENTS AND EMPLOYMENT AGREEMENTS
CONTINGENCIES
(CONTINUED) The Company has entered into multi-year
employment agreements or management contracts
with six of its senior executives. These
agreements mature at various times beginning
in June 2000 and ending in September 2002.
These agreements provide for annual salaries
ranging between $100,000 and $200,000. In
addition, certain of these employees were
granted options to purchase common stock
under the Company's Share Option Plan. These
options, if exercised, would represent the
right to purchase 1,850,000 shares of common
stock at various exercise prices ranging from
$2.50 to $10.00 per option (See
Note 9).
MARKETING AGREEMENTS
On January 1, 1999, the Company entered into
an agreement with Corpovision S.A. de C.V.
("Corpovision") to provide marketing
services to locate and develop clients for
telecommunications services. As long as e.
Volve conducts business with the clients
listed in the agreement, the Company must
pay a minimum compensation amount of
$100,000 per month in any month sales are
made, within thirty days after the end of
each period. The payment must be in the form
of cash or a subordinated, non-recourse
promissory note to be paid with any available
cash flow. The term of the agreement is for
thirty years. As of June 30, 1999, the
Company had paid compensation amounting to
$200,000 and had a note outstanding for the
remaining months of $300,000. During Fiscal
1999, the Company incurred compensation
expense related to such agreement totaling
$500,000. On November 30, this agreement was
terminated (See Note 15).
AGREEMENTS WITH VENDORS
On October 9, 1996, the Company entered into
an agreement with a vendor to provide sundry
telecom services which expired on October 9,
1999.
F-29
83
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER
30, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
12. COMMITMENTS AND On April 29, 1998, the Company entered
CONTINGENCIES into an agreement with Qwest for
(CONTINUED) telecommunication services. The agreement
can be terminated at any time by either
party upon a thirty-day notice and can be
automatically renewed for successive
one-year periods. Rates for services
disclosed in the agreement are subject to
change at any time.
F-30
84
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER
30, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
13. PRO FORMA FINANCIAL DATA On September 22, 1999, the Company acquired
(UNAUDITED) all of the outstanding shares of AxisTel,
approximately 66.67% of the outstanding
shares of e.Volve, and approximately 17% of
the outstanding shares of i2v2.com. All of
the acquisitions were settled through the
issuance of stock of eVentures.
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 reverse merger and acquisition of
AxisTel had occurred on July 1, 1998 and July
1, 1999, respectively, 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 reverse merger and
acquisition been made on July 1, 1998 and
July 1, 1999, respectively, or of future
results.
Year ended Three months ended
June 30, 1999 September 30, 1999
Total revenues $ 35,215,916 $ 14,695,002
Net loss $(10,501,114) $ (5,826,413)
Net loss per share $ .28 $ .15
14. GOODWILL Goodwill of $3,414,319 arose upon the change
of control on July 1, 1998 (see Note 1).
Goodwill of $16,639,971 arose upon the
acquisition of AxisTel on September 22, 1999
as part of the Transaction (see Note 1).
Accumulated amortization as of June 30, 1999
and September 30, 1999 was $341,434 and
$463,240 respectively.
15. SUBSEQUENT EVENTS On October 14, 1999, eVentures exchanged
accounts payable to a vendor of $4,307,437
for $1,107,967 cash plus 221,000 shares of
eVentures' Common Stock.
To consummate the September 22, 1999
Transaction (see Note 1), eVentures 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
F-31
85
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER
30, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
15. SUBSEQUENT EVENTS eVentures' Common Stock.
(CONTINUED)
On November 18, 1999, eVentures issued 2,500
shares of Series B Convertible Preferred
Stock and on November 24, 1999 eVentures
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 eVentures
common stock for the 10 trading days ended
October 29, 1999. These shares convert to
eVentures common stock on the second
anniversary of date of issue.
On November 30, 1999 the Company terminated
its marketing agreement with Corpovision
(see Note 12). The Company settled its
liability to Corpovision and terminated the
agreement through an issue of 137,500 shares
of eVentures. As a result, the Company will
record a charge in the statement of
operations of approximately $1,000,000 in
November, 1999 for the difference between
the value of the shares issued and the book
value of the note payable to Corpovision.
F-32
86
INDEPENDENT AUDITORS' REPORT
To the Stockholders
AxisTel Communications, Inc.
Jersey City, New Jersey
We have audited the accompanying balance sheets of AxisTel Communications, Inc.
as of December 31, 1997 and 1998, and the related statements of operations,
stockholders' equity (deficit) and cash flows for the period from August 28,
1997 (inception) to December 31, 1997 and the year ended December 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AxisTel Communications, Inc. at
December 31, 1997 and 1998, and the results of its operations and its cash flows
for the period from August 28, 1997 (inception) to December 31, 1997 and the
year ended December 31, 1998, in conformity with generally accepted accounting
principles.
BDO SEIDMAN, LLP
New York, New York
October 29, 1999
F-33
87
AXISTEL COMMUNICATIONS, INC.
BALANCE SHEETS
================================================================================
December 31, December 31, June 30,
1997 1998 1999
------------- ------------- -------------
(Unaudited)
ASSETS
CURRENT:
Cash $ 31,712 $ 1,418,070 $ 630,571
Accounts receivable - net of allowances for doubtful
accounts of $-0-, $25,000 and $75,000,
respectively 38,250 302,100 1,054,563
Prepaid expenses and other current assets 2,443 35,898 217,300
------------- ------------- -------------
TOTAL CURRENT ASSETS 72,405 1,756,068 1,902,434
RESTRICTED CASH -- -- 750,000
PROPERTY, EQUIPMENT, AND CERTAIN INTANGIBLES AT COST, NET
OF ACCUMULATED DEPRECIATION -- 1,693,055 394,583
LOAN ORIGINATION COSTS - NET OF ACCUMULATED AMORTIZATION
OF $5,000 AND $55,000, RESPECTIVELY -- 55,000 --
OTHER ASSETS -- 46,800 46,800
------------- ------------- -------------
$ 72,405 $ 3,550,923 $ 3,093,817
============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of notes payable - Eraatel Corp. $ -- $ 427,600 $ --
Notes payable - stockholders 10,000 25,000 25,625
Accounts payable and accrued expenses 47,204 369,604 1,203,760
Deferred revenue -- 110,000 176,230
------------- ------------- -------------
TOTAL CURRENT LIABILITIES 57,204 932,204 1,405,615
NOTES PAYABLE:
Eraatel Corp. -- 1,072,400 --
Stockholder -- 1,748,925 3,317,425
------------- ------------- -------------
TOTAL LIABILITIES 57,204 3,753,529 4,723,040
------------- ------------- -------------
COMMITMENTS AND CONTINGENCY
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock 15 15 15
Additional paid-in capital 985 312,395 312,395
Retained earnings (deficit) 14,201 (515,016) (1,941,633)
------------- ------------- -------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 15,201 (202,606) (1,629,223)
------------- ------------- -------------
$ 72,405 $ 3,550,923 $ 3,093,817
============= ============= =============
See accompanying summary of accounting policies and
notes to financial statements.
F-34
88
AXISTEL COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
================================================================================
Period from
August 28, 1997
(inception) to Year ended
December 31, December 31, Six months ended June 30,
--------------------------------
1997 1998 1998 1999
------------- ------------- ------------- -------------
(Unaudited)
NET REVENUES $ 69,250 $ 2,304,887 $ 529,241 $ 6,191,997
CARRIER CHARGES 49,042 1,853,873 659,709 5,187,071
------------- ------------- ------------- -------------
20,208 451,014 (130,468) 1,004,926
------------- ------------- ------------- -------------
OTHER OPERATING EXPENSES:
Selling, general and administrative 5,707 648,943 56,431 1,615,783
Line charges -- 199,977 44,149 460,070
Cellular phones -- 47,463 -- --
Printing -- 38,780 -- --
------------- ------------- ------------- -------------
TOTAL OTHER OPERATING EXPENSES 5,707 935,163 100,580 2,075,853
------------- ------------- ------------- -------------
OPERATING INCOME (LOSS) 14,501 (484,149) (231,048) (1,070,927)
OTHER EXPENSES:
Interest expense, net -- 44,768 -- 255,690
Other expense -- -- -- 100,000
------------- ------------- ------------- -------------
INCOME (LOSS) BEFORE TAXES ON INCOME 14,501 (528,917) (231,048) (1,426,617)
TAXES ON INCOME 300 300 -- --
------------- ------------- ------------- -------------
NET INCOME (LOSS) $ 14,201 $ (529,217) $ (231,048) $ (1,426,617)
_ ============= ============= ============= =============
F-35
See accompanying summary of accounting policies and
notes to financial statements.
89
AXISTEL COMMUNICATIONS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
================================================================================
Period from August 28, 1997 (inception) to December 31, 1997, year ended
December 31, 1998 and six months ended June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Common stock, Class A Common stock, Class B
---------------- ----------------- ------------- -----------------
Shares Par value Shares Par value
---------- ----------- --------- -----------
BALANCE, AUGUST 28, 1997 -- $ -- -- $ --
Issuance of common stock 1,500 15 -- --
Net income -- -- -- --
---------- ----------- --------- -----------
BALANCE, DECEMBER 31, 1997 1,500 15 -- --
Issuance of common stock -- -- 1 --
Officer's salary-imputed -- -- -- --
Options granted -- -- -- --
Warrants granted -- -- -- --
Net loss -- -- -- --
---------- ----------- --------- -----------
BALANCE, DECEMBER 31, 1998 1,500 15 1 --
Net loss (Unaudited) -- -- -- --
---------- ----------- --------- -----------
BALANCE, JUNE 30, 1999 (UNAUDITED) 1,500 $ 15 1 $ --
========== =========== ========= ===========
Additional Retained Stockholders'
paid-in earnings equity
capital (deficit) (deficit)
----------- ----------- ----------------
BALANCE, AUGUST 28, 1997 $ -- $ -- $ --
Issuance of common stock 985 -- 1,000
Net income -- 14,201 14,201
----------- ----------- ----------------
BALANCE, DECEMBER 31, 1997 985 14,201 15,201
Issuance of common stock -- -- --
Officer's salary-imputed 12,000 -- 12,000
Options granted 25,510 -- 25,510
Warrants granted 273,900 -- 273,900
Net loss -- (529,217) (529,217)
----------- ----------- ----------------
BALANCE, DECEMBER 31, 1998 312,395 (515,016) (202,606)
Net loss (Unaudited) -- (1,426,617) (1,426,617)
----------- ----------- ----------------
BALANCE, JUNE 30, 1999 (UNAUDITED) $ 312,395 $(1,941,633) $(1,629,223)
=========== =========== ================
See accompanying summary of accounting policies and
notes to financial statements.
F-36
90
AXISTEL COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
(NOTE 9)
================================================================================
Period from
August 28,
1997
(inception)
to Year ended Six months ended June 30,
December 31, December 31, -------------------------------
1997 1998 1998 1999
------------- ------------- ------------- -------------
(unaudited)
Cash flows from operating activities:
Net income (loss) $ 14,201 $ (529,217) $ (231,048) $ (1,426,617)
------------- ------------- ------------- -------------
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization -- 15,564 -- 20,627
Amortization of loan origination costs -- 27,825 -- 123,500
Other expense -- -- -- 100,000
Stock options issued in lieu of payment
for services -- 25,510 -- --
Officer's salary - imputed -- 12,000 -- --
Decrease (increase) in:
Accounts receivable (38,250) (278,100) 30,992 (752,463)
Prepaid expenses and other assets (2,443) (72,697) (4,492) (181,402)
Restricted cash -- -- -- (750,000)
Increase in:
Accounts payable and accrued expenses 47,204 329,092 174,419 834,156
Deferred revenue -- 110,000 25,000 66,230
------------- ------------- ------------- -------------
Total adjustments 6,511 169,194 225,919 (539,352)
------------- ------------- ------------- -------------
Net cash provided by (used in)
operating activities 20,712 (360,023) (5,129) (1,965,969)
------------- ------------- ------------- -------------
Cash flows from investing activities:
Capital expenditures -- (208,619) -- (322,155)
------------- ------------- ------------- -------------
Cash flows from financing activities:
Proceeds from:
Issuance of common stock 1,000 -- -- --
Notes payable, net of loan origination costs -- 1,940,000 -- 1,500,000
Loans from stockholders 10,000 15,000 25,000 625
------------- ------------- ------------- -------------
Net cash provided by financing
activities 11,000 1,955,000 25,000 1,500,625
------------- ------------- ------------- -------------
Net increase (decrease) in cash 31,712 1,386,358 19,871 (787,499)
Cash, beginning of period -- 31,712 31,712 1,418,070
------------- ------------- ------------- -------------
Cash, end of period $ 31,712 $ 1,418,070 $ 51,583 $ 630,571
============= ============= ============= =============
See accompanying summary of accounting policies and
notes to financial statements.
F-37
91
AXISTEL COMMUNICATIONS, INC.
SUMMARY OF ACCOUNTING POLICIES
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
================================================================================
DESCRIPTION OF BUSINESS AxisTel Communications, Inc. (the
"Company") was incorporated in the State
of Delaware on August 28, 1997. Its
services include the provision of
international and domestic voice and
data applications over Company leased
and third party fiber optic networks and
retail communication services, including
prepaid telephony.
UNAUDITED INTERIM FINANCIAL STATEMENTS The financial statements as of June 30,
1999 and for the six months ended June
30, 1998 and 1999 are unaudited, and
have been prepared on the same basis as
the audited financial statements
included herein. In the opinion of
management, such unaudited financial
statements include all adjustments
consisting of normal recurring accruals
necessary to present fairly the
information set forth therein. Results
for interim periods are not necessarily
indicative of results to be expected for
an entire year.
PROPERTY, EQUIPMENT AND CERTAIN Property and equipment is stated at
INTANGIBLES cost. Depreciation is computed using the
straight-line method over the estimated
useful lives.
LOAN ORIGINATION COSTS Loan origination costs are amortized
based on the interest method over the
contractual period of the loan (see Note
5).
INCOME TAXES Income taxes are calculated using the
liability method specified by Statement
of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income
Taxes." SFAS No. 109 requires a company
to recognize deferred tax liabilities
and assets for the expected future tax
consequences of events that have been
recognized in a company's financial
statements or tax returns. Under this
method, deferred tax liabilities and
assets are determined based on the
difference between the financial
statement carrying amounts and tax basis
of assets and liabilities using enacted
tax rates in effect in the years in
which the differences are expected to
reverse. Deferred tax assets are reduced
by a valuation allowance to the extent
realization is uncertain.
F-38
92
AXISTEL COMMUNICATIONS, INC.
SUMMARY OF ACCOUNTING POLICIES
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
================================================================================
REVENUE RECOGNITION Prepaid phone card revenues are earned
when the prepaid phone cards are used.
Deferred revenues of $-0- and $110,000
at December 31, 1997 and 1998,
respectively, represent unused prepaid
phone cards.
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.
LONG-LIVED ASSETS Long-lived assets, such as property and
equipment, are evaluated for impairment
when events or changes in circumstances
indicate that the carrying amount of the
assets may not be recoverable through
the estimated undiscounted future cash
flows from the use and sale of these
assets. When any such impairment exists,
the related assets will be written down
to fair value. No impairment losses have
been recognized through June 30, 1999.
F-39
93
AXISTEL COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
================================================================================
1. TRANSACTIONS WITH Included in revenues for the year ended
RELATED PARTIES December 31, 1998 were revenues from
Debit Card Technologies Inc. totaling
approximately $264,000. Debit Card
Technologies Inc. is wholly owned by an
employee's spouse. All revenues for the
period August 28, 1997 (inception) to
December 31,1997 were received from
Debit Card Technologies, Inc.
2. PROPERTY AND EQUIPMENT AND Major classes of property and equipment
CERTAIN INTANGIBLES and certain intangibles are as follows:
Estimated
December 31, 1997 1998 useful lives
- ------------ ----------- ------------- ------------
Indefeasible Right of Use
of phone line $ -- $ 1,600,000 25 years
Equipment -- 108,619 3-4 years
----------- ------------- ------------
-- 1,708,619
Less: Accumulated
depreciation -- (15,564)
----------- ------------- ------------
$ -- $ 1,693,055
=========== ============= ============
3. NOTES PAYABLE - On December 3, 1998, the Company entered
ERAATEL CORP. into an Indefeasible Right of Use
("IRU") agreement with Eraatel
Corporation which provides for the use
of the phone line for 25 years. The
Company leased the phone line between
New York City, New York and Miami,
Florida for a one-time IRU fee of
$1,600,000. The Company paid $100,000
upon the execution of the agreement. The
balance due of $1,500,000 is payable in
equal monthly installments over a term
of 36 months with interest accruing at
15%. As of December 31, 1998, $427,600
was classified as current and $1,072,400
was classified as long-term debt.
In April 1999, the Company was notified
that Eraatel Corporation had misled the
Company and, in fact, only had rights to
the IRU for four months. As a result,
the above agreement was terminated and
the related asset and notes payable were
written off. The $100,000 payment has
been recorded as other expense.
F-40
94
AXISTEL COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
================================================================================
4. MAJOR CUSTOMERS Two customers accounted for
approximately 40% of accounts receivable
at December 31, 1998. Revenues from
these customers accounted for
approximately 6% of revenues for the
year ended December 31, 1998.
5. NOTES PAYABLE - On October 28, 1998, the Company issued
STOCKHOLDERS notes to Infinity Emerging Opportunities
Limited ("IEOL") in an aggregate amount
of $2,000,000. As of December 31, 1998,
the aggregate principal balance due was
$2,000,000. The note agreement provides
for a further $1,500,000, of which
$500,000 was received on March 10, 1999
and $1,000,000 was received on April 19,
1999, and is subject to certain
conditions as set forth in the
agreement. Interest is calculated at 8%
per annum and is payable monthly. The
outstanding principal balance and any
unpaid interest shall be due and payable
on October 28, 2000. The notes are
secured by all assets and equity
interests of the Company.
As of December 31, 1998, the Company had
not met, but was subsequently granted
waivers with respect to, certain
reporting requirements under the above
notes.
In connection with the notes, the
Company issued warrants to purchase
1,499 shares of Class B common stock,
par value $.01 per share, of the Company
at an exercise price of $2,333.33 per
share. The warrants were valued at
approximately $274,000 using the
Black-Scholes model and the Company
recorded the amount as a debt discount,
with a related credit to additional
paid-in capital. The debt discount is
being amortized over the life of the
loan. As of December 31, 1998, the
balance of the debt discount, net of
amortization, was $251,075.
As additional consideration for the
notes payable, the Company issued one
share of Class B common stock of the
Company to IEOL at a purchase price of
$1 (approximate fair value), with voting
rights as set forth in the Certificate
of Incorporation of the Company
entitling the purchasers to vote 50% of
all issued and outstanding shares of the
common stock of the Company.
F-41
95
AXISTEL COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
================================================================================
The Company had notes payable to one of
its stockholders aggregating $10,000 at
December 31, 1997. The Company had notes
payable to two of its stockholders
aggregating $25,000 at December 31,
1998. Interest is calculated at 5% per
annum. The outstanding principal balance
and any unpaid interest was due and
payable on October 28, 1999 and the
notes were therefore classified as short
term.
6. COMMON STOCK Common stock is comprised of the
following:
December 31, 1997 1998
------------ ---- ----
Class A shares; par value $.01, 45,000
shares authorized, 1,500 shares issued
and outstanding $15 $15
Class B shares; par value $.01, 45,000
shares authorized, 1 share issued and
outstanding -- --
Class C shares; nonvoting par value $.01,
10,000 shares authorized, none issued and
outstanding -- --
---- ----
$15 $15
==== ====
7. STOCK OPTIONS On November 18, 1998, IEOL retained a
consultant to perform services for the
Company. The consultant was granted
stock options to purchase 30 shares of
Class C, nonvoting common stock, par
value $.01, of the Company at an
exercise price of $2,333.33 per share.
The stock options vest on May 18, 1999.
The options were valued at $25,510 using
the Black-Scholes model and the Company
recorded the amount as compensation
expense with a related credit to
additional paid-in capital.
F-42
96
8. COMMITMENTS Leases
Minimum annual commitments under all
noncancellable operating leases with
terms in excess of one year approximate:
Year ended December 31,
----------------------- -------------
1999 $ 210,600
2000 280,800
2001 280,800
2002 280,800
2003 280,800
Thereafter 1,582,200
-------------
Total minimum lease payments $ 2,916,000
-------------
Rent expense for the period from August
28, 1997 (inception) to December 31,
1997 and the year ended December 31,
1998 was approximately $1,000 and
$12,000, respectively.
9. STATEMENTS OF CASH
FLOW
Period from
August 28,
1997
(inception) to Year ended Six months ended June 30,
December 31, December 31, -------------------------
1997 1998 1998 1999
-------------- ---------------- -------- ------------
Supplemental disclosure
of cash flow
information:
Cash paid during the
period for:
Interest $ -- $ 13,333 $ -- $ 90,000
Taxes -- -- -- 1,100
Noncash investing and
financing activities:
Capital leases
entered into
during the period -- 1,500,000 -- --
Warrants and
options issued
during the period -- 299,410 -- --
----- -------------- ---- ----------
F-43
97
10. INCOME TAXES
The Company has a deferred tax asset
amounting to approximately $197,000 at
December 31, 1998, principally relating
to net operating loss carryforwards and
a basis difference in the carrying
amount of trade accounts receivable for
financial reporting purposes and the
amount used for income tax purposes. The
Company recorded a valuation allowance
amounting to the entire deferred tax
asset balance due to the Company's
financial condition and its lack of a
history of consistent earnings, giving
rise to uncertainty as to whether the
deferred tax asset is realizable. No
amount of deferred Federal or state
income tax is therefore presented.
Deferred income taxes are not material
for the period ended December 31, 1997.
As of December 31, 1998, the Company had
net operating loss income tax
carryforwards of approximately $529,000,
which expire in the years 1999 through
2018.
F-44
98
11. SUBSEQUENT EVENTS On September 22, 1999, the following
significant transactions occurred: IEOL
exercised its warrants to purchase 1,499
Class A shares of the Company, which
gave it 50% of the total outstanding
shares of the Company. IEOL exchanged
its shares in the Company for shares of
eVentures Group, Inc. ("eVentures").
eVentures acquired the other 50% of the
Company's Class A shares from the
founding shareholders of the Company,
settled through an issue of shares of
eVentures. These transactions
consummated the acquisition of all of
the outstanding shares of the Company by
eVentures.
F-45
99
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial information (the
"Unaudited Pro Forma Consolidated Financial Information") has been derived from
the application of pro forma adjustments to eVentures' consolidated historical
balance sheet as of September 30, 1999 included elsewhere herein.
The Unaudited Pro Forma Consolidated Financial Information gives effect to
the purchase of the remaining 33.3% of eVolve and certain financing transactions
(all of which occurred in October and November, 1999) as if each had occurred on
September 30, 1999. The pro forma adjustments are described in the accompanying
notes. There are no adjustments pertaining to the reverse merger and acquisition
of AxisTel, since these events were already included in the historical balance
sheet as at September 30, 1999.
The Unaudited Pro Forma Consolidated Financial Information is presented for
informational purposes only and does not purport to represent what eVentures'
financial position would actually have been if the aforementioned events had
occurred on the date specified or to project eVentures' financial position at
any future date. The Unaudited Pro Forma Consolidated Financial Information
should be read in conjunction with eVentures' consolidated historical financial
statements, and the notes thereto, included elsewhere herein.
P-1
100
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
YEAR ENDED SEPTEMBER 30, 1999
FINANCING
Assets HISTORICAL ADJUSTMENTS PRO FORMA
--------------- --------------- ---------------
Current:
Cash $ 6,346,023 $ (1,107,957)(1) $ 11,463,066
6,225,000 (2)
Accounts Receivable 1,158,221 -- 1,158,221
Other receivables - Employee Advances 71,988 -- 71,988
Prepaid and Other Current Assets 189,933 -- 189,933
Deposits 299,071 -- 299,071
Available-for-sale securities -- -- --
--------------- --------------- ---------------
Total Current Assets 8,065,236 5,117,043 13,182,279
--------------- --------------- ---------------
Long term:
Restricted Cash 1,820,752 -- 1,820,752
Property and equipment, net 7,429,945 -- 7,429,945
VAT taxes receivable 2,436,268 -- 2,436,268
Investment in affiliate 140,746 -- 140,746
Investments in i2v2 2,100,144 -- 2,100,144
Goodwill, net 19,591,050 11,662,506 (3) 31,253,556
Other 79,300 -- 79,300
--------------- --------------- ---------------
Total Long term Assets 33,598,205 11,662,506 45,260,711
--------------- --------------- ---------------
Total Assets $ 41,663,441 $ 16,779,549 $ 58,442,990
=============== =============== ===============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current:
Current Portion of Long-Term Notes
& Capital leases $ 2,027,781 $ -- $ 2,027,781
Accounts Payable 7,716,609 (4,307,437)(1) 3,409,172
Accrued Liabilities 2,062,784 -- 2,062,784
Customer Deposits 1,952,447 -- 1,952,447
Deferred Revenue 154,000 -- 154,000
--------------- --------------- ---------------
Total Current Liabilities 13,913,621 (4,307,437) 9,606,184
--------------- --------------- ---------------
Long-Term Liabilities
Capital Leases, Net of Current Portion 1,750,160 -- 1,750,160
--------------- --------------- ---------------
Total Long-Term Liabilities 1,750,160 -- 1,750,160
--------------- --------------- ---------------
Stockholders' Equity
Common Stock 757 -- 757
Preferred Stock -- -- --
Additional Paid in Capital 36,480,715 11,662,506 (3) 57,567,701
3,199,480 (1)
6,225,000 (2)
Accumulated Deficit (10,481,812) -- (10,481,812)
--------------- --------------- ---------------
Total Stockholders' Equity 25,999,660 21,086,986 47,086,646
--------------- --------------- ---------------
Total Liabilities & Stockholders' Equity $ 41,663,441 $ 16,779,549 $ 58,442,990
=============== =============== ===============
(1) Represents the exchange of accounts payable of $4,307,437 for cash of
$1,107,957 and Common stock of eVentures.
(2) Represents the issuance of a total of 6,225 shares of Preferred stock at a
price of $1,000 per share on November 24, 1999 and November 18, 1999.
(3) Represents the purchase of 1/3 of eVolve for 5,831,253 shares of the
Company at market price of $15.375 on October 19, 1999.
P-2
101
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial information (the
"Unaudited Pro Forma Consolidated Financial Information") has been derived from
the application of pro forma adjustments to eVentures' consolidated historical
audited statement of operations for the year ended June 30, 1999 and the three
months ended September 30, 1999 included elsewhere herein.
The Unaudited Pro Forma Consolidated Financial Information gives effect to
the reverse merger, the acquisition of AxisTel and the acquisition of the
remaining 33.3% of e.Volve as if each had occurred on July 1, 1998. There is no
adjustment to minority interest since 100% of the losses were already recorded
in the historical financial statements. The pro forma adjustments are described
in the accompanying notes.
The Unaudited Pro Forma Consolidated Financial Information is presented for
informational purposes only and does not purport to represent what eVentures'
results of operations would actually have been if the aforementioned events had
occurred on the date specified or to project eVentures' results of operations
for any future periods. The Unaudited Pro Forma Consolidated Financial
Information should be read in conjunction with eVentures' consolidated
historical financial statements, and the notes thereto, included elsewhere
herein.
P-3
102
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED JUNE 30, 1999
SEPTEMBER 22, 1999 EVENTS
---------------------------- SUBSEQUENT
(1) PRO FORMA EVENTS
HISTORICAL AXISTEL ADJUSTMENTS SUB TOTAL ADJUSTMENTS PRO FORMA
------------ ------------ ------------ ------------ ------------ ------------
Net Revenues 27,248,273 $ 7,967,643 $ -- $ 35,215,916 $ -- $ 35,215,916
Direct Costs 23,311,584 6,381,235 -- 29,692,819 -- 29,692,819
------------ ------------ ------------ ------------ ------------ ------------
3,936,689 1,586,408 -- 5,523,097 -- 5,523,097
Selling, General & Administrative 7,551,131 2,118,557 1,663,997(2) 11,333,685 1,166,251(6) 12,499,936
Line Charges -- 615,898 -- 615,898 -- 615,898
Other -- 190,981 -- 190,981 -- 190,981
------------ ------------ ------------ ------------ ------------ ------------
Total Operating Expenses 7,551,131 2,925,436 1,663,997 12,140,564 1,166,251 13,306,815
------------ ------------ ------------ ------------ ------------ ------------
Operating Income (3,614,442) (1,339,028) (1,663,997) (6,617,467) (1,166,251) (7,783,718)
Other (Income) Expense:
Interest Expense, Net 1,704,459 285,457 (557,574)(5) 473,675 -- 473,675
(958,667)(4)
Equity in Sub Income (Minority
Interest) 33,776 -- -- 33,776 -- 33,776
Foreign currency gain (loss) 126,575 -- -- 126,575 -- 126,575
Debt discount -- -- 2,000,000(3) 2,000,000 -- 2,000,000
Other (16,930) 100,000 -- 83,070 -- 83,070
------------ ------------ ------------ ------------ ------------ ------------
Total Other (Income) Expense: 1,847,880 385,457 483,759 2,717,096 -- 2,717,096
------------ ------------ ------------ ------------ ------------ ------------
Pre-Tax Income (5,462,322) (1,724,485) (2,147,756) (9,334,563) (1,166,251) (10,500,814)
Income Taxes -- 300 -- 300 -- 300
------------ ------------ ------------ ------------ ------------ ------------
Net Income $ (5,462,322) $ (1,724,785) $ (2,147,756) $ (9,334,863) $ (1,166,251) $(10,501,114)
============ ============ ============ ============ ============ ============
- -------------------------
(1) Reflects the consolidation of the results of operations of AxisTel for the
period July 1, 1998 to June 30, 1999.
(2) Reflects the amortization of goodwill.
(3) Reflects the write off of the Original Issue Discount on the e.Volve
debentures for which the related Notes Receivable were exchanged for stock
of eVentures by one of the Major Shareholders on September 22, 1999.
(4) Reflects the reversal of amortization relating to the Original Issue
Discount on the e.Volve debentures for which the related Notes Receivable
were exchanged for stock of eVentures by one of the Major Shareholders on
September 22, 1999.
(5) Reflects the reversal of the interest expense relating to the e.Volve
debentures for which the related Notes Receivable were exchanged for stock
of eVentures by one of the Major Shareholders on September 22, 1999.
(6) Reflects the amortization of the goodwill arising from the purchase of 1/3
of e.Volve on October 19, 1999 over a period of 10 years.
P-4
103
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999
SEPTEMBER 22, 1999 EVENTS
---------------------------- SUBSEQUENT
(1) PRO FORMA EVENTS
HISTORICAL AXISTEL ADJUSTMENTS SUB TOTAL ADJUSTMENTS PRO FORMA
------------ ------------ ------------ ------------ ------------ ------------
Net Revenues $ 8,675,719 $ 6,019,283 $ -- $ 14,695,002 $ -- $ 14,695,002
Direct Costs 8,729,520 5,550,300 -- 14,279,820 -- 14,279,820
------------ ------------ ------------ ------------ ------------ ------------
(53,801) 468,983 -- 415,182 -- 415,182
------------ ------------ ------------ ------------ ------------ ------------
Operating Expenses: --
Selling, General & Administrative 1,816,032 1,145,944 415,999(2) 3,377,975 291,563(6) 3,669,538
Line Charges -- 525,460 -- 525,460 -- 525,460
------------ ------------ ------------ ------------ ------------ ------------
Total Operating Expenses 1,816,032 1,671,404 415,999 3,903,435 291,563 4,194,998
------------ ------------ ------------ ------------ ------------ ------------
Operating Income (1,869,833) (1,202,421) (415,999) (3,488,253) (291,563) (3,779,816)
Other (Income) Expense:
Interest Expense, Net 519,231 (30,625) (160,800)(5) 34,369 -- 34,369
(293,437)(4)
Equity in Sub Income (Minority
Interest) 18,730 -- -- 18,730 -- 18,730
Foreign currency gain (loss) (6,502) -- -- (6,502) -- (6,502)
Debt discount and other 911,027 -- (911,027)(4) -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Total Other (Income) Expense: 1,442,486 (30,625) (1,365,264) 46,597 -- 46,597
------------ ------------ ------------ ------------ ------------ ------------
Pre-Tax Income (3,312,319) (1,171,796) (949,265) (3,534,850) (291,563) (3,826,413)
Income Taxes -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Net Income $ (3,312,319) $ (1,171,796) $ (949,265) $ (3,534,850) $ (291,563) $ (3,826,413)
============ ============ ============ ============ ============ ============
- -----------------------
(1) Reflects the consolidation of the results of operations of AxisTel for the
period July 1, 1999 to September 22, 1999.
(2) Reflects the amortization of goodwill.
(3) Reflects the write off of the Original Issue Discount on the e.Volve
debentures for which the related Notes Receivable were exchanged for stock
of eVentures by one of the Major Shareholders on September 22, 1999.
(4) Reflects the reversal of amortization relating to the Original Issue
Discount on the e.Volve debentures for which the related Notes Receivable
were exchanged for stock of eVentures by one of the Major Shareholders on
September 22, 1999.
(5) Reflects the reversal of the interest expense relating to the e.Volve
debentures for which the related Notes Receivable were exchanged for stock
of eVentures by one of the Major Shareholders on September 22, 1999.
(6) Reflects the amortization of the goodwill arising from the purchase of 1/3
of e.Volve on October 19, 1999 over a period of 10 years.
P-5
104
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2.1 Agreement and Plan of Reorganization, dated as of September 22, 1999, among the
Registrant, eVentures Holdings, L.L.C., IEO Holdings Limited, Infinity Investors
Limited, Mick Y. Wettreich, the purchasers listed on Schedule 1-A thereto and the
Contributing Persons listed on Schedule 1-B thereto (incorporated by reference to Exhibit
2.1 to the report filed on Form 8-K on October 7, 1999).
2.2 Agreement and Plan of Exchange, dated as of October 19, 1999, among eVentures Group, Inc.,
and the persons set forth on Schedule 1 thereto (incorporated by reference to Exhibit 2.1
to the report filed on Form 8-K on November 3, 1999).
3.1 Certificate of Incorporation of eVentures, dated November 19, 1987 (incorporated by
reference to Exhibit 3(a) to the registration statement filed on Form S-1 on December 29,
1987).
3.2 Certificate of Amendment, dated April 27, 1994, to the Certificate of Incorporation.
3.3 Certificate of Amendment, dated as of October 20, 1997, to the Certificate of
Incorporation.
3.4 Certificate of Renewal dated August 19, 1999 for eVentures Group, Inc.
3.5 Certificate of Amendment, dated September 17, 1999, to the Certificate of Incorporation
(incorporated by reference to Exhibit 3.2 to the report filed on Form 8-K on October 7,
1999).
3.6 Amended and Restated Certificate of Designation of Rights, Preferences and Privileges of
Series A Convertible Preferred Stock, dated October 14, 1999.
3.7 Certificate of Designation of Rights, Preferences and Privileges of Series B Convertible
Preferred Stock, dated as of November 10, 1999.
3.8 Certificate of Amendment, dated as of December 15, 1999, to the Certificate of Designation
of Rights, Preferences and Privileges of Series B Convertible Preferred Stock.
3.9 Amended and Restated By-Laws of eVentures Group, Inc. (incorporated by reference to
Exhibit 3.1 to the report filed on Form 8-K on October 7, 1999).
4.1 Registration Rights Agreement, dated as of September 22, 1999, among the Registrant and
the persons and entities set forth on Schedule 1 thereto (the "First Registration Rights
Agreement") (incorporated by reference to Exhibit 4.1 to the report filed on Form 8-K on
October 7, 1999).
105
4.2 Addendum to the First Registration Rights Agreement, dated as of October 19, 1999, among
eVentures Group, Inc., the persons set forth on Schedule 1 thereto and the other parties
to the First Registration Rights Agreement.
4.3 Registration Rights Agreement, dated as of November 19, 1999, between eVentures Group,
Inc. and Geronimo Partners, L.P.
4.4 Schedule identifying other agreements, the dates thereof and the parties thereto,
substantially identical to the Registration Rights Agreement, dated as of November 19,
1999, between eVentures Group, Inc. and Geronimo Partners, L.P.
10.1 Securities Purchase Agreement, dated as of June 11, 1998, among Orix Global
Communications, Inc., certain of its shareholders and the purchasers named thereunder.
10.2 Debenture, dated as of June 11, 1998.
10.3 Letter Agreement, dated as of August 19, 1998 between Orix Global Communications and
Infinity Investors Limited.
10.4 Debenture, dated as of August 19, 1998.
10.5 Letter Agreement, dated as of February 9, 1999 between Orix Global Communications and
Infinity Investors Limited.
10.6 Debenture, dated as of February 9, 1999.
10.7 Letter Agreement, dated as of April 15, 1999 among Orix Global Communications, Inc.,
Infinity Investors Limited and the Founders (as defined therein).
10.8 Amended and Restated Debenture, dated as of April 15, 1999.
10.9 Letter Agreement, dated as of April 29, 1999 between Orix Global Communications and
Infinity Investors Limited.
10.10 Debenture, dated as of April 29, 1999.
10.11 Letter Agreement, dated as of April 30, 1999, between Orix Global Communications,
Inc. and Infinity Investors Limited.
10.12 Debenture, dated as of April 30, 1999.
106
10.13 Lease Agreement, dated December, 1998, between AxisTel International, Inc. and Evergreen
America Corporation.
10.14 Lease Agreement, dated November 24, 1997, between Orix Global Communications, Inc. and
Trust F/3959 of Banco del Atlantico.
10.15 Assignment Agreement, dated April 1, 1998, among Orix Global Communications, Inc., Latin
Gate de Mexico S.A. de C.V. and Trust F/3959 of Banco del Atlantico.
10.16 Office Lease, dated January 23, 1998, between Orix Global Communications, Inc. and 2526
Investment Co.
10.17 Lease Agreement, dated July 30, 1999, between e.Volve Technology and Green Valley
Executive Suites LLC.
10.18 Lease Agreement, dated September 1, 1999, between e.Volve Technology and Green Valley
Executive Suites LLC.
10.19 Lease Agreement, dated as of October 1, 1999, between AxisTel Communications, Inc.
and Telecommunications Finance Group.
10.20 Guaranty Agreement by eVentures Group, Inc. as inducement to Telecommunications Finance
Group to provide a lease to AxisTel Communications, Inc., dated as of October 13, 1999.
10.21 Management Services Agreement, dated as of September 22, 1999, between eVentures Group,
Inc. and HW Partners, L.P.
10.22 1999 Omnibus Securities Plan, dated as of September 22, 1999.
10.23 Employment Agreement, dated as of September 22, 1999, between eVentures Group, Inc. and
Stuart J. Chasanoff.
10.24 Amended and Restated Employment and Noncompetition Agreement, dated as of September 21,
1999, between AxisTel Communications, Inc. and Samuel L. Litwin.
10.25 Amended and Restated Employment and Noncompetition Agreement, dated as of September 22,
1999, between AxisTel Communications, Inc. and Mitchell Arthur.
21.1 Subsidiaries of eVentures Group, Inc.
27.1 Financial Data Schedule.