SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
AMENDMENT NO. 1 TO
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 30, 2000
GLOBALNET, INC.
---------------
(Exact name of registrant as specified in its charter)
------------------------------- ------------------------- ----------------------
Nevada 000-27469 87-0635536
------------------------------- ------------------------- ----------------------
(State or other jurisdiction of (Commission File No.) (IRS Employer
incorporation) Identification Number)
------------------------------- ------------------------- ----------------------
1919 South Highland Avenue, Suite 125 D, Lombard, Illinois 60148
---------------------------------------------------------------
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (630) 652-1300
<PAGE>
The undersigned registrant hereby amends Item 7 of its Current Report on Form
8-K dated June 14, 2000 and files such amended Item 7 with this report.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Businesses Acquired
Balance Sheets of GlobalNet International, Inc. (formerly DTA
Communications Network, L.L.C.) at December 31, 1998 and 1999, and the related
statements of operations, stockholders' equity and cash flows for the fiscal
years ended December 31, 1998 and 1999 and unaudited balance sheets,
stockholders' equity and cash flows for the three month period ended March 31,
2000.
(b) Pro forma financial information
Unaudited pro forma consolidated balance sheet and statement of
operations of the combined entities, GlobalNet International, Inc. and Rich
Earth, Inc., at March 31, 2000 and the unaudited pro forma consolidated
statement of operations for the fiscal year ended December 31, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, hereunto duly authorized.
GLOBALNET, INC.
(Registrant)
By: /s/ Robert Donahue
--------------------------
Robert Donahue
Chairman & President
Dated: July 28, 2000
<PAGE>
DTA Communications Network, L.L.C.
Consolidated Financial Statements
December 31, 1999 and 1998
(With Independent Auditors' Report Thereon)
<PAGE>
Independent Auditors' Report
The Board of Directors
DTA Communications Network, L.L.C.:
We have audited the accompanying consolidated balance sheets of DTA
Communications Network, L.L.C. and subsidiary (the Company) as of December
31, 1999 and 1998 and the related consolidated statements of operations,
members' equity (deficit), and cash flows for each of the years in the
three-year period ended December 31, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of DTA
Communications Network, L.L.C. and subsidiary as of December 31, 1999 and
1998, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 1999, in conformity
with generally accepted accounting principles.
/s/ KPMG LLP
Chicago, IL
May 2, 2000,
except as to Note 8,
which is as of May 30, 2000
<PAGE>
DTA COMMUNICATIONS NETWORK, L.L.C.
Consolidated Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
Assets 1999 1998
----------- -----------
<S> <C> <C>
Current assets:
Cash ..................................................... $ 304,626 197,270
Restricted cash .......................................... 473,019 --
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 ................. 176,083 242,390
Deferred revenue ......................................... 1,582,661 71,249
Term loan ................................................ 617,039 --
Current portion of capital lease obligation .............. 1,114,677 --
Accrued interest ......................................... 94,694 --
----------- -----------
Total current liabilities ....................... 6,510,952 761,114
Capital lease obligation, net of current portion ............. 3,773,443 --
Members' equity (deficit) .................................... (3,678,995) (550,422)
----------- -----------
Total liabilities and members' equity (deficit).. $ 6,605,400 210,692
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<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>
Revenue .................................. $ 24,926,891 4,046,246 792,654
Operating expenses:
Cost of revenue ...................... 25,298,531 3,370,153 636,216
Depreciation ......................... 882,639 -- --
General and administrative ........... 1,281,361 787,583 412,520
------------ ------------ ------------
Total operating expenses .... 27,462,531 4,157,736 1,048,736
------------ ------------ ------------
Operating loss .............. (2,535,640) (111,490) (256,082)
Other expense ........................ (40,865) (174,780) --
Interest expense ..................... (752,068) (8,070) --
------------ ------------ ------------
Loss before minority interest (3,328,573) (294,340) (256,082)
Minority interest .................... 50,000 -- --
------------ ------------ ------------
Net loss .................... $ (3,278,573) (294,340) (256,082)
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
DTA COMMUNICATIONS NETWORK, L.L.C.
Consolidated Statements of Members' Equity (Deficit)
Years ended December 31, 1999, 1998, and 1997
Balance at December 31, 1996 ............................... $ --
Net loss ................................................... (256,082)
-----------
Balance at December 31, 1997 ............................... (256,082)
Net loss ................................................... (294,340)
-----------
Balance at December 31, 1998 ............................... (550,422)
Issuance of members' interests by subsidiary ............... 150,000
Net loss ................................................... (3,278,573)
-----------
Balance at December 31, 1999 ............................... $(3,678,995)
===========
See accompanying notes to consolidated financial statements
4
<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
--------------- -------------- --------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net loss...................................................... $(3,278,573) (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:
Restricted cash ........................................ (473,019) -- --
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 ....................................... 1,511,412 (96,751) 168,000
Accrued interest ....................................... 94,694 -- --
----------- ----------- -----------
Net cash provided by (used in) operating activities... (265,438) 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 ...................................... 734,517 -- --
Repayments of principal on term loan ......................... (117,478) -- --
Principal payments on capital lease obligation ............... (203,715) -- --
Contribution from minority interest of subsidiary ............ 200,000 -- --
----------- ----------- -----------
Net cash used in financing activities ................ 613,324 -- --
----------- ----------- -----------
Net increase in cash ................................. 107,356 138,737 58,533
Cash at beginning of year ........................................ 197,270 58,533 --
----------- ----------- -----------
Cash at end of year .............................................. $ 304,626 197,270 58,533
=========== =========== ===========
Supplemental disclosure of cash flow information -
cash paid for interest ....................................... $ -- -- --
=========== =========== ===========
Supplemental disclosure of noncash investing and
financing activities -
equipment acquired through capital lease ................... $ 5,091,835 -- --
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
DTA COMMUNICATIONS NETWORK, L.L.C.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(1) 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
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 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's interest in GlobalNet L.L.C. was 75% at December
31, 1999. GlobalNet L.L.C. was formed to provide 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.
(2) Summary of Significant Accounting Policies
Principles of Consolidation
The 1999 consolidated financial statements include the accounts of
DTA Communications Network, L.L.C. and its majority-owned
subsidiary, GlobalNet L.L.C. from its date of formation in 1999,
whereas 1998 and 1997 consolidated financial statements consist
only of DTA Communications Network, L.L.C. As a result of losses
attributable to the minority interest in excess of the original
$50,000 of minority interest, 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.
Issuance of Members' Interests by Subsidiary
The Company accounts for issuances of members' interests by its
subsidiary as equity transactions, thereby recording the amount in
excess of the parent's carrying value to members' equity.
6 (Continued)
<PAGE>
DTA COMMUNICATIONS NETWORK, L.L.C.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
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 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.
Revenue Recognition
The Company recognizes revenue from two types of telecommunication
services. The majority of the Company's revenue consists of the
sale of wholesale carrier voice and fax, via an international
network. Revenue is deferred by the Company upon prepayments made
by its customers and is recognized as services are rendered. Not
all customers prepay for their services. In those cases, revenue
is recognized as services are rendered.
The remaining revenue is generated from supplying underlying
services, including value added applications and the use of the
Company's network, to issuers of prepaid phone cards. Those
issuers prepay for some or all of the services provided. Payments
received in advance for such services are recorded as deferred
revenue and are recognized as the prepaid phone cards are used.
These cards may expire without being fully used as they have lives
of up to three months after the first use. The unused value is
referred to as breakage and is recorded as revenue at the date of
expiration.
Restricted Cash
At December 31, 1999, $473,019 was held in an account which its
lessor/creditor had primary control. The majority of the Company's
cash receipts are transferred into this account and the
lessor/creditor automatically deducts the monthly payments due on
the lease and the term loan. Additional disbursements from this
account must be approved by the lessor/creditor. No such
arrangement existed prior to 1999.
Concentration of Credit Risk and Geographic Information
The Company transacts a significant volume of business with only a
few customers. In 1999, the largest customer represented 82% of
total revenue while the three largest customers represented 96%,
96%, and 98% of total revenue in 1999, 1998, and 1997,
respectively. Accounts receivable from these customers were
approximately $666,886 and $-0- at December 31, 1999 and 1998,
respectively. The Company requires certain customers to provide
collateral in the form of a cash deposit, which is included in
deferred revenue.
Wholesale minute revenue for traffic sent to Mexico was 50%, 100%,
and 100% of total revenue in 1999, 1998, and 1997, respectively.
7 (Continued)
<PAGE>
DTA COMMUNICATIONS NETWORK, L.L.C.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
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 Disposed 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
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 held 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 using 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 1999, 1998, and 1997, respectively. Accumulated
depreciation of assets recorded under capital lease amount to $877,926
and $-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
leased equipment secures all leases. The lease agreement contains a
bargain purchase option of $1 at the end of the lease.
8 (Continued)
<PAGE>
DTA COMMUNICATIONS NETWORK, L.L.C.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
The following is a schedule of future minimum rental payments required
under the capital lease:
<TABLE>
<CAPTION>
Years ending
December 31,
------------
<S> <C>
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 2,052,173
---------------
Net present value of minimum lease payments 4,888,120
Less current portion 1,114,677
---------------
$ 3,773,443
===============
</TABLE>
(5) Related Parties
The Company's majority owner is also its chief executive officer who
controls 100% of the voting shares. The Company's owners also own a
separate, affiliated entity with the same ownership structure and
percentage ownership as they have in the Company. The affiliated entity
filed Chapter 7 bankruptcy during 1998. Currently, there are no
obligations or claims against the Company related to the affiliated
entity.
The Company was formed with a service contribution by the majority owner
and with $241,000 in cash from the other members. The majority owner's
service contribution was not valued at the time of the contribution and
is not included in the member's equity balance as it was deemed to have
no value for accounting purposes. The $241,000 cash contribution was
deposited into an account of the affiliated entity and a receivable from
the affiliated entity to the Company was established. The amount was
used in the affiliated entity's operations and was never received by the
Company. As a result, this amount has not been reflected in members'
equity for any periods.
The Company recorded other expense of $40,865 and $119,533 for
obligations paid on behalf of the affiliated entity in 1999 and 1998,
respectively. The amounts paid were for legal expenses related to the
affiliated entity's bankruptcy and for amounts due to a creditor of the
affiliated entity. Additionally, the Company wrote off $55,247 in other
amounts due from the affiliated entity in 1998.
During the years ended December 31, 1999, 1998, and 1997, the majority
owner borrowed funds from the Company totaling $39,606, $16,627, and
$11,250, respectively. The majority owner repaid $6,231, $19,933, and
$-0- in 1999, 1998, and 1997, respectively. At December 31, 1999 and
1998, amounts due from the majority owner were $41,319 and $7,944,
respectively.
At December 31, 1999, the Company owed $126,225 to the minority owner of
GlobalNet L.L.C. for the reimbursement of costs of maintenance on
equipment.
9 (Continued)
<PAGE>
DTA COMMUNICATIONS NETWORK, L.L.C.
Notes to Consolidated Financial Statements
December 31, 1999 and 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
(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.
In addition, the Agreement provides that Protel and GlobalNet L.L.C.
agree to share equally in the gross profits generated from services
provided under the agreement. Accordingly, the Company adjusts its cost
of revenue to reflect each month, amounts due to or from Protel under
the Agreement.
(7) Term Loan
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 as interest
expense.
(8) Subsequent Events and Liquidity
On March 6, 2000, the Company purchased 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%.
Shortly thereafter, the Company transferred its member interests into
GlobalNet International, Inc., a newly formed corporation.
On March 22, 2000 and May 2, 2000, the Company entered into two term
note and security agreements for $2,427,198 and $500,000, respectively,
with Rich Earth, Inc. (Rich Earth), an NASD OTC Bulletin Board System
trading company. The loans bear interest at an annual interest rate of
8% and are due on May 31, 2000 and June 30, 2000, respectively. To
secure the notes, the Company pledged certain existing and subsequently
acquired assets including general intangibles, accounts, equipment, and
related products and proceeds of such assets. The Company subsequently
retired the term notes in connection with the merger with Rich Earth
discussed below.
On May 30, 2000, GlobalNet International, Inc. completed a merger with
Rich Earth and its wholly owned subsidiary GN Acquisition Corp. which
merged GlobalNet International, Inc. with and into Rich Earth whereby
Rich Earth is the surviving entity. Under the terms of the merger, Rich
Earth acquired 100% of the share capital of GlobalNet International,
Inc. in exchange for 20,000,000 shares of common stock of Rich Earth. In
connection with the merger, Rich Earth changed its name to GlobalNet,
Inc. The Company believes that the proceeds from the equity offerings
completed by Rich Earth prior to the merger will provide it with
sufficient capital to fund operating losses as is continues to build its
network and organizational structure.
10
<PAGE>
GlobalNet International, Inc.
Consolidated Statements of Operations
Three months ended March 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
March 31, March 31,
2000 1999
------------ ------------
<S> <C> <C>
Revenue ................................................ $ 14,486,390 $ 1,639,078
Operating expenses:
Cost of revenue ..................................... 13,651,454 1,409,023
Depreciation and amortization ....................... 415,985 --
General and administrative........................... 862,079 228,914
------------- -------------
Total operating expenses....................... 14,929,518 1,637,937
------------- -------------
Operating income (loss)........................ (443,128) 1,141
Interest expense (income)............................ 282,447 (5,000)
------------- -------------
Income (loss) before income taxes .............. (725,575) 6,141
Income tax expense (benefit) ........................ -- --
------------- -------------
Net income (loss) ............................. $ (725,575) $ 6,141
============= =============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
GlobalNet International, Inc.
Consolidated Balance Sheets
March 31, 2000 and December 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Assets March 31, December 31,
2000 1999
------------ ------------
Current assets:
<S> <C> <C>
Cash .............................................................. $ 544,536 $ 304,626
Restricted cash ................................................... 265,107 473,019
Accounts receivable ............................................... 3,072,246 1,199,283
Due from related party ............................................ 55,172 41,319
Prepaid expenses .................................................. 1,297,438 137,427
------------ ------------
Total current assets ....................................... 5,234,499 2,155,674
Property and equipment, net .......................................... 4,151,245 4,449,726
Intangible assets, net ............................................... 1,966,668 --
------------ ------------
Total assets ............................................... $ 11,352,412 $ 6,605,400
============ ============
Liabilities and Equity (Deficit)
Current liabilities:
Accounts payable .................................................. $ 4,954,257 $ 2,925,798
Salaries, wages, and commissions payable........................... 187,615 176,083
Accrued expenses .................................................. 120,987 --
Deferred revenue .................................................. 3,019,194 1,582,661
Term loan ......................................................... 328,308 617,039
Note Payable to Rich Earth, Inc. .................................. 2,427,198 --
Current portion of capital lease obligation........................ 1,114,677 1,114,677
Accrued interest .................................................. 87,618 94,694
------------ ------------
Total current liabilities................................... 12,239,854 6,510,952
Capital lease obligation, net of current portion ..................... 3,517,126 3,773,443
Equity (deficit):
Common stock ...................................................... 2 --
Capital in excess of par value..................................... -- --
Accumulated deficit ............................................... (4,404,570) --
Members' deficit .................................................. -- (3,678,995)
------------ ------------
Total equity (deficit)...................................... (4,404,568) (3,678,995)
------------ ------------
Total liabilities and equity (deficit) ..................... $ 11,352,412 $ 6,605,400
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
GlobalNet International, Inc.
Statements of Cash Flows
Three months ended March 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
March 31, March 31,
2000 1999
----------- -----------
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) ............................................. $ (725,575) $ 6,141
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization ............................ 415,985 --
Changes in assets and liabilities:
Restricted cash ........................................ 207,912 --
Accounts receivable .................................... (1,872,963) (107,598)
Due from related party ................................. (13,853) (43,745)
Prepaid expenses ....................................... (1,160,011) --
Accounts payable ....................................... 2,155,657 88,576
Salaries, wages, and commissions payable ............... 11,532 (33,887)
Accured expenses ....................................... 120,987 --
Deferred revenue ....................................... 1,436,533 --
Accrued interest ....................................... (7,076) --
----------- -----------
Net cash provided by (used in) operating activities... 569,128 90,513
----------- -----------
Cash flows from investing activities -
Purchase of furniture and equipment ........................... (84,170) --
----------- -----------
Net cash used in investing activities ................ (84,170) --
----------- -----------
Cash flows from financing activities:
Proceeds from note payable with Rich Earth, Inc. .............. 300,000 --
Principal payments on capital lease obligation ................ (256,317) --
Principal payments on term loan ............................... (288,731) --
----------- -----------
Net cash used in financing activites ................. (245,048) --
----------- -----------
Net increase (decrease) in cash ...................... 239,910 90,513
Cash at beginning of period ....................................... 304,626 197,270
----------- -----------
Cash at end of period ............................................. $ 544,536 $ 106,757
=========== ===========
Supplemental disclosure of noncash financing and investing
activity-
Payment for purchase of 25% minority interest
in and certain assets of GlobalNet L.L.C.
by Rich Earth, Inc. on behalf of the Company .................. $ 2,127,198 $ --
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
GlobalNet International, Inc.
Consolidated Statement of Shareholders' Equity
Three months ended March 31, 2000
(Unaudited)
<TABLE>
<CAPTION>
GlobalNet GlobalNet
International, DTA Communications International,
Inc. Network, LLC Inc.
---- ------------------ ----
Common Stock
----------------
Members' Accumulated Total
Shares Amount deficit deficit equity (deficit)
------ ------ ------- ------- ----------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1999 ..................... -- $ -- $(3,678,995) $ -- $ (3,678,995)
Net loss.......................................... -- -- (725,575) -- (725,575)
Exchange of members' interests for common stock... 2,000 2 4,404,570 (4,404,570) 2
Balance at March 31, 2000 ........................ 2,000 $ 2 $ -- $ (4,404,570) $ (4,404,568)
====== ======= ========== =========== ===========
</TABLE>
<PAGE>
GlobalNet International, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited interim consolidated financial statements of
GlobalNet International, Inc. (formerly DTA Communications Network, L.L.C. and
the "Company") have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission for interim reports and do not include all of
the information and note disclosures required by generally accepted accounting
principles. The information furnished herein includes all adjustments, which
are, in the opinion of management, necessary for a fair presentation of results
of this interim period, and all such adjustments are of a normal recurring
nature. The results of operations for the three months ended March 31, 2000 are
not necessarily indicative of the results to be expected for the year ended
December 31, 2000.
These financial statements should be read in conjunction with the Company's
historical audited consolidated financial statements and notes thereto for the
year ended December 31, 1999 included in this current report on Form 8-K/A filed
by the Company with the Securities and Exchange Commission.
Note 2. Equity Transactions
On March 6, 2000, the Company agreed to purchase and subsequently did purchase
the 25% minority interest and certain assets from the minority owner of
GlobalNet L.L.C. (a majority-owned subsidiary of the Company) 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%. The purchase was accounted for
by the purchase method of accounting. In connection with the purchase, the
Company recorded intangible assets of $2.0 million. The allocation of the
purchase price is preliminary and may change. The final allocation may include
intangible assets such as customer lists, workforce, and goodwill.
During March 2000, the Company exchanged its members' interests in DTA
Communications Network, L.L.C. for common stock of GlobalNet International,
Inc., a newly formed corporation.
<PAGE>
GlobalNet International, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
Note 3. Subsequent Events
On May 30, 2000, the Company completed a merger with Rich Earth, Inc. and its
wholly owned subsidiary GN Acquisition Corp. which merged the Company with and
into Rich Earth, Inc. whereby Rich Earth, Inc. was the surviving entity. Under
the terms of the merger, Rich Earth, Inc. acquired 100% of the share capital of
the Company in exchange for 20,000,000 shares of common stock of Rich Earth,
Inc. In connection with the merger, Rich Earth, Inc. changed its name to
GlobalNet, Inc. The transaction was accounted for as a reverse acquisition of
Rich Earth, Inc. by the Company using the purchase method of accounting. Prior
to the financing discussed in the next paragraph, Rich Earth, Inc. was a
non-operating public shell corporation with nominal assets.
During April and May 2000, Rich Earth, Inc. issued 1.2 million shares of common
stock in connection with the sale of units to investors in two private placement
transactions. Each unit in the first private placement consisted of one share
and one-half share purchase warrant at a price of $10 per unit. Each whole
warrant is exercisable for one additional share of common stock of Rich Earth,
Inc. for six months from the date of purchase at a price of $15 per share. Each
unit in the second private placement consisted of one share and one share
purchase warrant at a price of $10 per unit. Each whole purchase warrant is
exercisable for one additional share of common stock of Rich Earth, Inc. for six
months from the date of purchase at a price of $15 per share.
On April 19, 2000, the Company entered into a $10 million credit facility to
finance the lease of telecommunications network and data transmission equipment
and purchase of services.
On July 6, 2000, the Company entered into a credit facility to finance the lease
of equipment. The cost of the leased equipment to be funded under the financing
has to be at least $10 million and no more than $30 million. Leases must be
funded no later than October 31, 2001.
<PAGE>
GlobalNet International, Inc. and Rich Earth, Inc.
Unaudited Pro Forma Consolidated Financial Statements
Overview
On May 30, 2000, Rich Earth, Inc. ("Rich Earth") and GlobalNet International,
Inc. ("GlobalNet") entered into an agreement (the "Merger Agreement") whereby
20,000,000 shares of Rich Earth common stock were exchanged for 100% of the
common stock of GlobalNet in a transaction to be accounted for as a reverse
acquisition of Rich Earth by GlobalNet using the purchase method of accounting.
Prior to raising approximately $2.5 million to fund an acquisition by GlobalNet
in a contemplated transaction as described herein, Rich Earth was a
non-operating public shell corporation with nominal assets. GlobalNet management
will control the combined company after the transaction. The accompanying pro
forma financial statements reflect the accounting for a reverse merger with a
shell entity equivalent to the issuance of stock by GlobalNet accompanied by a
recapitalization.
During April and May 2000, Rich Earth issued approximately 1,200,000 shares of
common stock in connection with the sale of units to investors in two private
placement transactions. Each unit in the first private placement consisted of
one share and one-half share purchase warrant at a price of $10 per unit. Each
whole warrant is exercisable for one additional share of common stock of Rich
Earth for six months from the date of purchase at a price of $15 per share. Each
unit in the second private placement consisted of one share and one share
purchase warrant at a price of $10 per unit. Each whole purchase warrant is
exercisable for one additional share of common stock of Rich Earth for six
months from the date of purchase at a price of $15 per share. The accompanying
pro forma financial statements reflect the receipt of the private placement
proceeds.
On March 6, 2000, GlobalNet agreed to purchase and subsequently did purchase the
remaining 25% minority interest and certain assets from the minority owner of
GlobalNet L.L.C. (a majority-owned subsidiary of GlobalNet) for $2,000,000 and
$127,198, respectively. The purchase of the minority interest increased the
GlobalNet interest in GlobalNet L.L.C. to 100%. The funds used to effect the
purchase were loaned to GlobalNet from Rich Earth. At the time of the merger
with Rich Earth, GlobalNet had a note payable to Rich Earth for these amounts.
The accompanying unaudited pro forma consolidated balance sheet combines the
unaudited balance sheet of Rich Earth as of March 31, 2000 with the unaudited
consolidated balance sheet of GlobalNet as of the same date, and gives effect to
the reverse merger and share issuance, as if each occurred on such date.
The accompanying unaudited pro forma consolidated statements of operations
combine Rich Earth's statements of operations for the year ended December 31,
1999 and for the three months ended March 31, 2000 with the consolidated
statements of operations of GlobalNet for the same periods and give effect to
the reverse merger, share issuance and purchase of the 25% minority interest of
GlobalNet L.L.C., as if each occurred on January 1, 1999.
These unaudited pro forma consolidated financial statements are presented for
illustrative purposes only and are not necessarily indicative of the combined
financial position or results of operations in future periods or the results
that actually would have been realized had GlobalNet and Rich Earth been a
combined company during the periods presented.
<PAGE>
GlobalNet International, Inc. and Rich Earth, Inc.
Unaudited Pro Forma Consolidated Balance Sheet
March 31, 2000
<TABLE>
<CAPTION>
GlobalNet
International, Rich
Inc. Earth, Inc. Adjustments Pro Forma
---- ----------- ----------- ---------
(Note J) (Note J)
Current assets:
<S> <C> <C> <C> <C>
Cash ........................................................ $ 544,536 82,772 9,490,030 B 10,117,338
Restricted cash ............................................. 265,107 -- -- 265,107
Note receivable from GlobalNet International, Inc. .......... -- 2,427,198 (2,427,198)C --
Accounts receivable ......................................... 3,072,246 -- -- 3,072,246
Due from related party ...................................... 55,172 -- -- 55,172
Prepaid expenses ............................................ 1,297,438 -- -- 1,297,438
------------ ------------ ------------ ------------
Total current assets ................................. 5,234,499 2,509,970 7,062,832 14,807,301
Property and equipment, net .................................... 4,151,245 -- -- 4,151,245
Intangible assets, net ......................................... 1,966,668 -- -- 1,966,668
------------ ------------ ------------ ------------
Total assets ......................................... $ 11,352,412 2,509,970 7,062,832 20,925,214
============ ============ ============ ============
Liabilities and Shareholders' Equity (Deficit)
Current liabilities:
Accounts payable ............................................ $ 4,954,257 -- -- 4,954,257
Salaries, wages, and commissions payable..................... 187,615 -- -- 187,615
Accrued expenses ............................................ 120,987 -- 253,882 F 374,869
Deferred revenue ............................................ 3,019,194 -- -- 3,019,194
Term loan ................................................... 328,308 -- -- 328,308
Note Payable to Rich Earth, Inc. ............................ 2,427,198 -- (2,427,198)C --
Current portion of capital lease obligation.................. 1,114,677 -- -- 1,114,677
Accrued interest ............................................ 87,618 -- -- 87,618
------------ ------------ ------------ ------------
Total current liabilities............................. 12,239,854 -- (2,173,316) 10,066,538
Capital lease obligation, net of current portion ............... 3,517,126 -- -- 3,517,126
Shareholders' equity (deficit):
Common stock ................................................. 2 9,960 21,198 A 31,160
Capital in excess of par value................................ -- 24,790 11,944,052 E
(72,000)F 11,896,842
Stock subscriptions received ................................. -- 2,509,970 (2,509,970)B
Deficit accumulated during the development stage/accumulated
deficit ...................................................... (4,404,570) (34,750) 34,750 D
-- -- (181,882)F (4,586,452)
------------ ------------ ------------ ------------
Total shareholders' equity (deficit).................. (4,404,568) 2,509,970 9,236,148 11,928,002
------------ ------------ ------------ ------------
Total liabilities and shareholders' equity (deficit) $ 11,352,412 2,509,970 7,062,832 20,925,214
============ ============ ============ ============
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial statements.
<PAGE>
GlobalNet International, Inc. and Rich Earth, Inc.
Unaudited Pro Forma Consolidated Statement of Operations
Year ended December 31, 1999
<TABLE>
<CAPTION>
GlobalNet
International, Rich
Inc. Earth, Inc. Adjustments Pro Forma
---- ----------- ----------- ---------
(Note J) (Note J)
<S> <C> <C> <C> <C>
Revenue ......................................................... $ 24,926,891 -- -- 24,926,891
Operating expenses:
Cost of revenue .............................................. 25,298,531 -- -- 25,298,531
Depreciation and amortization ................................ 882,639 -- 400,000 H 1,282,639
General and administrative ................................... 1,281,361 8,000 -- 1,289,361
------------ ------------ ---------- ------------
Total operating expenses .............................. 27,462,531 8,000 400,000 27,870,531
------------ ------------ ---------- ------------
Operating loss ........................................ (2,535,640) (8,000) (400,000) (2,943,640)
Other expense ................................................ 40,865 -- -- 40,865
Interest expense (income) .................................... 752,068 -- -- 752,068
------------ ------------ ---------- ------------
Loss before income taxes and minority ................. $ (3,328,573) (8,000) (400,000) (3,736,573)
interest ============ ============ ========== ============
Income tax expense (benefit) ................................. -- -- -- K --
Minority interest ............................................ 50,000 -- (50,000)I --
------------ ------------ ---------- ------------
Net loss .............................................. $ (3,278,573) (8,000) (450,000) (3,736,573)
============ ============ ========== ============
Pro forma net loss per share:
Pro forma weighted-average number of shares outstanding 9,880,000 30,160,000G
========== ============
Pro forma basic and diluted loss per share ............ (0.00) (0.12)
========== ============
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial statements.
<PAGE>
GlobalNet International, Inc. and Rich Earth, Inc.
Unaudited Pro Forma Consolidated Statement of Operations
Three months ended March 31, 2000
<TABLE>
<CAPTION>
GlobalNet
International, Rich
Inc. Earth, Inc. Adjustments Pro Forma
---- ----------- ----------- ---------
(Note J) (Note J)
<S> <C> <C> <C> <C>
Revenue ......................................................... $ 14,486,390 -- -- 14,486,390
Operating expenses:
Cost of revenue .............................................. 13,651,454 -- -- 13,651,454
Depreciation and amortization ................................ 415,985 -- 66,667 H 482,652
General and administrative ................................... 862,079 -- 862,079
------------ ------------ ------------
Total operating expenses .............................. 14,929,518 -- 66,667 14,996,185
------------ ------------ ------------ ------------
Operating loss ........................................ (443,128) -- (66,667) (509,795)
Other expense ................................................ -- -- -- --
Interest expense (income) .................................... 282,447 -- 282,447
------------ ------------ ------------ ------------
Loss before income taxes .............................. (725,575) -- (66,667) (792,242)
Income tax expense (benefit) ................................. -- -- -- K --
------------ ------------ ------------ ------------
Net loss .............................................. $ (725,575) -- (66,667) (792,242)
============ ============ ============ ============
Net loss per share:
Pro forma weighted-average number of shares ........... 9,960,000 30,160,000G
outstanding ........................................... ============ ============
Pro forma basic and diluted loss per share ............ -- (0.03)
============ ============
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial statements.
<PAGE>
GlobalNet International, Inc. and Rich Earth, Inc.
Notes To Unaudited Pro Forma Consolidated Financial Information
Note 1 - Pro Forma Adjustments
On May 30, 2000, Rich Earth, Inc. ("Rich Earth") and GlobalNet International,
Inc. ("GlobalNet") entered into an agreement (the "Merger Agreement") whereby
20,000,000 shares of Rich Earth common stock were exchanged for 100% of the
common stock of GlobalNet in a transaction to be accounted for as a reverse
acquisition of Rich Earth by GlobalNet using the purchase method of accounting.
Prior to raising approximately $2.5 million to fund an acquisition by GlobalNet
in a contemplated transaction as described herein, Rich Earth was a
non-operating public shell corporation with nominal assets. GlobalNet management
will control the combined company after the transaction. The accompanying pro
forma financial statements reflect the accounting for a reverse merger with a
shell entity equivalent to the issuance of stock by GlobalNet accompanied by a
recapitalization.
During April and May 2000, Rich Earth issued approximately 1,200,000 shares of
common stock in connection with the sale of units to investors in two private
placement transactions. Each unit in the first private placement consisted of
one share and one-half share purchase warrant at a price of $10 per unit. Each
whole warrant is exercisable for one additional share of common stock of Rich
Earth for six months from the date of purchase at a price of $15 per share. Each
unit in the second private placement consisted of one share and one share
purchase warrant at a price of $10 per unit. Each whole purchase warrant is
exercisable for one additional share of common stock of Rich Earth for six
months from the date of purchase at a price of $15 per share.
On March 6, 2000, GlobalNet agreed to purchase and subsequently did purchase the
remaining 25% minority interest and certain assets from the minority owner of
GlobalNet L.L.C. (a majority-owned subsidiary of GlobalNet) for $2,000,000 and
$127,198, respectively. The purchase of the minority interest increased the
GlobalNet interest in GlobalNet L.L.C. to 100%. The funds used to effect the
purchase were loaned to GlobalNet from Rich Earth. At the time of the merger
with Rich Earth, GlobalNet had a note payable to Rich Earth for these amounts.
(A) The common stock of the pro forma combined company reflect the par value of
the issuing entity:
<TABLE>
<CAPTION>
<S> <C>
Shares held by Rich Earth 9,960,000
Shares issued to GlobalNet 20,000,000
Shares issued by Rich Earth in private placement transactions 1,200,000
---------------
Total common stock outstanding at completion of merger 31,160,000
Par value of common stock $ .001
---------------
Pro forma common stock at March 31, 2000 $ 31,160
---------------
</TABLE>
(B) Total proceeds generated from the private placement offerings was
$12,000,000 (1.2 million shares at $10 per share). The $2,509,970 adjustment
represented the $2,427,198 loan made to GlobalNet and the $82,772 cash
balance on Rich Earth's balance sheet at March 31, 2000. The $9,490,030 pro
forma adjustment reflects the remainder of the $12,000,000 in private
placement proceeds.
(C) To eliminate intercompany loan.
(D) To eliminate the accumulated deficit of Rich Earth.
<PAGE>
GlobalNet International, Inc. and Rich Earth, Inc.
Notes To Unaudited Pro Forma Consolidated Financial Information
(E) To record the difference between the capital stock account of GlobalNet and
the capital stock account of Rich Earth as an adjustment to capital in
excess of par value of the combined company as follows:
<TABLE>
<CAPTION>
<S> <C>
Proceeds from sale of common stock and warrants by Rich
Earth $ 12,000,000
Common stock of Rich Earth at par value (9,960)
Adjustment to record par value of Rich Earth common stock (21,198)
Capital in excess of par value of Rich Earth common stock (24,790)
---------------
$ 11,944,052
===============
</TABLE>
(F) To record the accrual of $253,882 of estimated costs of the merger,
including direct transaction costs, primarily for financial and legal
advisory fees. Of this amount, estimated costs of $72,000 are reflected in
the unaudited pro forma consolidated balance sheet as a reduction of capital
in excess of par value as such amount was the cash balance of Rich Earth
acquired by GlobalNet in the merger. Remaining amounts will be expensed and
are excluded from the accompanying pro forma consolidated statements of
operations. Actual amounts ultimately incurred could differ from estimated
amounts due to the actual time incurred by professional advisors.
(G) Pro forma weighted-average number of shares outstanding was calculated
assuming that the shares issued to GlobalNet (20,000,000 shares) and private
placement transactions which funded the purchase of the minority interest by
GlobalNet (200,000 shares) were outstanding during all periods presented.
Historical Rich Earth shares outstanding reflect a 20-for-1 stock split
which occurred in 2000.
(H) To record the amortization of intangible assets related to the acquisition
of the 25% interest in GlobalNet L.L.C. over an estimated useful life of
five years. Allocation of the purchase price is preliminary and may change.
The final allocation may include intangible assets such as customer lists,
workforce and goodwill.
(I) To eliminate the 25% minority interest of GlobalNet L.L.C. which was
subsequently acquired by GlobalNet.
(J) Represents historical financial statements of respective Company at date
indicated.
(K) No tax benefit has been recorded in the accompanying unaudited consolidated
statements of operations as the ultimate realization of deferred tax assets
is uncertain.
