SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date Commission File
of earliest event Number:
reported):
OCTOBER 14, 1999 1-10210
eGLOBE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3486421
(State or other jurisdiction of (IRS Employer Identification
incorporation) Number)
1250 24th Street, NW, Suite 725
Washington, D.C. 20037
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(202) 822-8981
(Former name or former address, if changed since last report)
NA
1
<PAGE>
eGLOBE, INC.
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EXPLANATORY NOTE
----------------
Pursuant to Items 7(a)(4) and 7(b)(2) of the Securities and Exchange
Commission's (the "Commission") General Instructions for Form 8-K, eGlobe, Inc.
(the "Company") formerly Executive TeleCard, Ltd., hereby amends Items 7(a) and
7(b) of its Current Report on Form 8-K, filed with the Commission on October 29,
1999 to file financial statements and pro forma financial information for the
Company reflecting the acquisition of Highpoint International Telecom, Inc. and
certain assets and operations of Highpoint Carrier Services, Inc. and Vitacom,
Inc. (collectively "Highpoint"). The three entities were majority owned
subsidiaries of Highpoint Telecommunications Inc. ("HGP"), a publicly traded
company on the Canadian Venture Exchange. On October 14, 1999 substantially
all of the operating assets of Highpoint were transferred to iGlobe, Inc.
("iGlobe"), a newly formed subsidiary of HGP. Effective August 1, 1999, the
Company assumed operational control of Highpoint and on October 14, 1999 the
Company acquired all of the issued and outstanding common stock of iGlobe.
The Company has included a brief description of the Company's acquisition of
iGlobe along with the pro forma information for the Company. The Company, acting
through a newly formed subsidiary, acquired control of Oasis Reservations
Services, Inc. ("ORS") on September 20, 1999. Connectsoft Communications
Corporation and Connectsoft Holding Corp. ("Connectsoft") were acquired on June
17, 1999, by the Company's new subsidiary Vogo Networks, LLC ("Vogo"). Telekey,
Inc and Travelers Services, Inc. ("Telekey") were acquired on February 12, 1999.
UCI Tele Networks, Ltd. ("UCI") was acquired on December 31, 1998 and IDX
International Inc. and Subsidiaries ("IDX") was acquired on December 2, 1998.
The ORS acquisition was previously reported on Form 8-K/A filed December 6, 1999
and amended on December 10, 1999. The Connectsoft acquisition was previously
reported on Form 8-K/A filed on August 31, 1999. The Telekey, UCI and IDX
acquisitions were previously reported on Form 8-K/A filed on April 30, 1999. In
June 1999, the stockholders approved the increase in the convertibility of the
preferred stock issued to the IDX stockholders and in July 1999, the terms of
the IDX purchase agreement were renegotiated. The effects of the above two
transactions related to the IDX acquisition were previously reported on Form
8-K/A filed on August 31, 1999.
In September 1999, the Company obtained appraisals of the assets of IDX, UCI and
Telekey and reclassified certain acquired goodwill to other identifiable assets.
In August 1999, the Company issued 30 shares of Series K Cumulative Convertible
Preferred Stock ("Series K Preferred") valued at $3.0 million in exchange for
the one share of Series G Cumulative Convertible Preferred Stock ("Series G
Preferred") held by the Seller of Connectsoft. The effects of these two
transactions were previously reported on Form 8-K/A filed on December 6, 1999.
2
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eGLOBE, INC.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
ITEM 7(A). FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
Filed herewith as part of this report are the following
financial statements: Highpoint International Telecom, Inc.
and Affiliates, (i) Report of Independent Certified Public
Accountants, (ii) Combined Balance Sheet as of July 31,
1999, (iii) Combined Statement of Operations for the nine
months ended July 31, 1999, (iv) Combined Statement of
Stockholders and Affiliates' Equity for the nine months
ended July 31, 1999, (v) Combined Statement of Cash Flows
for the nine months ended July 31, 1999, and (vi) Notes to
the Combined Financial Statements.
ITEM 7(B). PRO FORMA FINANCIAL INFORMATION
Filed herewith as part of this report are the Company's
Unaudited Pro Forma Condensed Consolidated Statements of
Operations for the twelve months ended December 31, 1998 and
for the nine months ended September 30, 1999 and the notes
thereto. A pro forma condensed consolidated balance sheet is
not included in this report as the Company assumed
operational control of Highpoint effective August 1, 1999.
As a result, Highpoint or iGlobe is included in the
September 30, 1999 historical unaudited balance sheet of the
Company as reported on Form 10-Q filed on November 16, 1999.
The effect of the Company's stockholder approval of the
increase in the IDX preferred stock conversion terms, the
renegotiation of the terms of the original IDX purchase
agreement, the reclassification of acquired goodwill to
other identifiable assets, the exchange of Series K
Preferred for the Series G Preferred and the acquisition of
ORS are also included in the September 30, 1999 historical
unaudited balance sheet.
ITEM 7(C). EXHIBITS
2.1 Stock Purchase Agreement dated as of October 4, 1999 by and
among eGlobe, Inc., iGlobe, Inc. and Highpoint
Telecommunications, Inc. is incorporated by reference to the
8-K filed on October 29, 1999.
4.1 Certificate of Designations, Rights, Preferences and
Restrictions of 20% Series M Cumulative Convertible Preferred
Stock is incorporated by reference to the 8-K filed on October
29, 1999.
99.1 Press Release, dated October 6, 1999, regarding the
Contribution Agreement and the transactions contemplated
thereby is incorporated by reference to the 8-K filed on
October 29, 1999.
.
3
<PAGE>
ITEM 7(B)
eGLOBE, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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The following unaudited pro forma condensed consolidated statements of
operations give effect to the acquisitions by the Company of ORS,
Connectsoft, Telekey, IDX and UCI, and the June 1999 stockholder
approval of the increase of the number of shares of common stock
issuable upon conversion of the preferred stock issued to the IDX
stockholders and the terms of the IDX purchase agreement as
renegotiated in July 1999, the reclassification of acquired goodwill
to other identifiable intangibles and the exchange of Series K
Preferred for Series G Preferred, as previously described and reported
on Forms 8-K/A filed on April 30, 1999, on August 31, 1999 and on
December 6, 1999 as amended December 10, 1999. In addition, the iGlobe
acquisition is included in the following unaudited pro forma condensed
consolidated statements of operations. This pro forma presentation has
been prepared utilizing historical financial statements and notes
thereto, certain of which are included herein as well as pro forma
adjustments as described in the Notes to Pro Forma Condensed
Consolidated Financial Statements. The pro forma financial data does
not purport to be indicative of the results which actually would have
been obtained had the acquisitions been effected on the dates
indicated or the results which may be obtained in the future.
The Unaudited Pro Forma Condensed Consolidated Statement of Operations
for the year ended December 31, 1998 includes the operating results of
the Company, IDX, Telekey, Connectsoft, ORS and iGlobe assuming the
acquisitions occurred January 1, 1998. Also, the subsequent increase
in the preferred conversion factor for preferred shares originally
issued to IDX stockholders, the renegotiation of the terms of the IDX
purchase agreement, the reclassification of acquired goodwill to other
identifiable intangibles and the Series K Preferred Stock exchanged
for Series G Preferred Stock were assumed to have occurred on January
1, 1998. The historical results of the Company include the results of
IDX for the period from December 2, 1998, the effective date of the
acquisition, to December 31, 1998. UCI was acquired on December 31,
1998 and had minimal operations which have not been reflected in the
Unaudited Pro Forma Condensed Consolidated Statement of Operations for
the year ended December 31, 1998. However, the recurring effect of the
goodwill amortization related to the UCI acquisition has been included
in the Unaudited Pro Forma Condensed Consolidated Statement of
Operations.
The Unaudited Pro Forma Condensed Consolidated Statement of Operations
for the nine months ended September 30, 1999 assumes that the Telekey,
Connectsoft, ORS, and iGlobe acquisitions and the subsequent increase
in the IDX purchase price related to the increase in the
convertibility of the preferred stock originally issued to the IDX
stockholders, the renegotiation of the IDX purchase agreement, the
reclassification of the acquired goodwill to other identifiable
intangibles and the Series K Preferred Stock exchanged for Series G
Preferred Stock occurred at the beginning of the periods presented.
The historical results of operations of the Company for the nine
months ended September 30, 1999 include the results of Telekey from
February 1, 1999, the effective date of the acquisition, to September
30, 1999, the results of Connectsoft from June 1, 1999, the effective
date of the acquisition, to September 30, 1999, the results of ORS
from September 1, 1999, the effective date of acquisition, to
September 30, 1999, and the results of iGlobe from August 1, 1999, the
date the Company assumed operational control of Highpoint, to
September 30, 1999.
4
<PAGE>
eGLOBE, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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The unaudited pro forma condensed consolidated statements of operations are
presented for illustrative purposes only and do not purport to represent what
the Company's results of operations would have been had the acquisitions
described herein occurred on the dates indicated for any future period or at any
future date, and are therefore qualified in their entirety by reference to and
should be read in conjunction with the historical consolidated financial
statements of the Company and the historical financial statements of Highpoint
International Telecom, Inc. and Affiliates, contained elsewhere herein.
Historical financial statements of IDX and Telekey were previously filed in Form
8-K/A on April 30, 1999. Historical financial statements of Connectsoft were
previously filed in Form 8-K/A on August 31, 1999. Historical financial
statements of ORS were previously filed in Form 8-K/A on December 6, 1999 and
amended on December 10, 1999.
ACQUISITION OF iGLOBE, INC.
Effective August 1, 1999, the Company assumed operational control of Highpoint
which has created an infrastructure supplying Internet Protocol ("IP") services
particularly voice over IP, throughout Latin America. In July 1999, the Company
and HGP agreed that the Company would manage the business of Highpoint and would
take responsibility for the ongoing financial condition of Highpoint from August
1, 1999, pursuant to a Transition Services and Management Agreement ("TSA").
Pursuant to this agreement, HGP advanced working capital through the closing
date to Highpoint for which the Company has issued a note payable of $1.2
million. On October 14, 1999, HGP transferred substantially all of the operating
assets and operations of Highpoint to iGlobe and on October 14, 1999 eGlobe
acquired all of the issued and outstanding common stock of iGlobe. The purchase
price consisted of (i) one share of 20% Series M Convertible Preferred Stock
("Series M Preferred") valued at $9.6 million, (ii) direct acquisition costs of
approximately $0.3 million; and (iii) HGP was given a non-voting beneficial 20%
interest of the equity interest subscribed or held by the Company in a
yet-to-be-completed joint venture currently known as IP Solutions B.V.
The one share of Series M Preferred, par value $.001, has a liquidation value of
$9.0 million and carries an annual cumulative dividend of 20% which will accrue
and be payable annually or at conversion in cash or shares of eGlobe common
stock, at the option of the Company. The premium of $643,000 will be amortized
as a reduction in preferred dividends over the one year period from the issuance
date. The Series M Preferred is convertible, at the option of the holder, one
year after the issue date at a conversion price of $2.385. Each share of Series
M Preferred shall automatically be converted into shares of common stock, based
on the then-effective conversion rate, on the earliest to occur of (i) the first
date as of which the last reported sales price of the common stock is $5.00 or
more for any 10 consecutive trading days during any period in which the Series M
Preferred is outstanding, (ii) the date that is seven years after the issue
date, or (iii) the date upon which the Company closes a public offering of
equity securities of the Company at a price of at least $4.00 per share and with
gross proceeds of at least $20.0 million.
The acquisition has been accounted for using the purchase method of accounting.
The September 30, 1999 historical unaudited interim financial statements of the
Company reflect the preliminary allocation of the purchase price. This initial
preliminary purchase price allocation is
5
<PAGE>
eGLOBE, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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based on preliminary appraisals and resulted in acquired goodwill of $0.4
million and acquired intangibles of $4.6 million relating to a customer base,
licenses and operating agreements, a business sales agreement, and an assembled
workforce. The goodwill is being amortized on a straight-line basis over seven
years and the acquired intangibles are being amortized on a straight-line basis
over the estimated useful lives of three years. The Company will determine the
final purchase price allocation based on completion of management's review and
final appraisals of iGlobe's assets.
The acquisition has been recorded using the purchase method of accounting and
the components of the purchase price and its preliminary allocation to the
assets and liabilities acquired are as follows:
<TABLE>
<CAPTION>
<S> <C>
Components of Purchase Price:
Series M Preferred Stock ($9.0 million face value and $643,000 premium) $9,643,000
Direct acquisition costs 300,000
----------
Total purchase price 9,943,000
Allocation of purchase price:
Deposits (900,000)
Property and equipment (5,577,000)
Intangibles (2,640,000)
Investment in Joint Venture (1,950,000)
Goodwill (376,000)
Current liabilities 107,000
Notes Payable 1,393,000
----------
Total
$ --
==========
</TABLE>
6
<PAGE>
eGLOBE, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER 31, 1998
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<TABLE>
<CAPTION>
eGLOBE ORS
TWELVE MONTHS IDX TELEKEY CONNECTSOFT TWELVE MONTHS
ENDED 12/31/98 ELEVEN MONTHS TWELVE MONTHS TWELVE MONTHS ENDED 12/31/98
(NOTE A) (1) ENDED 11/30/98 ENDED 12/31/98 ENDED 12/31/98 (NOTE A)(1)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUE $30,030,000 $2,795,000 $4,705,000 $288,000 $ 5,094,000
- ------------------------------------------------------------------------------------------------------------------------------------
COST OF REVENUE 16,806,000 3,176,000 1,294,000 248,000 3,657,000
- ------------------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT (LOSS) 13,224,000 (381,000) 3,411,000 40,000 1,437,000
- ------------------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Selling, general and administrative 18,070,000 3,011,000 2,811,000 2,473,000 834,000
Research and development -- -- -- 2,057,000 --
Depreciation and amortization 3,070,000 510,000 192,000 231,000 302,000
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL COSTS AND EXPENSES 21,140,000 3,521,000 3,003,000 4,761,000 1,136,000
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS (7,916,000) (3,902,000) 408,000 (4,721,000) 301,000
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Other income (expense) (1,981,000) 358,000 (61,000) (377,000) 227,000
Proxy related litigation expense (3,647,000) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME (EXPENSE) (5,628,000) 358,000 (61,000) (377,000) 227,000
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE MINORITY
INTERESTS AND TAXES ON INCOME (13,544,000) (3,544,000) 347,000 (5,098,000) 528,000
MINORITY INTERESTS IN (INCOME) LOSS OF
SUBSIDIARIES -- -- (59,000) -- --
INCOME TAX EXPENSE 1,500,000 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) (15,044,000) (3,544,000) 288,000 (5,098,000) 528,000
PREFERRED STOCK DIVIDENDS -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) ATTRIBUTABLE TO
COMMON STOCK $(15,044,000) $(3,544,000) $288,000 $(5,098,000) $ 528,000
- ------------------------------------------------------------------------------------------------------------------------------------
NET LOSS PER SHARE (NOTES A, (10)
AND (11))
Basic and diluted $ (0.85) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to the unaudited pro forma condensed consolidated financial statements
7
<PAGE>
eGLOBE, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER 31, 1998
(CONTINUED)
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<TABLE>
<CAPTION>
iGLOBE
TWELVE MONTHS ADJUSTMENTS PRO FORMA
ENDED 12/31/98 (NOTE A)
-------------------------------------------------------------------
<S> <C> <C> <C>
REVENUE $2,703,000 $ (121,000) (2) $ 45,494,000
COST OF REVENUE 2,079,000 (65,000) (3) 27,195,000
- ------------------------------------------------------------------------------------------------------------------
GROSS PROFIT (LOSS) 624,000 (56,000) 18,299,000
- ------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Selling, general and administrative 780,000 230,000 (4) 28,209,000
Research and development -- -- 2,057,000
Depreciation and amortization 862,000 8,302,000 (5) 13,469,000
- ------------------------------------------------------------------------------------------------------------------
TOTAL COSTS AND EXPENSES 1,642,000 8,532,000 43,735,000
- ------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS (1,018,000) (8,588,000) (25,436,000)
- ------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Other income (expense) -- (749,000) (6) (2,583,000)
Proxy related litigation expense -- -- (3,647,000)
- ------------------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME (EXPENSE) -- (749,000) (6,230,000)
- ------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE MINORITY (1,018,000) (9,337,000) (31,666,000)
INTERESTS AND TAXES ON INCOME
MINORITY INTERESTS IN (INCOME) LOSS OF --
SUBSIDIARIES 95,000 (7) 36,000
INCOME TAX EXPENSE -- 21,000 (8) 1,521,000
- ------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) (1,018,000) (9,263,000) (33,151,000)
PREFERRED STOCK DIVIDENDS -- 7,719,000 (9) 7,719,000
- -----------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) ATTRIBUTABLE TO
COMMON STOCK $ (1,018,000) $ (16,982,000) $ (40,870,000)
- ------------------------------------------------------------------------------------------------------------------
NET LOSS PER SHARE (NOTES A, (10)
AND (11))
Basic and diluted -- -- $ (2.28)
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to the unaudited pro forma condensed consolidated financial statements
8
<PAGE>
eGLOBE, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999
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<TABLE>
<CAPTION>
eGLOBE TELEKEY CONNECTSOFT ORS
NINE MONTHS ONE MONTH ENDED FIVE MONTHS EIGHT MONTHS
ENDED 9/30/99 1/31/99 ENDED 5/31/99 ENDED 8/31/99
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE $28,136,000 $ 190,000 $73,000 $ 4,055,000
COST OF REVENUE 27,442,000 59,000 65,000 3,746,000
- -----------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 694,000 131,000 8,000 309,000
- -----------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Selling, general and administrative 18,393,000 141,000 436,000 253,000
Research and development -- -- 1,092,000 --
Depreciation and amortization 7,846,000 16,000 129,000 160,000
- -----------------------------------------------------------------------------------------------------------------------
TOTAL COSTS AND EXPENSES 26,239,000 157,000 1,657,000 413,000
- -----------------------------------------------------------------------------------------------------------------------
LOSS FROM OPERATIONS (25,545,000) (26,000) (1,649,000) (104,000)
OTHER INCOME (EXPENSE) (5,814,000) (6,000) (162,000) (4,000)
- -----------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE MINORITY INTEREST (31,359,000) (32,000) (1,811,000) (108,000)
MINORITY INTEREST IN LOSS
OF SUBSIDIARY -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
NET LOSS (31,359,000) (32,000) (1,811,000) (108,000)
PREFERRED STOCK DIVIDENDS 10,783,000 -- -- --
- -----------------------------------------------------------------------------------------------------------------------
NET LOSS ATTRIBUTABLE TO COMMON
STOCK $(42,142,000) $(32,000) $(1,811,000) $ (108,000)
- -----------------------------------------------------------------------------------------------------------------------
NET LOSS PER SHARE (NOTE B(19))
Basic and diluted $(2.18) -- -- --
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to the unaudited pro forma condensed consolidated financial statements
<PAGE>
eGLOBE, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999
(CONTINUED)
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<TABLE>
<CAPTION>
iGLOBE
SEVEN MONTHS ADJUSTMENTS PRO FORMA
ENDED 7/31/99 (NOTE B)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUE $ 5,067,000 $(214,000) (12) $37,307,000
COST OF REVENUE 5,220,000 (214,000) (13) 36,318,000
- -------------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT (LOSS) (153,000) -- 989,000
- -------------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Selling, general and administrative 4,794,000 148,000 (14) 24,165,000
Research and development -- -- 1,092,000
Depreciation and amortization 1,411,000 1,793,000 (15) 11,355,000
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL COSTS AND EXPENSES 6,205,000 1,941,000 36,612,000
- -------------------------------------------------------------------------------------------------------------------------------
LOSS FROM OPERATIONS (6,358,000) (1,941,000) (35,623,000)
OTHER INCOME (EXPENSE) (182,000) 190,000 (16) (5,978,000)
- -------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE MINORITY INTEREST (6,540,000) (1,751,000) (41,601,000)
MINORITY INTEREST IN
LOSS OF SUBSIDIARY -- 38,000 (17) 38,000
- -------------------------------------------------------------------------------------------------------------------------------
NET LOSS (6,540,000) (1,713,000) (41,563,000)
PREFERRED STOCK DIVIDENDS -- (4,455,000) (18) 6,328,000
- -------------------------------------------------------------------------------------------------------------------------------
NET LOSS ATTRIBUTABLE TO
COMMON STOCK $ (6,540,000) $2,742,000 $(47,891,000)
- -------------------------------------------------------------------------------------------------------------------------------
NET LOSS PER SHARE (NOTE B(19))
Basic and diluted -- -- $(2.47)
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to the unaudited pro forma condensed consolidated financial statements
10
<PAGE>
eGLOBE, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE A. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR
THE TWELVE MONTHS ENDED DECEMBER 31, 1998
(1) Effective with the period ended December 31, 1998, the Company changed from
a March 31 to a December 31 fiscal year end. As a result, the following table is
required to reflect twelve months of operations.
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS TWELVE MONTHS
ENDED 12/31/98 ENDED 3/31/98 ENDED 12/31/98
---------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $ 22,491,000 $7,539,000 $ 30,030,000
Cost of revenue 12,619,000 4,187,000 16,806,000
- -------------------------------------------------------------------------------------------------------------------------------
Gross profit 9,872,000 3,352,000 13,224,000
Costs and expenses:
Selling, general and administrative 13,555,000 4,515,000 18,070,000
Depreciation and amortization 2,256,000 814,000 3,070,000
- -------------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 15,811,000 5,329,000 21,140,000
- -------------------------------------------------------------------------------------------------------------------------------
Loss from operations (5,939,000) (1,977,000) (7,916,000)
- -------------------------------------------------------------------------------------------------------------------------------
Other income (expenses):
Other expense (1,031,000) (950,000) (1,981,000)
Proxy related litigation expense (120,000) (3,527,000) (3,647,000)
- -------------------------------------------------------------------------------------------------------------------------------
Total other expenses (1,151,000) (4,477,000) (5,628,000)
- -------------------------------------------------------------------------------------------------------------------------------
Loss before taxes on income (7,090,000) (6,454,000) (13,544,000)
Income tax expense -- 1,500,000 1,500,000
- -------------------------------------------------------------------------------------------------------------------------------
Net loss $ (7,090,000) $ (7,954,000) $(15,044,000)
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
UCI was acquired on December 31, 1998 and had minimal operations which have not
been reflected in the Pro Forma Condensed Consolidated Statement of Operations
for the year ended December 31, 1998. However, the recurring effect of the
goodwill amortization related to the UCI acquisition has been included in the
Unaudited Pro Forma Condensed Consolidated Statement of Operations.
ORS' statement of operations for the year ended December 31, 1998 consists of
the statement of operations for the period June 1, 1998 (date of inception)
through December 31, 1998 plus the revenue and costs associated with the ORS
line of business for the period January 1, 1998 through May 31, 1998 to reflect
the period when ORS was part of Oasis.
11
<PAGE>
eGLOBE, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE A. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR
THE TWELVE MONTHS ENDED DECEMBER 31, 1998 (CONT)
The following pro forma adjustments to the unaudited pro forma condensed
consolidated statement of operations are as if the acquisitions had been
completed at the beginning of the periods presented and are not indicative of
what would have occurred had the acquisitions actually been made as of such
date. IDX was acquired on December 2, 1998; therefore, the results of operations
of IDX for the month of December 1998 are included in the historical results of
the Company for the twelve months ended December 31, 1998.
<TABLE>
<CAPTION>
<S> <C>
(2) Adjustments to revenue:
Elimination of IDX billings to the Company $ (41,000)
Adjustment to revenue to give effect to IDX's purchase of a subsidiary in April, 1998
and its sale of another subsidiary in November, 1998 as if the purchase and
sale had been completed at the beginning of the period presented (80,000)
--------------
$ (121,000)
==============
(3) Adjustments to cost of revenue:
Elimination of IDX billings to the Company $ (41,000)
Adjustment to cost of revenue to give effect to IDX's purchase of
a subsidiary in April, 1998 and its sale of another subsidiary in November, 1998
as if the purchase and sale had been completed at the beginning of the period presented (24,000)
--------------
$ (65,000)
==============
(4) Adjustments to selling, general and administrative expenses:
Adjustment for the incremental increase in IDX and Telekey management compensation $ 78,000
Adjustment for incremental increase in Connectsoft management compensation 173,000
Adjustment for deferred compensation related to Telekey purchase 232,000
Adjustment to give effect to IDX's purchase of a subsidiary in April, 1998 and its sale of
another subsidiary in November, 1998 as if the purchase and sale had been (423,000)
completed at the beginning of the period presented
Adjustment for various general and administrative services provided by Oasis to ORS 170,000
not reflected in ORS' statement of operations
--------------
$ 230,000
==============
(5) Adjustments to depreciation and amortization expenses:
Amortization for eleven months of identifiable intangibles acquired in the IDX purchase
which was effective December 2, 1998 (1-4 year straight-line amortization) $ 2,640,000
Amortization for eleven months of original cost in excess of net
assets acquired for the IDX purchase which was effective December 2, 1998
(7 year straight-line amortization) 778,000
Amortization of costs in excess of net assets related to stockholder approval in June 1999
of increase in conversion feature for the IDX purchase (7 year straight-line amortization) 165,000
Amortization of identifiable intangibles acquired in the UCI purchase which was effective
December 31, 1998 (2 year straight-line amortization) 327,000
Amortization of costs in excess of net assets acquired for in the UCI purchase which
was effective December 31, 1998 (7 year straight-line amortization) 68,000
Amortization of identifiable intangibles acquired in the Telekey purchase, (3-7 year
straight line amortization) 570,000
Amortization of costs in excess of net assets acquired for the Telekey
purchase (7 year straight-line amortization) 300,000
Amortization of intangibles acquired in the Connectsoft purchase (3-5 year
straight-line amortization) 1,870,000
Amortization of costs in excess of net assets acquired in the Connectsoft
purchase (7 year straight-line amortization) 142,000
Amortization of identifiable intangibles acquired in the ORS purchase (3-5 year
straight-line amortization) 508,000
Amortization identifiable intangibles acquired in the iGlobe purchase (3 year
straight-line amortization) 880,000
Amortization of costs in excess of net assets acquired in the iGlobe purchase (7
year straight-line amortization) 54,000
--------------
$ 8,302,000
==============
</TABLE>
12
<PAGE>
eGLOBE, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE A. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(CON'T)
<TABLE>
<S> <C>
(6) Adjustment to other income (expenses):
Adjustment to give effect to IDX's purchase of a subsidiary in
April, 1998 and its sale of another subsidiary in November,
1998 as if the purchase and sale had been completed at the beginning of the period
presented $ (411,000)
Interest on $0.5 million UCI note @8% originally due 6/99 (20,000)
Interest on $0.5 million UCI note @8% due 5/2000 (40,000)
Interest on $1.0 million IDX note @7.75% due 2/99 (19,000)
Additional interest recorded for value of 50,000 warrants issued in
connection with the UCI purchase (43,000)
Interest on $0.5 million note payable to seller of Connectsoft (40,000)
Interest on $0.451 million Oasis note @ 8% due in six quarterly installments (26,000)
Less other income related to guaranteed reimbursement by Oasis' parent to ORS (181,000)
-------------
(780,000)
Less interest expense recorded by the Company in the historical
results of operations for the twelve months ended December 31, 1998 31,000
-------------
$ (749,000)
=============
(7) Adjustments to minority interests in (income) loss of subsidiaries:
To reverse the minority interest in income of Telekey, because in connection
with the acquisition of Telekey by the Company, the 20% minority interest in
Telekey, L.L.C. was acquired by Telekey. $ 59,000
To record 10% minority interest in LLC's (income) loss owned by Oasis. 36,000
-------------
$ 95,000
-------------
(8) To reflect state income taxes (Telekey was previously an S-corporation) at 6% as
Georgia does not allow for a consolidated filing. The Telekey federal taxable
income can be offset with the Company's current period losses. $ 21,000
=============
</TABLE>
No tax provision has been reflected for IDX or Connectsoft as
these companies had book and tax net losses. No tax provision has
been reflected for ORS as the federal and state taxable income of
ORS can be offset with the Company's current period losses.
13
<PAGE>
eGLOBE, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE A. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(CON'T)
<TABLE>
<S> <C>
(9) To reflect the preferred stock dividends associated with these transactions:
Annual dividend on Series K Preferred Stock $ 150,000
Annual dividend on Series I Preferred 320,000
Dividend to IDX stockholders related to renegotiation of purchase agreement 6,092,000
Annual dividend on Series M Preferred Stock, net of premium amortization of $643,000 1,157,000
-------------
$ 7,719,000
=============
(10) Adjustment to the basic weighted average number of shares outstanding
of 17,736,654 as if the acquisitions and IDX renegotiation had been
completed at the beginning of the period presented:
Issuance of common stock in payment of $0.4 million IDX note 141,000
Issuance of common stock in UCI purchase 63,000
-------
204,000
=======
(11) Convertible preferred stock and convertible notes were not included in
diluted earnings (loss) per share due to the Company recording a loss
for the period presented. The following table reflects the shares of
common stock that would have been issuable upon conversion:
Series H Preferred Stock 3,750,000
Series I Preferred Stock, including payment of accrued dividend 1,440,000
Convertible $1.0 million IDX note payable, including interest (Converted in 1999) 474,000
Series F Preferred Stock 1,515,000
Series K Preferred Stock 1,923,000
Series M Preferred Stock 3,774,000
----------
12,876,000
==========
</TABLE>
14
<PAGE>
eGLOBE, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE B. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<S> <C>
(12) Adjustment to revenue:
Elimination of iGlobe billings to the Company $(214,000)
=========
(13) Adjustment to cost of revenue:
Elimination of iGlobe billing to the Company $(214,000)
=========
(14) Adjustment to selling, general and administrative expenses: 72,000
Adjustment for the incremental increase in Connectsoft management
compensation 76,000
Adjustment for various general and administrative services provided by ---------
Oasis to ORS not reflected in statement of operations. $ 148,000
=========
(15) Adjustments to depreciation and amortization expenses:
One month of amortization of identifiable intangibles
acquired in the Telekey purchase (3-7 year
straight-line amortization) $ 47,000
One month of amortization of costs in excess of net assets
acquired for Telekey purchase (7 year straight-line
amortization) 25,000
Five months of amortization of identifiable intangibles
acquired in the Connectsoft purchase (3-5 year
straight-line amortization) 779,000
Five months of amortization of costs in excess of net assets
acquired for Connectsoft purchase (7 year straight-line
amortization) 59,000
Seven months of amortization of identifiable intangibles
acquired for iGlobe purchase (3 year straight-line
amortization) 513,000
Seven months of amortization of costs in excess of net
assets acquired for iGlobe purchase (7 year
straight-line amortization) 31,000
Eight months of amortization of identifiable intangibles acquired in the
ORS purchase (3-5 year straight-line amortization) 339,000
----------
$1,793,000
==========
(16) Adjustment to other income (expenses):
Interest on $0.5 million note payable to seller of Connectsoft $ (30,000)
Interest on $0.451 million Oasis note (9,000)
Reverse interest recorded on $4.0 million IDX notes
subsequently exchanged for Series I Preferred Stock 182,000
Reverse interest recorded on $0.418 million IDX note paid by
issuance of common stock 14,000
Reverse interest recorded on $0.5 million UCI note originally due June
1999 as reflected in the December 31, 1998 pro forma
adjustments 20,000
Reverse interest recorded on $1.0 million IDX note due February 1999
as reflected in the December 31, 1998 pro forma adjustments 13,000
----------
190,000
==========
</TABLE>
15
<PAGE>
eGLOBE, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE B. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (CON'T.)
<TABLE>
<S> <C>
(17) Adjustment to record 10% minority interest in LLC's loss owned by Oasis $ 38,000
==========
(18) Adjustment to preferred stock dividends:
Eight months dividend on 5% Series K Preferred (exchanged for $ 100,000
6% Series G Preferred Stock issued in Connectsoft acquisition)
Accrued dividend on Series I Preferred Stock 187,000
Nine months dividend on 20% Series M 1,350,000
Less dividend to IDX stockholders related to the renegotiation of the purchase agreement (6,092,000)
-----------
$(4,455,000)
===========
(19) There were no adjustments to the basic weighted average number
of shares outstanding of 19,374,944. Convertible preferred
stock was not included in diluted earnings (loss) per share
due to the Company recording a loss for the period presented.
The following table reflects the shares of common stock that
would have been issuable upon conversion:
Series H Preferred Stock 3,750,000
Series I Preferred Stock, including payment of accrued dividends 1,521,000
Series F Preferred Stock 1,515,000
Series K Preferred Stock 1,923,000
Series M Preferred Stock 3,774,000
----------
12,483,000
==========
</TABLE>
16
<PAGE>
eGLOBE, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE C. CONTINGENCIES
The following adjustments to the pro forma basic net loss
per share are to reflect the following: (1) the issuance of
additional shares of Series F Preferred Stock and IDX
warrants which would have occurred if Telekey and IDX,
respectively, had met their earn-out formulas at the
beginning of the period presented; (2) the additional shares
of common stock to be issued to UCI shareholders assuming
UCI had met its earn-out provision; (3) the estimated
additional compensation expense related to the Telekey and
IDX stockholders' grant of shares under the original
agreements, including shares issuable under the original IDX
warrant; (4) the assumption that the Company's common stock
met the guaranteed trading price of $6.00 per share for IDX
related shares, $8.00 per share for UCI related shares and
$4.00 per share for the Telekey related shares and (5) the
assumption that ORS met its earn-out formulas and Oasis
exchanged its ownership in the LLC for the Company's common
stock and warrants at the beginning of the period presented.
The increase in goodwill amortization expense is the result
of the additional goodwill recorded as a result of the above
issuances amortized over 7 years using straight-line
amortization. It is assumed that the warrants related to the
IDX and ORS earn-outs are exercised at the beginning of the
period presented.
In addition, if the Company's common stock does not trade at
the guaranteed trading prices for UCI related shares and
Telekey related shares and, subject to UCI and Telekey
meeting their earn-out objectives, the Company will be
required to issue additional shares of common stock and the
estimated goodwill amortization reflected below will change.
If the Company's common stock does not trade at the
guaranteed trading price of $6.00 for IDX related shares and
upon conversion of Series H Preferred Stock, the Company may
record an additional dividend of up to $9.0 million if more
than 3,750,000 shares of common stock are issued.
The final purchase price allocations will be determined when
certain contingencies are resolved as discussed earlier and
additional information becomes available. This is not
indicative of what would have occurred had the acquisitions
actually been made as of such date.
17
<PAGE>
eGLOBE, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
<S> <C> <C>
PRO FORMA BASIC AND DILUTED LOSS PER SHARE:
NUMERATOR
Pro forma net loss attributable to common stock $(47,891,000) $(40,870,000)
Increase in goodwill amortization expense for
earn-out formulas (7 year straight-line
` amortization) (2,573,000) (3,431,000)
Estimated compensation adjustment related to
stock and warrants granted to IDX
employees by IDX stockholders after the
Company's purchase of IDX. 537,000 (2,460,000)
Estimated compensation adjustment related to
stock granted to Telekey employees by
Telekey stockholders after the Company's
purchase of Telekey . 574,000 (728,000)
Reversal of minority interest in (income) loss of ORS
due to Oasis's exchange of its interest in the LLC (38,000) (36,000)
------------ -------------
Adjusted pro forma net loss $(49,391,000) $ (47,525,000)
============ =============
DENOMINATOR
Pro forma weighted average shares outstanding 19,374,944 17,940,654
Number of shares of common stock issuable
under earn-out formulas:
UCI (contingent earn-out stock) 62,500 62,500
IDX warrants 1,250,000 1,250,000
Number shares of common stock issuable to
Oasis for its ownership in LLC (assuming
exercise of warrants) 4,000,000 4,000,000
------------ -------------
Adjusted pro forma basic weighted average
shares outstanding: 24,687,444 23,253,154
============ =============
PER SHARE AMOUNTS
Adjusted pro forma basic and diluted loss per share $ (2.00) $ (2.04)
============ =============
</TABLE>
18
<PAGE>
eGLOBE, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The diluted loss per share for the nine months ended
September 30, 1999 and for the twelve months ended December
31, 1998 in the above table does not reflect 12,483,000 and
12,876,000 shares of common stock that would be issuable
upon the conversion of the preferred stock as discussed in
Note B (19) and Note A (11). As the Company reported losses
in both periods, the effects of these transactions are
anti-dilutive.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed in its
behalf by the undersigned, thereunto duly authorized.
eGlobe, Inc.
(Registrant)
Date: December 28, 1999 By /s/ Anne Haas
----------------------------------
Anne Haas
Controller, Treasurer
(Principal Accounting Officer)
<PAGE>
HIGHPOINT INTERNATIONAL TELECOM, INC. AND AFFILIATES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants 2
Combined Balance Sheet as of July 31, 1999 3
Combined Statement of Operations for
the nine months ended July 31, 1999 4
Combined Statement of Stockholder's and Affiliates' Equity
for the nine months ended July 31, 1999 5
Combined Statement of Cash Flows for the nine months
ended July 31, 1999 6
Notes to Combined Financial Statements 7 - 13
</TABLE>
1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Highpoint International Telecom, Inc. and affiliates
Mountain View, California
We have audited the accompanying combined balance sheet of Highpoint
International Telecom, Inc. and affiliates and the related combined statements
of operations, stockholder's and affiliates' equity and cash flows for the nine
months ended July 31, 1999. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined balance sheet of Highpoint
International Telecom, Inc. and affiliates as of July 31, 1999 and the results
of their operations and their cash flows for the nine months ended July 31,
1999, in conformity with generally accepted accounting principles.
The accompanying combined financial statements have been prepared assuming that
Highpoint International Telecom, Inc. and affiliates will continue as a going
concern. As discussed in Note 1 to the combined financial statements, Highpoint
International Telecom, Inc. and affiliates have suffered from recurring net
losses and negative cash flow from operations which raise substantial doubt
about their ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 1. The combined financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
/s/ BDO Seidman, LLP
Denver, Colorado
December 16, 1999
2
<PAGE>
HIGHPOINT INTERNATIONAL TELECOM, INC. AND AFFILIATES
COMBINED BALANCE SHEET
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JULY 31, 1999
-------------
<S> <C>
ASSETS
Current assets
Cash $ 900,000
Trade accounts receivable, net of allowance
for doubtful accounts of $599,000 822,000
----------------
Total current assets 1,722,000
Long-term assets
Property and equipment, net 5,482,000
Deposits 900,000
Goodwill, net of accumulated
amortization of $35,000 114,000
----------------
Total long term assets 6,496,000
----------------
$ 8,218,000
================
LIABILITIES
Current liabilities
Accounts payable $ 1,640,000
Accrued liabilities 614,000
Athena purchase obligation 799,000
Current maturities of capital lease obligations 715,000
----------------
Total current liabilities 3,768,000
Long term liabilities
Capital lease obligations 1,071,000
----------------
Total liabilities 4,839,000
Commitments and contingencies
STOCKHOLDERS' AND AFFILIATES' EQUITY
Common stock, no par value, 100,000 shares
authorized, 1,000 shares issued
and outstanding 10,000
Accumulated deficit and net equity of affiliates 3,369,000
----------------
Total equity 3,379,000
----------------
$ 8,218,000
================
</TABLE>
See accompanying notes to combined financial statements
3
<PAGE>
HIGHPOINT INTERNATIONAL TELECOM, INC. AND AFFILIATES
COMBINED STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
JULY 31, 1999
-------------
<S> <C>
Revenues $5,823,000
Cost of revenues 5,768,000
-----------
Gross profit 55,000
-----------
Selling, general and
administrative expenses 4,924,000
Depreciation and amortization 1,877,000
-----------
Total expenses 6,801,000
-----------
Operating loss (6,746,000)
Interest expense (251,000)
-----------
Net loss $(6,997,000)
===========
</TABLE>
See accompanying notes to combined financial statements
4
<PAGE>
HIGHPOINT INTERNATIONAL TELECOM, INC. AND AFFILIATES
COMBINED STATEMENT OF STOCKHOLDER'S AND AFFILIATES' EQUITY
- -------------------------------------------------------------------------------
NINE MONTHS ENDED JULY 31, 1999
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------- CONTRIBUTIONS
NUMBER OF ACCUMULATED AND NET EQUITY
SHARES AMOUNT DEFICIT OF AFFILIATES TOTAL
------ ------ ------- ------------- -----
<S> <C> <C> <C> <C> <C>
Balance at November 1, 1998 1,000 $ 10,000 $ -- $ 3,473,000 $ 3,483,000
Contributions from parent -- -- -- 6,893,000 6,893,000
Net loss for the period -- -- (5,462,000) (1,535,000) (6,997,000)
-------------- ------------- --------------- --------------- -------------
Balance at July 31, 1999 1,000 $ 10,000 $ (5,462,000) $ 8,831,000 $ 3,379,000
============== ============ ================ ============ ===========
</TABLE>
See accompanying notes to combined financial statements
5
<PAGE>
HIGHPOINT INTERNATIONAL TELECOM, INC. AND AFFILIATES
COMBINED STATEMENT OF CASH FLOWS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
JULY 31, 1999
-------------
<S> <C>
Operating activities:
Net loss $ (6,997,000)
Adjustments to reconcile net loss to net
cash used by operating activities:
Bad debt expense 277,000
Depreciation and amortization 1,877,000
Changes in operating assets and liabilities:
Accounts receivable (951,000)
Accounts payable 1,383,000
Accrued liabilities 423,000
----------------
Net cash used by operating activities (3,988,000)
-----------------
Investing activities:
Purchase of property and equipment (1,411,000)
Deposits (35,000)
-----------------
Net cash used by investing activities (1,446,000)
-----------------
Financing activities:
Payments on capital lease obligations (559,000)
Contributions from parent 6,893,000
----------------
Net cash provided by financing activities 6,334,000
----------------
Net increase in cash 900,000
Cash, beginning of period --
----------------
Cash, end of period $ 900,000
================
Supplemental Cash Flow Information:
Cash paid for interest $ 251,000
================
</TABLE>
See accompanying notes to combined financial statements
6
<PAGE>
HIGHPOINT INTERNATIONAL TELECOM, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
The accompanying financial statements include the assets and
operations of Highpoint International Telecom, Inc. ("HIT") and
certain assets and operations of Highpoint Carrier Services, Inc.
("HCS") and Vitacom Corporation ("VIT") (collectively, the "Company"
or "Highpoint"). The three entities are majority owned subsidiaries of
Highpoint Telecommunications, Inc. ("HGP"), a publicly traded company
on the Canadian Venture Exchange. On October 14, 1999 substantially
all of the operating assets of the Company were transferred to iGlobe,
Inc. ("iGlobe"), a newly formed subsidiary of HGP. Effective August 1,
1999, eGlobe, Inc. ("eGlobe") assumed operational control of the
Company and on October 14, 1999 eGlobe acquired all of the issued and
outstanding common stock of iGlobe. The Company has created an
infrastructure supplying Internet Protocol ("IP") services,
particularly Voice over IP ("VoIP") throughout Latin America.
During the nine months ended July 31, 1999 the operations of
HIT were maintained as a separate entity. The operations of HCS and
VIT purchased by eGlobe were divisions within their respective
corporations and include allocations of expenses which management
believes represent a reasonable allocation of such expenses to present
the divisions on a standalone basis. These allocations consist of
salary and benefit expenses for operations personnel related to the
Space Segment Satellite operations of VIT and the telecommunications
business of HCS, depreciation expense, communications expenses and
interest expense. The financial information presented does not
necessarily reflect what the financial position and results of
operations of the Company would have been had it operated as a
standalone entity during the period presented and may not be
indicative of future results. The financial statements have been
prepared to substantially comply with the rules and regulations of the
Securities and Exchange Commission for businesses acquired.
The combined financial statements include the accounts of
HIT, HCS and VIT as described above. All material inter-company
accounts and transactions have been eliminated.
LIQUIDITY AND CAPITAL RESOURCES
Highpoint has been funded to date by HGP. The combined
financial statements are presented as a standalone, going concern
basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.
Highpoint's ability to generate sufficient revenues and ultimately
achieve profitable operations as a standalone entity is uncertain.
Ultimately, Highpoint's ability to continue as a going concern is
dependent on its ability to generate sufficient, profitable traffic on
its network infrastructure and to obtain sufficient working capital,
both of which are uncertain at this time. As such, there is
substantial doubt about Highpoint's ability to continue as a going
concern. The combined financial statements do not include any
adjustments to reflect the possible future effects on July 31, 1999
related to the
7
<PAGE>
HIGHPOINT INTERNATIONAL TELECOM, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
recoverability and classification of assets or the amounts and
classification of liabilities that may result from the possible
inability of Highpoint to continue as a going concern.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 period presented. Actual results
could differ from those estimates.
GOODWILL
Goodwill is being amortized over a three year period using
the straight line method. Total amortization expense for the nine
months ended July 31, 1999 was $35,000.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. The Company
assesses the recoverability of its property and equipment to determine
if an asset impairment has occurred using a cash flow model. No
impairments have been recorded to date. Depreciation is computed over
the estimated useful lives of three to five years using the
straight-line method.
DEPOSITS
The Company provides long-term cash deposits to certain
vendors to secure contracts for telecommunications services.
INCOME TAXES
The Company accounts for income taxes using an asset and
liability approach which requires the recognition of deferred tax
assets and liabilities for the expected future consequences of
temporary differences between the carrying amounts for financial
reporting purposes and the tax bases of assets and liabilities.
8
<PAGE>
HIGHPOINT INTERNATIONAL TELECOM, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
The Company has incurred net losses for financial reporting
and tax purposes since inception. As a result of the transfer of the
assets of the Company to iGlobe, net operating losses generated
through August 1, 1999, the effective date that control of the Company
was transferred to eGlobe, will remain with HGP.
REVENUE RECOGNITION
Revenues from telecommunications services are recognized
when the service is provided.
3. ACQUISITION OF STOCK OF IGLOBE
As discussed in Note 1 to the combined financial statement,
on October 14, 1999 eGlobe acquired all of the outstanding common
stock of iGlobe. The purchase price consisted of preferred stock of
eGlobe with a liquidation value of $9.0 million and assumed
liabilities, primarily capital lease obligations of $1.5 million.
The Series M Preferred Stock carries an annual cumulative
dividend of twenty percent, which will accrue and be paid annually or
at conversion in cash or eGlobe common stock, at the option of eGlobe,
and is convertible into common stock of eGlobe one year after the date
of closing of October 14, 1999 at the conversion price of $2.385 or
3,772,003 shares of eGlobe common stock.
Additionally, HGP received a non-voting beneficial interest
in a joint venture business currently known as IP Solutions, B.V. (The
"Carried Interest"). The Carried Interest will be equal to twenty
percent of the equity interest subscribed to or held by iGlobe in IP
Solutions B.V. at October 14, 1999, subject to certain adjustments.
The purchase price, with the exception of the Carried
Interest was paid in full at closing, however, the number of shares of
Series M Preferred Stock equal to twenty five percent of the total
value of the Preferred Stock will serve as collateral for a period of
one year following the closing for the payment of any indemnifiable
claim identified in the Stock Purchase Agreement.
The acquisition was effected under a Stock Purchase
Agreement, dated as of October 14, 1999 (the "Purchase Agreement") and
related documents.
9
<PAGE>
HIGHPOINT INTERNATIONAL TELECOM, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
4. PROPERTY AND EQUIPMENT
Property and equipment are comprised of the following:
<TABLE>
<CAPTION>
JULY 31,1999
------------
<S> <C>
Transmission equipment $ 6,617,000
Billing System 2,049,000
Leasehold Improvements 415,000
--------------
9,081,000
Accumulated depreciation (3,599,000)
--------------
Property and equipment, net $ 5,482,000
=============
</TABLE>
Total depreciation expense was $1,842,000 for the nine
months ended July 31, 1999. Transmission equipment with a cost of
approximately $1,997,000 and related accumulated amortization of
$632,000 has been pledged as collateral under capital lease
obligations (Note 5).
5. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases its facilities in Mountain View and Los
Angeles, California and Denver, Colorado under the terms of operating
leases. Future minimum lease payments under non-cancelable leases are
as follows:
<TABLE>
<CAPTION>
Years ending July 31,
---------------------
<S> <C>
2000 $ 811,000
2001 720,000
2002 89,000
2003 80,000
2004 81,000
Thereafter 377,000
-------
Total $2,158,000
==========
</TABLE>
10
<PAGE>
HIGHPOINT INTERNATIONAL TELECOM, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
In addition to the above, the leases generally contain
requirements for the payment of property taxes, maintenance and
insurance expenses. Total rent expense was $158,000, net of sublease
payments for the nine months ended July 31, 1999.
The Company subleases certain office space at its Mountain
View, California location under non-cancelable subleases. Future
sublease payments due to the Company under said subleases are as
follows:
<TABLE>
<CAPTION>
Years ending July 31,
---------------------
<S> <C>
2000 $ 524,000
2001 433,000
-------
Total $957,000
========
</TABLE>
CAPITAL LEASE OBLIGATIONS
The Company is committed under capital leases for certain
transmission equipment. These leases are for terms ranging from 1.5 to
3 years, bear interest at the rate of 14% and are collateralized by
the underlying equipment as defined in the lease. Future minimum lease
payments are as follows:
<TABLE>
<CAPTION>
Years ending July 31,
---------------------
<S> <C>
2000 $ 916,000
2001 793,000
2002 386,000
2003 19,000
--------------
Total annual lease payments 2,114,000
Amounts representing interest (328,000)
--------------
Present value of future minimum
lease payments 1,786,000
Current portion (715,000)
--------------
$ 1,071,000
==============
</TABLE>
11
<PAGE>
HIGHPOINT INTERNATIONAL TELECOM, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
TELECOMMUNICATIONS LINES
In the normal course of business, the Company enters into agreements
for the use of satellite communications and telecommunications lines
for telephone, network and internet connectivity for its customers.
Future minimum payments under such agreements are as follows:
<TABLE>
<CAPTION>
Years ending July 31,
---------------------
<S> <C> <C>
2000 $2,671,000
2001 2,826,000
2002 1,454,000
---- ---------
Total $6,951,000
==========
</TABLE>
LEGAL PROCEEDINGS
The Company is involved in certain legal proceedings that
have arisen in the normal course of business. Based on the advice of
legal counsel, management does not anticipate that these matters will
have a material effect on the Company's financial position, results of
operations or cash flows.
6. EMPLOYEE SAVINGS PLAN
The Company has a voluntary savings plan pursuant to Section
401(k) of the Internal Revenue Code, whereby eligible participants may
contribute a percentage of compensation subject to certain
limitations. The Company matches employee contributions to the extent
of 1% of the employees' contribution and has the option to make
discretionary qualified contributions to the plan. No discretionary
Company contributions were made for the nine months ended July 31,
1999.
7. ACQUISITION OF ATHENA INTERNATIONAL, LLC
Effective November 1, 1998, HGP acquired certain assets of
Athena International, LLC, via an asset purchase agreement by and
among HGP and Advantage Capital Partners II Limited Partnership and
affiliated entities. Consideration for the assets of $2,199,000
consisted of 140,144 shares of HGP common stock valued at $776,000,
cash of $624,000 and $799,000 of purchase consideration due 60 days
after the one year anniversary of the closing date. Additional
12
<PAGE>
HIGHPOINT INTERNATIONAL TELECOM, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
consideration of $200,000 became payable based on certain earn-out
targets which were not achieved. Accordingly, the purchase price does
not include the earn-out amount.
The acquisition has been accounted for using the purchase
method of accounting. The assets purchased consisted of a
telecommunications billing software system valued at $2,050,000,
equipment under capital leases of $1,997,000 and related capital lease
obligations of $1,997,000. Goodwill of $149,000 was recorded as a
result of the purchase.
HGP assigned its rights and obligations acquired as a result
of the Athena transaction to HIT.
8. RELATED PARTY TRANSACTIONS
For the nine months ended July 31, 1999, VIT sold
telecommunications services totaling $268,000 to Vitacom de Columbia
Ltda, a wholly owned subsidiary of VIT. VIT purchased $400,000 of
telecommunications services from Vitacom de Mexico SA de CV, another
wholly owned subsidiary of VIT. HIT purchased telecommunications
services totaling $160,000 from Vitacom de Mexico SA de CV, a sister
company of HIT.
9. YEAR 2000 ISSUE (UNAUDITED)
The Company could be adversely affected if its computer
systems or the computer systems its suppliers or customers use do not
properly process and calculate date related information and data from
the period surrounding and including January 1, 2000. Additionally,
this issue could impact non-computer system devices. The Company
believes that its internal systems and its software are Year 2000
compliant. However, it cannot provide assurances as to the readiness
of its suppliers or customers computer systems. At this time, because
of the complexities involved in the issue, management cannot provide
assurances that the Year 2000 issue will not have an impact on the
Company's operations.
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