EXHIBIT D
GLOBALNET INTERNATIONAL, INC.
Unaudited Financial Statements
December 31, 1999 and 1998
NOTE: DTA Communications Network LLC is the predecessor to GlobalNet
International, Inc.
DTA COMMUNICATIONS NETWORK LLC
Consolidated Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
<S> <C> <C>
Current Assets
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 777,645 197,270
Accounts Receivable . . . . . . . . . . . . . . . . . . . . . 1,199,283 -
Due from related party. . . . . . . . . . . . . . . . . . . . 41,319 7,944
Prepaid Expenses . . . . . . . . . . . . . . . . . . . . . . 137,427 5,478
Total Current Assets . . . . . . . . . . . . . . . 2,155,674 210,692
Property and Equipment, Net . . . . . . . . . . . . . . . . . . . . 4,449,726 -
Total Assets . . . . . . . . . . . . . . . . . . . $ 6,605,400 210,692
LIABILITIES AND MEMBERS EQUITY (DEFICIT)
Current Liabilities
Accounts Payable. . . . . . . . . . . . . . . . . . . . . . . $ 2,925,798 447,475
Salaries, wages and commissions payable. . . . . . . . . . . 176,083 342,390
Deferred Revenues. . . . . . . . . . . . . . . . . . . . . . 891,350 71,249
Term Loan . . . . . . . . . . . . . . . . . . . . . . . . . 617,039 -
Current portion of capital lease obligation . . . . . . . . 1,114,677 -
Accrued Interest. . . . . . . . . . . . . . . . . . . . . . 94,694 -
Total Current Liabilities. . . . . . . . . . . . 5,819,641 761,114
Capital Lease Obligation, net of current position. . . . . . . . . . 3,773,443 -
Member's Equity (Deficit). . . . . . . . . . . . . . . . . . . . . . (2,987,684) (550,422)
Total Liabilities and Members' Equity (Deficit) $ 6,605,400 210,692
See accompany notes to consolidate financial statements
</TABLE>
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<PAGE>
DTA COMMUNICATIONS NETWORK, L.L.C.
Consolidated Statements of Operations
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ---------- ---------
<S> <C> <C> <C>
EXPENSES . . . . . . . . . . . . . . . . . . . . $25,618,203 4,046,246 792,654
------------------------------------------------ ------------ ---------- ----------
Operating Expenses:
------------------------------------------------
Cost of Revenue . . . . . . . . . . . . . . . . 25,298,532 3,370,153 636,216
------------------------------------------------ ------------ ---------- ----------
Sales and Marketing. . . . . . . . 121,585 108,021 28,737
------------------------------------------------ ------------ ---------- ----------
Depreciation. . . . . . . . . . . 882,639 - -
------------------------------------------------ ------------ ---------- ----------
General and Administrative . . . . 1,159,776 679,562 383,783
------------------------------------------------ ------------ ---------- ----------
Total Operating Expenses 27,462,532 4,157,736 1,048,736
------------------------------------------------ ------------ ---------- ----------
Operating Loss . . . . . (1,844,329) (111,490) (256,082)
------------------------------------------------ ------------ ---------- ----------
Other Expense. . . . . . . . . . (40,865) (174,780) -
------------------------------------------------ ------------ ---------- ----------
Interest Expense . . . . . . . . (752,068) (8,070) -
------------------------------------------------ ------------ ---------- ----------
Minority Interest. . . . . . . . 730,874 - -
------------------------------------------------ ------------ ---------- ----------
Net Loss. . . . . . . . $(1,906,388) (294,340) (256,082)
------------------------------------------------ ------------ ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements
52
<PAGE>
DTA COMMUNICATIONS NETWORK, L.L.C.
Consolidated Statements of Members' Equity (Deficit)
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Members'
Equity (Deficit)
-----------------
<S> <C>
Balance at December 31, 1996 . . . . . . . . . . . . . . $ 241,000
------------------------------------------------------------- -----------------
Net Loss . . . . . . . . . . . . . . . . . . . . . . (256,082)
------------------------------------------------------------- -----------------
Balance at December 31, 1997. . . . . . . . . . . . . . (15,082)
------------------------------------------------------------- -----------------
Distributions . . . . . . . . . . . . . . . . . . . (241,000)
------------------------------------------------------------- -----------------
Net Loss. . . . . . . . . . . . . . . . . . . . . . (294,340)
------------------------------------------------------------- -----------------
Balance at December 31, 1998 . . . . . . . . . . . . . (550,422)
------------------------------------------------------------- -----------------
Contributions . . . . . . . . . . . . . . . . . . . 150,000
------------------------------------------------------------- -----------------
Minority Interest Loss Charged to Majority Interest (680,874)
------------------------------------------------------------- -----------------
Net Loss. . . . . . . . . . . . . . . . . . . . . . (1,906,388)
------------------------------------------------------------- -----------------
Balance at December 31, 1999. . . . . . . . . . . . . $ (2,987,684)
------------------------------------------------------------- -----------------
</TABLE>
See accompanying notes to consolidated financial statements
53
<PAGE>
DTA COMMUNICATIONS NETWORK, L.L.C.
Consolidated Statements of Cash Flows
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------- --------- ---------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
-------------------------------------------------------
Net loss. . . . . . . . . . . . . . . . . . . . . . ($1,906,388) (294,340) (256,082)
------------------------------------------------------- ------------- --------- ---------
Adjustments to reconcile net loss to net
cash provided by operating activities:
-------------------------------------------------------
Depreciation . . . . . . . . . . . . . . . . . 882,639 - -
------------------------------------------------------- ------------- --------- ---------
Minority Interest . . . . . . . . . . . . . . . (50,000) - -
------------------------------------------------------- ------------- --------- ---------
Changes in Assets and Liabilities:
-------------------------------------------------------
Accounts Receivable . . . . . . . . . . . . . . (1,199,283) 141,735 (141,735)
------------------------------------------------------- ------------- --------- ---------
Due from Related Party. . . . . . . . . . . . . (33,375) 6,660 (14,604)
------------------------------------------------------- ------------- --------- ---------
Prepaid Expenses. . . . . . . . . . . . . . . . (131,949) 5,478 -
------------------------------------------------------- ------------- --------- ---------
Accounts Payable. . . . . . . . . . . . . . . . 2,478,323 329,190 118,285
------------------------------------------------------- ------------- --------- ---------
Salaries, Wages, and Commissions Payable. . . . (66,307) 57,721 184,669
------------------------------------------------------- ------------- --------- ---------
Deferred Revenue . . . . . . . . . . . . . . . . 820,101 96,751 168,000
------------------------------------------------------- ------------- --------- ---------
Accrued Interest . . . . . . . . . . . . . . . . 94,694 - -
------------------------------------------------------- ------------- --------- ---------
Net Cash Provided by Operating Activities. . . 888,455 138,737 58,533
------------------------------------------------------- ------------- --------- ---------
Cash Flows from Investing Activities -
Purchase of Furniture and Equipment . . . . . . . . (240,530) - -
------------------------------------------------------- ------------- --------- ---------
Cash Flows from Financing Activities:. . . . . . . . . - -
------------------------------------------------------- ------------- ---------
Proceeds from Term Loan . . . . . . . . . . . . . 754,517 - -
------------------------------------------------------- ------------- --------- ---------
Repayments of Principal on Term Loan. . . . . . . (117,478) - -
------------------------------------------------------- ------------- --------- ---------
Principal Payments on Capital Lease Obligation . (203,715) - -
------------------------------------------------------- ------------- --------- ---------
Capital Contributions from Member . . . . . . . . 200,000 - -
------------------------------------------------------- ------------- --------- ---------
Minority Interest Loss Charged to Majority Interest (680,874) - -
------------------------------------------------------- ------------- --------- ---------
Net Cash Used in Financing Activities . . . . (67,550) - -
------------------------------------------------------- ------------- --------- ---------
Net Increase in Cash. . . . . . . . . . . . . 580,375 138,737 58,533
------------------------------------------------------- ------------- --------- ---------
Cash at beginning of year . . . . . . . . . . . . 197,270 58,533 -
------------------------------------------------------- ------------- --------- ---------
Cash at end of year. . . . . . . . . . . . . . . . $ 777,645 197,270 58,533
------------------------------------------------------- ------------- --------- ---------
Supplemental disclosure of cash flow information-
Cash paid for Interest . . . . . . . . . . . . $ - - -
------------------------------------------------------- ------------- --------- ---------
Supplemental Disclosure of Non Cash Investing and
Financial Activities -
Equipment acquired through Capital Lease . . $ 5,091,835 - -
------------------------------------------------------- ------------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements
54
<PAGE>
DTA COMMUNICATIONS NETWORK, L.L.C
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
4) NATURE OF ORGANIZATION AND BUSINESS
DTA Communications Network, L.L.C. (the Company) was organized in Illinois on
May 22, 1996 as a limited liability company. The Company was originally formed
to provide global telecommunications, including high quality voice, fax, and
other value-added applications over the Internet and other networks.
By the terms of the operating agreement, the Company will continue until April
19, 2026, unless terminated earlier by the written agreement of a majority of
the members. Members participate in income and losses proportionately on the
basis of the percentage of interest held and are subject to losses only to the
extent of their respective investments.
On April 20, 1999, the Company and a Texas limited liability company formed an
Illinois limited liability company, later named GlobalNet, L.L.C. The Company
provides wholesale carrier voice and fax, value-added applications, and third
generation application service provider (ASP) products via an international
Internet protocol based network.
The Company is subject to risks and uncertainties common to growing
telecommunications-based companies, including rapid technological changes, low
costs to customers of switching from carrier to carrier, failed alliances, and
pricing pressures in the international long distance market.
5) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The 1999 consolidation financial statements include the accounts of DTA
Communications Network, L.L.C. and its majority-owned subsidiary, GlobalNet,
L.L.C. The Company's interest in GlobalNet L.L.C. was 75% at December 31, 1999.
As a result of losses attributable to the minority interest balance has been
reduced to $-0 at December 31, 1999. The excess of the loss has been charged to
the majority interest and is reflected in member's equity (deficit).
Uses 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 the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenue and expenses during the reporting period.
Subsequent actual results may differ from those estimates.
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Revenue Recognition
The majority of the Company's revenue consists principally on the sale of
wholesale carrier voice, fax, and value added applications via an international
Internet protocol network. Revenue is deferred by the Company upon repayment
made by its customers, and then the Company recognizes the revenue as services
are rendered. Not all customers prepay for their services. In those cases,
revenue is recognized after service has been rendered.
Some revenues from the Company's value-added applications come from supplying
underlying services to issuers of prepaid phone cards. Those issuers prepay some
or all of the services provided. Payments received in advance for such services
are recorded in the accompanying consolidated balance sheets as deferred
revenue. Consequently, revenue from such services has been contracted and
expires without being fully used (cards have effective lives up to three
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DTA COMMUNICATIONS NETWORK, L.L.C
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
months after the first use); then the unused value is referred to as breakage
and recorded as revenue at the date of expiration.
Concentration of Credit Risk and Geographical Information
The Company transacts a significant volume of business with only a few
customers. Three customers represent 91%, 96% and 98% of total revenue in 1999,
1998 and 1997, respectively. Accounts receivable from these customers were
approximately $ 66 and $ _______ at December 31, 1999 and 1998, respectively.
The Company requires certain customers to provide collateral in the form of a
cash deposit.
Minutes revenue for traffic sent to Mexico was 50%, 100% and 100% of total
revenue in 1999, 1998 and 1997, respectively.
Income Taxes
On May 22, 1996, the Company was formed as a limited liability company in the
State of Illinois. As such, the net losses for the Company for the Three-years
ended December 31, 1999 were reported in the members' tax returns. Accordingly,
these consolidated financial statements contain no provision or benefit and no
assets or liabilities for Federal or State income taxes for any of the periods
presented.
Impairment of Long-Lived Assets
In accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be disclosed of, the Company records
impairment of losses on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amount.
(3) Property and Equipment
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Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------
1999 1998
-------- --------
<S> <C> <C>
Network equipment under capital lease $5,267,565 -
Furniture and equipment . . . . . . . 64,800 -
---------- -
5,332,365 -
Less accumulated depreciation . . . . 882,639 -
---------- -
Property and equipment, net . $4,449,726 -
---------- ---------
</TABLE>
Property and equipment are stated at cost. Equipment net under capital lease is
stated at the lower of fair value of the asset or the net present value of the
minimum lease payments at the inception of the lease. Depreciation expense is
generally calculated being the straight-line method over the estimated useful
lives of the assets which range from three to five years. Depreciation expense
totaled $882,639, $-0 and $-0 in
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DTA COMMUNICATIONS NETWORK, L.L.C
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
1999, 1998 and 1997, respectively. Accumulated depreciation of assets recorded
under capital lease amount to $877,925, $-0 at December 31, 1999 and 1998,
respectively.
(4) OPERATING AND CAPITAL LEASES
The Company leases its headquarters in Villa Park, Illinois on a month-to-month
basis. Annual rent expense under this arrangement was approximately $27,950,
$9,574 and $3,840 for the years ended December 31, 1999, 1998 and 1997,
respectively.
The Company leases its network equipment under a capital lease. This lease has
a 42-month term, with annual interest at a rate of 22%. The lease equipment
secures all leases.
The following is a schedule of future minimum rental payments requrired under
the capital lease:
Years ended Capital
December 31, Lease
------------- --------
2000 $ 2,082,088
2001 2,082,088
2002 2,082,088
2003 694,029
2004 and thereafter -
---------------
Total future minimum lease payments 6,940,293
Less amount representing interest 2,090,926
-----------
Net present value of minimum lease
payments 4,849,367
Less current portion 1,454,810
--------------
$ 3,394,557
-------------
(5) RELATED PARTIES
During the years ended December 31, 1999 and 1998, an officer and primary member
borrowed funds from the Company totaling $39,606 and $16,629, respectively. The
primary member repaid $6,231 and $19,933 in 1999 and 1998, respectively.
In 1999, the Company paid $126,223 to a minority owner for the reimbursement of
costs of maintenance on equipment. The Company paid $45,865 and $119,533 of
obligations of an affiliated entity in 1999 and 1998, respectively, and wrote
off $55,247 of amounts due from the affiliate in 1998.
(6) AGREEMENT WITH OPERADORA PROTEL, S.A. DE C.V.
On August 1, 1999, GlobalNet L.L.C. entered into a five-year agreement with
Operadora Protel, S.A. DE C.V., a Mexico corporation (Protel), whereby Protel
provides the platform for prepaid debit card calls and the use of its network
for traffic originating and terminating between Mexico and the United States.
The agreement also provides that Protel and GlobalNet, L.L.C agree to equally
share in the gross profits generated from services provided under the
agreement.
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DTA COMMUNICATIONS NETWORK, L.L.C
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(7) DEBT
On October 1, 1999, GlobalNet L.L.C. entered into a term loan for $734,517 at an
annual interest rate of 19.75%. The initial term of the loan included eight
payments maturing on May 15, 2000. During February 2000, the terms were
renegotiated, extending the maturity date to July 15, 2000. Additionally, the
creditor charges GlobalNet L.L.C. a collateral monitoring fee which is derived
by applying a set percentage to the Company's gross margin as defined by their
Financing and Security agreement dated November 9, 1999. Expense related to the
collateral monitoring fee during 1999 was $42,577 and is recorded in interest
expense.
(8) SUBSEQUENT EVENTS
On March 22, 2000, the Company entered into a term note and security agreement
for $2,427,198 with Rich Earth, Inc. The loan bears interest at an annual rate
of 8% and is due on May 31, 2000.
On March 24, 2000, the Company used portion of the proceeds from the term note
to purchase the 25% minority interest and certain assets from the minority owner
of GlobalNet L.L.C for $2,000,000 and $127,198, respectively. The purchase of
the minority interest increased the Company's interest in GlobalNet L.L.C. to
100%.
On February 18, 2000, GlobalNet signed a letter of intent with Rich Earth, Inc
(Rich Earth), an NASD OTC Bulletin Board System trading Company, to merge
GlobalNet with and into Rich Earth whereby Rich Earth is to be the surviving
entity. The merger is conditioned upon Rich Earth having completed a private
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placement for $6,000,000. The letter of intent states that the merger must
occur no later than May 31, 2000. While the merger was not consummated as of
May 8, 2000, the Company expects the merger to be closed in the near future.
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