SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended Commission File Number
June 30, 2000 1-10210
eGLOBE, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 13-3486421
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(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
1250 24TH STREET, NW, SUITE 725, WASHINGTON, DC 20037
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(Address of principal executive offices)
Registrant's telephone number, including area code: (202) 822-8981
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
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YES X NO
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The number of shares outstanding of each of the registrant's classes of common
stock, as of August 1, 2000 is 96,254,148 shares, all of one class of $.001 par
value common stock.
1
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EGLOBE, INC.
FORM 10-Q
QUARTER ENDED JUNE 30, 2000
TABLE OF CONTENTS
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PAGE
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PART I Item 1 Consolidated Financial Statements
Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999 3 - 4
Consolidated Statements of Operations for the three months ended June 30,
2000 and 1999 5
Consolidated Statements of Operations for the six months ended June 30,
2000 and 1999 6
Consolidated Statements of Comprehensive Loss for the three months ended
June 30, 2000 and 1999 7
Consolidated Statements of Comprehensive Loss for the six months ended June
30, 2000 and 1999 8
Consolidated Statements of Cash Flows for the six months ended June 30,
2000 and 1999 9
Notes to Consolidated Financial Statements 10 - 41
Supplemental Disclosures of Cash Flow Information 42 - 43
Item 7 Management's Discussion and Analysis of Financial Condition and Results of
Operations 44
Item 7A Quantitative and Qualitative Disclosure About Market Risk 53
PART II Item 1 Legal Proceedings 53
Item 2 Changes in Securities 53
Item 3 Defaults Upon Senior Securities 53
Item 4 Submission of Matters to a Vote of Security Holders 54
Item 5 Other Information 54
Item 6 Exhibits and Reports on Form 8-K 55
SIGNATURES
</TABLE>
2
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<CAPTION>
eGLOBE, INC.
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2000 (UNAUDITED) AND DECEMBER 31, 1999
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JUNE 30, 2000 DECEMBER 31,
(UNAUDITED) 1999
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ASSETS
CURRENT:
<S> <C> <C>
Cash and cash equivalents $ 1,050,000 $ 2,659,000
Restricted cash 53,000 158,000
Restricted short-term investments 3,042,000 1,492,000
Accounts receivable, less allowance of $5,868,000 and
$3,206,00 for doubtful accounts 15,898,000 15,142,000
Other receivables 798,000 1,406,000
Prepaid expenses 1,525,000 1,584,000
Other current assets 330,000 639,000
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TOTAL CURRENT ASSETS 22,696,000 23,080,000
PROPERTY AND EQUIPMENT,
net of accumulated depreciation and
amortization of $30,570,000 and
$24,352,000 36,838,000 42,078,000
GOODWILL, net of accumulated amortization
of $3,467,000 and $1,572,000 (Note 4) 25,370,000 24,904,000
OTHER INTANGIBLE ASSETS,
net of accumulated amortization
of $10,311,000 and $6,466,000 (Note 4) 18,221,000 21,674,000
OTHER:
Deposits 1,692,000 1,659,000
Investments (Note 5) 2,419,000 --
Other assets 149,000 400,000
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TOTAL OTHER ASSETS 4,260,000 2,059,000
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TOTAL ASSETS $ 107,385,000 $ 113,795,000
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</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
3
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<TABLE>
<CAPTION>
eGLOBE, INC.
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2000 (UNAUDITED) AND DECEMBER 31, 1999
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JUNE 30, 2000 DECEMBER 31,
(UNAUDITED) 1999
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LIABILITIES, MINORITY INTEREST, REDEEMABLE STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT:
<S> <C> <C>
Current:
Accounts payable (Note 6) $ 46,153,000 $ 41,558,000
Accrued expenses 12,982,000 10,992,000
Income taxes payable 422,000 560,000
Notes payable and current maturities of long-
term debt (Note 7) 7,743,000 7,868,000
Notes payable and current maturities of long-
term debt-related parties (Note 8) 6,281,000 4,676,000
Deferred revenue 983,000 1,331,000
Other liabilities 1,329,000 797,000
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TOTAL CURRENT LIABILITIES 75,893,000 67,782,000
ACCOUNTS PAYABLE - LONG-TERM -- 1,000,000
LONG-TERM DEBT, net of current maturities (Note 7) 2,351,000 5,194,000
LONG-TERM DEBT - RELATED PARTIES, net of current
maturities (Note 8) 9,267,000 8,301,000
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TOTAL LIABILITIES 87,511,000 82,277,000
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COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST (Note 4) -- 2,800,000
REDEEMABLE STOCK (Notes 9 and 11) 23,255,000 700,000
STOCKHOLDERS' EQUITY (DEFICIT) :
Preferred stock, all series, $.001 par value,
10,000,000 and 5,000,000 shares
authorized, 250,000 and 1,927,791 shares
outstanding 1,000 2,000
Common stock, $.001 par value, 200,000,000
shares authorized, 90,905,990 and 69,580,604
shares outstanding 91,000 70,000
Stock to be issued 1,372,000 2,624,000
Notes receivable (Note 9) (1,369,000) (1,210,000)
Additional paid-in capital 126,010,000 106,718,000
Accumulated deficit (130,327,000) (80,682,000)
Accumulated other comprehensive income 841,000 496,000
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TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (3,381,000) 28,018,000
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TOTAL LIABILITIES, MINORITY INTEREST, REDEEMABLE
STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) $ 107,385,000 $113,795,000
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</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
4
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<TABLE>
<CAPTION>
eGLOBE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED)
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THREE MONTHS THREE MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
2000 1999
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<S> <C> <C>
REVENUE (Notes 2 and 12) $29,954,000 $ 35,923,000
COST OF REVENUE 26,953,000 34,981,000
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GROSS PROFIT 3,001,000 942,000
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COSTS AND EXPENSES:
Selling, general and administrative, exclusive
of $2.5 million and $0.043 million reported below
of compensation related to stock options and acquisitions 13,780,000 7,574,000
Compensation related to stock
options (Note 9) 2,544,000 --
Deferred compensation related to
acquisitions (Note 4) -- 43,000
Depreciation and amortization 2,933,000 1,440,000
Amortization of goodwill and other intangible assets 2,864,000 1,044,000
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TOTAL COSTS AND EXPENSES 22,121,000 10,101,000
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LOSS FROM OPERATIONS (19,120,000) (9,159,000)
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OTHER INCOME (EXPENSE):
Interest expense (1,712,000) (3,214,000)
Interest income 91,000 291,000
Other income 52,000 --
Other expense (71,000) (33,000)
Loss on i1.com investment (Note 5) (580,000) --
Loss on Unitel investment (Note 5) (131,000) --
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TOTAL OTHER EXPENSE (2,351,000) (2,956,000)
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NET LOSS (21,471,000) (12,115,000)
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PREFERRED STOCK DIVIDENDS (Notes 9, 10 and 11) (6,479,000) (617,000)
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NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS $(27,950,000) $(12,732,000)
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NET LOSS PER SHARE (BASIC AND DILUTED)(Note 10) $ (0.32) $ (0.21)
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</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
5
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<TABLE>
<CAPTION>
eGLOBE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED)
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SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
2000 1999
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<S> <C> <C>
REVENUE (Notes 2 and 12) $ 65,041,000 $ 80,115,000
COST OF REVENUE 59,372,000 77,056,000
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GROSS PROFIT 5,669,000 3,059,000
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COSTS AND EXPENSES:
Selling, general and administrative, exclusive of $8.4
million, $1.4 million and $0.9 million reported below of
compensation related to stock options and acquisitions 29,257,000 13,720,000
Compensation related to stock
options (Note 9) 8,439,000 --
Deferred compensation related to
acquisitions (Note 4) 1,438,000 962,000
Depreciation and amortization 6,141,000 2,832,000
Amortization of goodwill and other intangible assets 5,740,000 1,599,000
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TOTAL COSTS AND EXPENSES 51,015,000 19,113,000
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LOSS FROM OPERATIONS (45,346,000) (16,054,000)
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OTHER INCOME (EXPENSE):
Interest expense (3,731,000) (4,083,000)
Interest income 179,000 531,000
Other income 89,000 --
Other expense (72,000)
Loss on i1.com investment (Note 5) (580,000) --
Loss on Unitel investment (Note 5) (183,000) --
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TOTAL OTHER EXPENSE (4,298,000) (3,593,000)
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NET LOSS (49,644,000) (19,647,000)
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PREFERRED STOCK DIVIDENDS (Notes 9,10 and 11) (16,703,000) (4,329,000)
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NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS $(66,347,000) $(23,976,000)
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NET LOSS PER SHARE (BASIC AND DILUTED)(Note 10) $ (0.78) $ (0.41)
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</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
6
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<TABLE>
<CAPTION>
eGLOBE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
THREE MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED)
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THREE MONTHS THREE MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
2000 1999
----------------------------------------------------
<S> <C> <C>
NET LOSS $(21,471,000) $(12,115,000)
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS 53,000 171,000
----------------------------------------------------
COMPREHENSIVE NET LOSS $ (21,418,000) $(11,944,000)
----------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
7
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<TABLE>
<CAPTION>
eGLOBE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED)
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SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
2000 1999
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<S> <C> <C>
NET LOSS $(49,644,000) $(19,647,000)
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS 345,000 262,000
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COMPREHENSIVE NET LOSS $ (49,299,000) $(19,385,000)
----------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
8
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<TABLE>
<CAPTION>
eGLOBE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED)
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SIX MONTHS SIX MONTHS
ENDED ENDED
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS JUNE 30, 2000 JUNE 30, 1999
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<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(49,644,000) $(19,647,000)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization 11,881,000 4,431,000
Provision for bad debts 3,483,000 471,000
Non-cash interest expense -- 202,000
Minority interests in loss (64,000) --
Loss on Investments 763,000 --
Issuance of options and warrants for services 1,594,000 19,000
Issuance of common stock for services 34,000 --
Deferred compensation costs related to acquisitions 1,438,000 962,000
Compensation costs related to stock options 8,439,000 --
Amortization of warrant value for services 945,000 --
Value of penalty warrants to be issued (Note 4) 650,000 --
Amortization of debt discounts 1,563,000 3,020,000
Changes in operating assets and liabilities (net of
changes from acquisitions):
Accounts receivable (4,239,000) (7,732,000)
Other receivables 608,000 (665,000)
Prepaid expenses (843,000) (359,000)
Other current assets 309,000 (759,000)
Other assets 286,000 76,000
Accounts payable 3,595,000 6,510,000
Income taxes payable (138,000) (595,000)
Accrued expenses 2,335,000 (734,000)
Deferred revenue (348,000) (100,000)
Other liabilities 532,000 333,000
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CASH USED IN OPERATING ACTIVITIES (16,821,000) (14,567,000)
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INVESTING ACTIVITIES:
Purchases of property and equipment (791,000) (10,588,000)
Purchase of intangibles (137,000) --
Net sales (purchases) of short-term investments (1,550,000) 7,717,000
Acquisition of companies, net of cash acquired (Note 4) -- (1,641,000)
(Increase) decrease in restricted cash 105,000 (2,000)
Other assets (33,000) (159,000)
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CASH USED IN INVESTING ACTIVITIES (2,406,000) (4,673,000)
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FINANCING ACTIVITIES:
Proceeds from notes payable (Note 7) -- 500,000
Proceeds from notes payable-related parties (Note 8) 692,000 7,000,000
Proceeds from issuance of preferred stock 19,525,000 10,000,000
Stock issuance costs (1,114,000) (704,000)
Proceeds from exercise of warrants (Note 9) 755,000 --
Proceeds from capital leases -- 3,749,000
Proceeds from exercise of options (Note 9) 1,912,000 --
Deferred financing and acquisition costs -- (87,000)
Payments on capital leases (754,000) (395,000)
Payments on notes payable (Note 7) (2,714,000) (230,000)
Payments on notes payable - related parties (Note 8) (684,000) (100,000)
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CASH PROVIDED BY FINANCING ACTIVITIES 17,618,000 19,733,000
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,609,000) 493,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,659,000 4,031,000
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,050,000 $4,524,000
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</TABLE>
See Note 13 for Supplemental Information to Consolidated Statements of Cash
Flows.
See accompanying summary of accounting policies and notes to consolidated
financial statements.
9
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eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
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NOTE 1 - BASIS OF PRESENTATION
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The accompanying consolidated financial statements include the accounts of
eGlobe, Inc. and its wholly owned subsidiaries ("the Company") and have been
prepared in accordance with United States generally accepted accounting
principles for interim financial information. The Company's independent auditors
have not completed their review of the accompanying consolidated financial
statements presented herein as required under Rule 10-01(d) of Regulation S-X.
Pursuant to Rule 10-01 of Regulation S-X, these consolidated financial
statements do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments considered necessary for a fair
presentation have been included consisting only of normal recurring accruals.
Operating results for the three and six months ended June 30, 2000 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2000.
The consolidated financial statements of the Company for the three and six
months ended June 30, 2000 and June 30, 1999 have been restated to give
retroactive effect to the merger with Trans Global Communications, Inc. ("Trans
Global") effective March 23, 2000, which has been accounted for using the
pooling of interests method of accounting. As a result, the financial position,
results of operations, and cash flows are presented as if the combining
companies had been consolidated for all periods presented. Trans Global is a
leading provider of international voice and data services to carriers in several
markets around the world.
It is suggested that these consolidated financial statements be read in
conjunction with the supplemental consolidated financial statements and notes
thereto included in the Company's Current Report on Form 8-K filed with the
Securities & Exchange Commission on May 22, 2000. See Note 2 for further
information.
The Company completed the following acquisitions in 1999 that were accounted for
under the purchase method of accounting. In February 1999, the Company completed
the acquisition of Telekey, Inc. ("Telekey"), a provider of card-based
telecommunications services. In June 1999, the Company, through its newly formed
subsidiary, Vogo Networks, LLC ("Vogo"), purchased substantially all of the
assets and assumed certain liabilities of Connectsoft Communications Corporation
and Connectsoft Holdings, Corp. (collectively "Connectsoft"), which developed
and continues to enhance a server based communication system that integrates
various forms of messaging, Internet and web content, personal services, and
provides telephone access to Internet content (including email and e-commerce
functions). In July 1999, the Company completed the acquisition of Swiftcall
Equipment and Services (USA) Inc., ("Swiftcall"), a telecommunications company,
and certain network operating equipment held by an affiliate of Swiftcall.
Effective August 1, 1999, the Company assumed operational control of Highpoint
International Telecom, Inc. and certain
10
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eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
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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, and the Company concurrently acquired all of the
issued and outstanding common stock of iGlobe. iGlobe possesses an
infrastructure supplying Internet Protocol ("IP") services, particularly voice
over IP, throughout Latin America. In September 1999, the Company, acting
through a newly formed subsidiary, acquired control of Oasis Reservations
Services, Inc. ("ORS"), a Miami based transaction support services and call
center to the travel industry, from its sole stockholder, Outsourced Automated
Services and Integrated Solutions, Inc. ("Oasis"). The Company and Oasis formed
eGlobe/Oasis Reservations LLC ("LLC") which is responsible for conducting ORS'
operations. The Company managed and controlled the operations of the LLC and
accordingly included the LLC in its consolidated financial statements. Effective
May 12, 2000, the Company became the sole member of the LLC. In December 1999,
the Company completed the acquisition of Coast International, Inc. ("Coast"), a
provider of enhanced long-distance interactive voice and internet services. See
Notes 4, 7, 8 and 9 for further discussion.
In December 1998, the Company acquired IDX International, Inc. ("IDX"), a
supplier of IP transmission services, principally to telecommunications
carriers, in 14 countries. Also, in December 1998, the Company acquired UCI Tele
Network, Ltd. ("UCI"), a development stage calling card business, with contracts
to provide calling card services in Cyprus and Greece. These acquisitions were
also accounted for under the purchase accounting method.
The Company invested in i1.com, an e-commerce, network transaction company that
was founded by the Company and a former IDX executive. It is accounted for as an
equity investment in the consolidated financial statements of the Company since
the Company does not have a "controlling financial interest" in i1.com. See Note
5 for further discussion.
The Company has an investment in Unitel, a company functioning as a
communications carrier of PSTN traffic including voice, data and Internet. It is
accounted for as an equity investment in the consolidated financial statements
of the Company since the Company does not have a "controlling financial
interest" in Unitel. See Note 5 for further discussion.
11
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eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
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In December 1999, the U.S Securities and Exchange Commission ("SEC") released
Staff Accounting Bulletin No. 101, " Revenue Recognition in Financial
Statements" ("SAB" 101), which clarifies the SEC's views on revenue recognition.
The Company believes its existing revenue recognition policies and procedures
are in compliance with SAB 101 and therefore, SAB 101's adoption will not have a
material impact on the Company's financial condition, results of operations or
cash flows.
In March 2000, the FASB issued Emerging Issues Task Force Issue No 00-2,
"Accounting for Web Site Development Costs" ("EITF 00-2"), which is effective
for all such costs incurred for fiscal quarters beginning after June 30, 2000.
This Issue establishes accounting and reporting standards for costs incurred to
develop a web site based on the nature of each cost. Currently, as the Company
has no web site development costs, the adoption of EITF 00-2 would have no
impact on the Company's financial condition or results of operations. To the
extent the Company begins to enter into such transactions in the future, the
Company will adopt the Issue's disclosure requirements in the quarterly and
annual financial statements for the year ending December 31, 2000.
In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation" ("FIN 44"), which is
effective July 1, 2000, except that certain conclusions in this Interpretation
which cover specific events that occur after either December 15, 1998, or
January 12, 2000 are recognized on a prospective basis from July 1, 2000. This
Interpretation clarifies the application of APB Opinion 25 for certain issues
related to stock issued to employees. The Company believes its existing stock
based compensation policies and procedures are in compliance with FIN 44 and
therefore, the adoption of FIN 44 will have no material impact on the Company's
financial condition, results of operations or cash flows.
NOTE 2 - MERGER WITH TRANS GLOBAL
--------------------------------------------------------------------------------
Pursuant to an Agreement and Plan of Merger entered into on December 16, 1999,
and effective March 23, 2000, a wholly-owned subsidiary of eGlobe merged with
and into Trans Global, with Trans Global continuing as the surviving corporation
and becoming a wholly-owned subsidiary of eGlobe (the "Merger"). The Merger
provided for the issuance of 40,000,000 shares of the eGlobe common stock in
exchange for all of the outstanding common stock of Trans Global. The Merger has
been accounted for as a pooling of interests. In addition, eGlobe issued
2,000,000 shares of its common stock into escrow to cover its potential
indemnification obligations under the Merger agreement.
12
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eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
--------------------------------------------------------------------------------
Revenue, net loss, net loss attributable to common stockholders, and net loss
per share of eGlobe and Trans Global as consolidated for the periods presented
are as follows:
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
JUNE 30,
---------------------------------------------
2000 1999
RESTATED
---------------------------------------------
Revenue:
<S> <C> <C>
eGlobe $ 12,083,000 $ 9,116,000
Trans Global 19,581,000 26,807,000
Elimination of intercompany revenue (1,710,000) --
---------------------------------------------
eGlobe, consolidated $ 29,954,000 $ 35,923,000
=============================================
Net loss:
eGlobe $ (20,106,000) $ (11,248,000)
Trans Global (1,365,000) (867,000)
---------------------------------------------
eGlobe, consolidated $ (21,471,000) $ (12,115,000)
=============================================
Net loss attributable to common stockholders:
eGlobe $ (26,585,000) $(11,865,000)
Trans Global (1,365,000) (867,000)
---------------------------------------------
eGlobe, consolidated $ (27,950,000) $(12,732,000)
=============================================
Net loss per share (basic and diluted)
As previously reported $ -- $ (0.60)
eGlobe, consolidated $ (0.32) $ (0.21)
=============================================
</TABLE>
13
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eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
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<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
----------------------------------------------
2000 1999
RESTATED
----------------------------------------------
Revenue:
<S> <C> <C>
eGlobe $ 25,840,000 $ 17,501,000
Trans Global 43,057,000 62,614,000
Elimination of intercompany revenue (3,856,000) --
----------------------------------------------
eGlobe, consolidated $ 65,041,000 $ 80,115,000
==============================================
Net loss:
eGlobe $ (46,438,000) $ (18,750,000)
Trans Global (3,206,000) (897,000)
----------------------------------------------
eGlobe, consolidated $ (49,644,000) $ (19,647,000)
==============================================
Net loss attributable to common stockholders:
eGlobe $ (63,141,000) $ (23,079,000)
Trans Global (3,206,000) (897,000)
-----------------------------------------------
eGlobe, consolidated $ (66,347,000) $ (23,976,000)
===============================================
Net loss per share (basic and diluted)
As previously reported $ -- $ (1.22)
eGlobe, consolidated $ (0.78) $ (0.41)
===============================================
</TABLE>
14
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eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
--------------------------------------------------------------------------------
NOTE 3 - MANAGEMENT'S PLAN
--------------------------------------------------------------------------------
As of June 30, 2000, the Company had a net working capital deficiency of $53.2
million. This net working capital deficiency resulted principally from a loss
from operations of $45.3 million (including deferred compensation, depreciation,
amortization and other non-cash charges which totaled $21.7 million for the six
months ended June 30, 2000). Also contributing to the working capital deficiency
were $7.7 million in notes payable and current maturities of long-term debt,
$6.3 million in notes payable and current maturities of long-term debt due to
related parties, and $61.9 million in accounts payable, accrued expenses, other
liabilities and deferred revenue. Accounts payable includes approximately $10.5
million of payables which are being renegotiated with AT&T. The current
maturities of $7.7 million consists of $3.3 million primarily related to
acquisition/merger debt and $4.4 million related to capital lease payments due
over the one year period ending June 30, 2001. The current maturities of $9.2
million due to related parties, net of unamortized discount of $2.9 million,
consists term payments of $3.9 million, net of unamortized discount of $2.9
million, due to EXTL Investors, the Company's third largest stockholder, notes
payable of $3.3 million due to an affiliate of EXTL Investors and a note payable
of $2.0 million due to an affiliate of i1.com. As disclosed in Notes 6,7 and 8
certain of these payments are I arrears on June 30,2000.
On an operating level, the Company is continuing to try to negotiate certain
contract and payment terms with an Enhanced Services customer that has a
significant outstanding balance due to the Company. The Company has recorded
significant reserves to cover this outstanding balance. The Company has not been
able to work out a resolution with this customer. The Company may have to take a
more aggressive course of action to resolve this matter and is considering all
alternatives at this time.
Thus far in 2000, the Company has met its cash requirements from (1) proceeds
from the exercise of options and warrants of $2.7 million, primarily as a result
of the improvement in the Company's stock price during the month of January 2000
and as sustained through the end of the first quarter, (2) proceeds of $0.5
million from the sale of Series N Convertible Preferred Stock ("Series N
Preferred"), (3) proceeds of $15.0 million from the sale of Series P Redeemable
Convertible Preferred Stock ("Series P Preferred") and (4) proceeds of $4.0
million from the sale of Series Q Redeemable Convertible Preferred Stock
("Series Q Preferred). These capital transactions are discussed in Notes 7 and
9.
If the Company meets its projections for reaching breakeven on an operating cash
basis during the third quarter of 2000, the Company will still have additional
capital requirements through June 2001 of up to $43.1 million. The Company will
need to fund pre-existing liabilities and note payable obligations and the
purchase of capital equipment.
15
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
--------------------------------------------------------------------------------
The Company will receive $6.0 million in proceeds from the sale of additional
shares of Series Q Preferred Stock immediately upon the effectiveness of the
registration of the common stock underlying this preferred stock. The Company
anticipates that the additional capital needed will come from a combination of
financings that could consist of debt, private equity, a public follow-on
offering, or a line of credit facility during the twelve-month period from July
2000 through June 2001. There is the possibility that the amount of financing
required could be diminished by secured equipment-based financings.
In addition to the firm commitment discussed previously, the Company is
proceeding with other financing opportunities, which have not been finalized.
The Company has a variety of opportunities in both the debt and equity markets
to raise the necessary funds, which it needs to achieve its growth plan through
the end of the quarter ended June 30, 2001.
The Company anticipates that increased sales in the international market with
higher margins will reduce its net working capital deficiency and contribute to
its funding requirements through the second quarter of 2001.
On December 14, 1999, Trans Global entered into a letter agreement with AT&T,
Trans Global's largest supplier at that time, regarding the payment of various
past due 1999 switch and circuit costs. Pursuant to that agreement, Trans Global
agreed to pay AT&T approximately $13.8 million in consecutive monthly
installments at 9% interest through January 1, 2001. The payable is secured by
certain assets of Trans Global. As of June 30, 2000, the remaining balance due
to AT&T was $10.5 million. Trans Global, as of August 11, 2000, has not paid
$5.5 million of scheduled payments that were due in April, May, and June 2000.
In addition, approximately $3.8 million of payables for current usage are in
arrears. Trans Global is currently in discussions with AT&T regarding
alternative arrangements for settlement of the outstanding obligations, and
believes that conclusion of an arrangement that is not materially adverse to the
immediate or long-term future operations of the Company, is possible. There can
be no assurance that Trans Global will be able to satisfactorily resolve this
matter. Should this not be resolved and should AT&T take action to take
possession of the assets held as security, Trans Global believes that business
will not be adversely impacted. There is no guarantee that Trans Global and
therefore the Company will not have its operations affected adversely should a
satisfactory resolution between the parties not be reached.
The Company is obligated under certain conditions to redeem the shares of Series
P Preferred Stock and Series Q Preferred Stock. See Note 11 for further
discussion.
16
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
--------------------------------------------------------------------------------
NOTE 4 - ACQUISITIONS
As discussed previously, the Company acquired IDX and UCI in December 1998 and
Telekey, Connectsoft, Swiftcall, iGlobe, ORS and Coast in 1999. The results of
operations of the acquired businesses are included in the consolidated financial
statements from the date of acquisition. These acquisitions were accounted for
using the purchase method of accounting. There are certain contingent purchase
elements in some of these acquisitions as discussed below.
IDX AND UCI
The Company may issue additional purchase consideration if IDX and UCI meet
certain defined performance objectives. The Company is currently renegotiating
UCI's original agreement and timing of the performance measurement. The Company
will determine the final goodwill amounts when the contingent purchase elements
are resolved and the contingent purchase consideration is issued. Goodwill may
materially increase when these contingencies are resolved.
At the acquisition date, the stockholders of IDX originally received preferred
stock and warrants which were ultimately convertible into common stock subject
to IDX meeting certain performance objectives. These stockholders in turn
granted preferred stock and warrants, each of which were convertible into a
maximum of 240,000 shares of the Company's common stock, to certain employees.
The stock grants were performance based and were adjusted each reporting period
(but not less than zero) for the changes in the stock price until the shares
and/or warrants (if and when) issued were converted into common stock. In
December 1999, the IDX stockholders agreed not to issue preferred stock and
warrants to the employees or other parties. In exchange, the Company agreed to
issue eGlobe options to these employees and others related to IDX. The options
have an exercise price of $1.20 and a three-year term. The options vested 75% at
March 31, 2000 and the other 25% will vest on an accelerated basis if IDX meets
its earn out or in three years if it does not. These options were granted in the
first quarter of 2000. The increase in market price of the underlying common
stock granted by the IDX stockholders to certain employees resulted in a charge
to income of $0.1 million for the three months ended June 30, 1999 and $1.3
million and $0.4 million for the six months ended June 30, 2000 and 1999,
respectively. See Note 9 for further discussion.
17
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
--------------------------------------------------------------------------------
TELEKEY
As part of the purchase consideration, stockholders of Telekey received
1,010,000 shares of Series F Preferred Stock which were converted into common
stock on January 3, 2000. In addition, under the original purchase agreement,
the stockholders were to receive at least 505,000 and up to an additional
1,010,000 shares of Series F Preferred Stock two years from the date of closing
subject to Telekey meeting certain revenue and EBITDA objectives. The value of
$979,000 for the minimum 505,000 shares of Series F Preferred Stock to be issued
was included in the purchase consideration. These stockholders in turn agreed to
grant upon conversion of the Series F Preferred Stock a total of 240,000 shares
of the Company's common stock to certain Telekey employees. Of this total,
60,000 shares were to be issued only if Telekey met certain performance
objectives. As of June 30, 2000 and 1999, the value of the underlying
non-contingent 180,000 shares of common stock granted by the Telekey
stockholders to certain employees resulted in a charge to income of $0.1 million
and $0.5 million, respectively. The stock grants were performance based and were
to be adjusted each reporting period (but not less than zero) for the changes in
the stock price until the shares were issued to the employees. As the Telekey
stockholders converted their shares of Series F Preferred Stock on January 3,
2000, no additional compensation expense will be recorded for the 120,000 shares
Issued by the Telekey stockholders at this date.
The remaining 60,000 non-contingent shares plus an additional 30,000 contingent
shares were issued to employees in May 2000 pursuant to the restructuring
agreement discussed below. A charge to income for the three and six months ended
June 30, 2000 for the incremental value of the underlying 90,000 shares of
common stock was insignificant.
In May 2000, the Company reached a final agreement with the former stockholders
of Telekey which restructured certain terms of the original purchase agreement.
This new agreement allowed the Company to integrate the Telekey operations,
(prior to this time, Telekey's operations had to be kept separate in order to
determine whether the earn-out criteria would be met) to improve the synergies
and technological advancements realized from the merger and to allow for a
change to the general management team of Telekey. The Company issued 757,500
shares of common stock, of which the value of 505,000 shares was included in the
initial purchase consideration, in return for an acceleration of the original
earn-out provisions as well as the termination dates of certain employment
agreements. The issuance of these shares represented consideration for the
earnings contingency under the original purchase agreement as such, goodwill was
increased by approximately $1.0 million for the additional 252,500 shares of
common stock.
18
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
--------------------------------------------------------------------------------
iGLOBE
The initial preliminary purchase price allocation reflected in the consolidated
financial statements as of December 31, 1999 included goodwill of $1.8 million
and acquired intangibles of $2.4 million related to a customer base, licenses
and operating agreements, a sales agreement and an assembled workforce. During
the six months ended June 30, 2000, based on further management review, $0.7
million and $0.3 million were reclassified from goodwill to intangibles and
fixed assets, respectively and $1.0 million was reclassified from fixed assets
to investments (see Note 5 for further discussion of Investment in Unitel). The
consolidated financial statements of the company as of June 30, 2000 reflect the
final allocation of the purchase price based on the completion of the management
review. On April 17, 2000, the Company renegotiated certain elements of the
iGlobe purchase agreement as discussed in Note 9.
ORS
The LLC was initially funded by contributions effected by the members under a
contribution agreement. Oasis contributed all the outstanding shares of ORS
valued at approximately $2.3 million and the Company contributed 1.5 million
shares of its common stock valued at $3.0 million on the date of issuance and
warrants to purchase additional shares of its common stock to the LLC.
The warrants are exercisable at a price of $.001 per share for the shares of
common stock as discussed below:
(a) Shares equal to the difference between $3.0 million and the value of
the Company's 1.5 million share contribution on the date that the
shares of common stock (including the shares underlying the warrants)
contributed to the LLC are registered with the SEC if the value of the
1.5 million shares on that date is less than $3.0 million;
(b) Shares equal to $100,000 of the Company's common stock for each 30-day
period beyond 90 days following the date of contribution that the
shares of the Company's common stock (including the shares underlying
the warrants) contributed to the LLC remain unregistered (as of August
20, 2000, shares equal to $800,000 are issuable upon registration under
the warrant);
(c) 204,909 shares valued at $ 2.0 million became issuable January 31,,2000
based on ORS meeting certain defined performance objectives;
19
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
--------------------------------------------------------------------------------
(d) Shares based upon (1) ORS achieving certain revenue and EBITDA targets,
and (2) the Company's share price at the date of registration of the
shares for this transaction. Under certain circumstances, these shares
may be equal to the greater of (A) 50% of the incremental revenue for
the Second Measurement Period (as defined in the agreements) over $9.0
million or (B) four times the incremental Adjusted EBITDA (as defined
in the agreements) for the Second Measurement Period over $1.0 million
provided, however, that such number of shares shall not exceed the
greater of; (i) 1,000,000 shares of the Company's common stock or (ii)
that the number of shares of the Company's common stock determined by
dividing $8.0 million by the Second Measurement Period Date Market
Value (as defined in the agreements); and provided further, that if the
basis for issuance of such shares is incremental revenue over $9.0
million then EBITDA for the Second Measurement Period must be at least
$1.0 million for the revenue between $9.0 million and $12.0 million or
at least $1.5 million for revenue above $12.0 million. In addition, the
warrant holder may receive 0.5 million shares of the Company's common
stock if the revenue for the Second Measurement Period is equal to or
greater than $37.0 million and the Adjusted EBITDA for the Second
Measurement Period is equal to or greater than $5.0 million.
On May 12, 2000, Oasis exercised its option to exchange its interest in the LLC
for the Company's common stock and warrants held by the LLC. The LLC recorded
the excess of the carrying value of the Company's securities of $5.1 million
over the current fair value of the ORS stock as additional goodwill of $2.4
million. As a result of this exchange, the Company now owns 100% of the LLC.
The remaining contingent consideration is based on ORS meeting defined levels of
performance objectives as discussed earlier and is issuable at a future
measurement date. As the contingent consideration is based on an earnings
contingency, it will be recorded as a purchase price adjustment at the time that
the contingency is resolved.
COAST
The consolidated financial statements of the Company as of June 30, 2000 reflect
the final allocation of the purchase price based on management's review and
final third party appraisals. The purchase price allocation resulted in goodwill
of $14.3 million and intangibles of $3.2 million related to the value of certain
distribution networks, certain long distance infrastructure, internally
developed software and assembled and trained workforce.
20
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
--------------------------------------------------------------------------------
NOTE 5 - INVESTMENTS
--------------------------------------------------------------------------------
INVESTMENT IN I1.COM
The Company's investment in i1.com is accounted for under the equity method.
i1.com was founded by the Company and a former IDX executive, and is a
distribution network of e-commerce applications that allows small and
medium-sized businesses to transact business over the Internet. Initially the
Company received a 75% ownership interest in i1.com in exchange for providing
i1.com access to the Company's IP-based network infrastructure. As of June 30,
2000, the Company retained a 35% ownership interest with a carrying value of
$1.4 million. The Company was also awarded 500,000 warrants at a price of $2.50
per share in exchange for the Company surrendering a technology right which
i1.com originally granted to the Company. See Note 8 for further discussion.
INVESTMENT IN UNITEL
The Company has an investment in Unitel, a Guatemalan company functioning as a
communications carrier of PSTN traffic including voice, data, and Internet. The
investment is accounted for under the equity method. As of June 30, 2000, the
carrying value of the investment is $1.0 million. See Note 4 for further
discussion.
NOTE 6 - COLLATERALIZED ACCOUNTS PAYABLE
--------------------------------------------------------------------------------
As of June 30, 2000, Trans Global has secured accounts payable with AT&T Corp.
("AT&T") for approximately $10.5 million. The agreement is collateralized by
certain fixed assets of Trans Global's with a net book value of $8.5 million at
June 30, 2000. Since April 2,2000, Trans Global has been in arrears on its
scheduled payments to AT&T and is currently in negotiations with AT&T to
restructure this payable. See Note 3 for further discussion.
21
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
--------------------------------------------------------------------------------
NOTE 7 - NOTES PAYABLE AND LONG-TERM DEBT
--------------------------------------------------------------------------------
At June 30, 2000 and December 31, 1999, notes payable and long-term debt
consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
2000 DECEMBER 31,
(UNAUDITED) 1999
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
8% unsecured promissory note for acquisition of UCI (1) $ 500,000 $ 500,000
8% mortgage note, payable monthly, including interest through March 2010, with
an April 2010 balloon payment; secured by deed of trust on the related land
and building 295,000 299,000
Promissory note of Telekey payable to a
telcommunications company (2) 75,000 454,000
Promissory note due to seller of iGlobe (3) 1,129,000 1,831,000
Promissory note due to seller of ORS (4) 395,000 451,000
Promissory note secured by certain equipment (5) 2,203,000 2,720,000
Certain promissory notes to an investor and for certain
acquisitions, repaid in January and February 2000 -- 1,057,000
Capitalized lease obligations (6) 5,497,000 5,750,000
-----------------------------------------------------------------------------------------------------------------------
Total 10,094,000 13,062,000
Less current maturities 7,743,000 7,868,000
-----------------------------------------------------------------------------------------------------------------------
Total notes payable and long-term debt $2,351,000 $5,194,000
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) In connection with the UCI acquisition, the Company issued a $0.5 million
unsecured promissory note with8% interest payable monthly due no later
than September 30, 2000.
(2) Telekey has an outstanding promissory note issued in the original amount
of $454,000 bearing interest, payable quarterly at 10% with principal due
on December 31, 2000. The note is secured by certain assets of the
previous stockholders of Telekey.
(3) In connection with the acquisition of iGlobe, HGP financed working capital
for iGlobe through the closing date for which the Company issued an
unsecured note payable for approximately $1.8 million which was subject to
adjustment. The outstanding past due balance bears interest at 15% per
annum. As of June 30, 2000, the Company has repaid $713,000 of the note.
The remaining balance of the note was due on June 1, 2000, and the parties
are currently negotiating payment terms on the remaining balance.
(4) The note payable to Oasis bears interest at 7% and principal and interest
are due in six equal quarterly installments beginning November 30, 1999.
The Company guaranteed ORS' obligations under this loan and granted the
seller a security interest in its ownership interest in the LLC. As of June
30, 2000, $75,000 in debt payments was in arrears.
22
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
--------------------------------------------------------------------------------
(5) Effective June 11, 1999, Trans Global entered into a financing agreement
for a total of $3.3 million secured by certain switch hardware and
software. The note is payable in 36 consecutive monthly installments of
approximately $105,000 (principal and interest) at a fixed interest rate
of 8.88%.
(6) The Company is committed under various capital leases for certain property
and equipment. These leases are for terms of 18 months to 36 months and
bear interest ranging from 8.5% to 28.0%. Accumulated depreciation on
equipment held under capital leases was $1,936,000 and $1,395,000 at June
30, 2000 and December 31, 1999, respectively. As of June 30, 2000,
$466,000 in debt payments was in arrears.
NOTE 8 - NOTES PAYABLE AND LONG-TERM DEBT - RELATED PARTIES
--------------------------------------------------------------------------------
As of June 30, 2000 and December 31, 1999, notes payable and long-term debt with
related parties consisted of the following:
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
June 30,
2000 December 31,
( unaudited) 1999
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accounts receivable revolving credit note (1) $ 1,750,000 $ 1,058,000
Secured notes, net of unamortized discount of
$5,702,000 and $7,128,000 (1) 8,548,000 7,806,000
Promissory note of Coast (2) 3,000,000 3,000,000
Promissory note of Coast (2) 250,000 250,000
Promissory note to i1.com (3) 2,000,000 --
Promissory note payable to a stockholder, net of
unamortized discount of $0 and $137,000 (4) -- 863,000
-----------------------------------------------------------------------------------------------------------------------------
Total, net of unamortized discount of $ 5,702,000 and
$7,265,000 15,548,000 12,977,000
Less current maturities, net of unamortized discount of
$2,851,000 and $2,988,000 6,281,000 4,676,000
-----------------------------------------------------------------------------------------------------------------------------
Total long-term debt, net of unamortized discount
of $2,851,000 and $4,277,000 $ 9,267,000 $8,301,000
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
--------------------------------------------------------------------------------
(1) In April 1999, the Company entered into a loan and note purchase
agreement with EXTL Investors ("EXTL"), which together with its
affiliates was the Company's largest stockholder at the time. Under the
terms of this Loan and Note Purchase Agreement ("Agreement"), in April
1999, the Company initially received an unsecured loan of $7.0 million
bearing interest at 8%. As additional consideration, EXTL received
500,000 warrants valued at approximately $2.9 million.
Under the Agreement, in July 1999, EXTL purchased $20.0 million of 5%
Secured Notes ("Notes") following approval by the Company's
stockholders. The initial $7.0 million note was repaid from the
proceeds of the Notes along with accrued interest. As additional
consideration for the Notes, EXTL was granted warrants vesting over two
years expiring in three years, to purchase 5,000,000 shares of the
Company's common stock at an exercise price of $1.00 per share. The
value assigned such warrants of approximately $10.7 million was
recorded as a discount to the Notes and is being amortized over the
term of the Notes as additional interest expense.
Principal and interest on the Notes are payable over three years in
monthly installments commencing August 1, 1999 with a balloon payment
for the remaining balance due on the earlier to occur of (i) June 30,
2002, or (ii) the date of closing of an offering ("Qualified Offering")
by the Company of debt or equity securities, in a single transaction or
series of related transactions, from which the Company receives net
proceeds of $100.0 million or more. Alternatively, the Company may
elect to pay up to 50% of the original principal amount of the Notes in
shares of the Company's common stock, at its option, if: (i) the
closing price of the Company's common stock is $8.00 or more per share
for more than 15 consecutive trading days; (ii) the Company completes a
public offering of equity securities at a price of at least $5.00 per
share and with proceeds of at least $30.0 million; or (iii) the Company
completes an offering of securities with proceeds in excess of $100.0
million.
Also, under the Agreement, EXTL agreed to make advances to the Company
under a 5% Accounts Receivable Revolving Credit Note ("Revolver") for
an amount up to the lesser of (1) 50% of eligible receivables (as
defined) or (2) the aggregate amount of principal that has been repaid
to date ($1,750,000 as of June 30, 2000). Interest payments are due
monthly with the unpaid principal and interest on the Revolver due on
the earliest to occur of (i) June 30, 2002, or (ii) the date of closing
of a Qualified Offering as defined above.
In August 1999, the Company and EXTL agreed to exchange $4.0 million of
the Notes for 40 shares of Series J Cumulative Convertible Preferred
Stock ("Series J Preferred"). The excess of the fair value of the
Series J Preferred Stock of $4.0 million over the carrying value of the
Notes (net of the unamortized discount of approximately $1.9 million)
of $2.1 million was recorded as an extraordinary loss of $2.1 million
on early retirement of debt. As a result of this agreement, the $4.0
million is not subject to redraw under the Revolver.
These Notes and Revolver are secured by substantially all of the
Company's existing unencumbered operating assets and the Company's
accounts receivable although the Company can pursue certain additional
permitted financing, including equipment and facilities financing, for
certain capital expenditures. The Agreement contains certain debt
covenants and restrictions by and on the Company, as defined. The
Company was in arrears on scheduled principal payments under this debt
facility as of June 30, 2000 for which it received a waiver from EXTL
through July 1, 2001. In addition, the
24
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
--------------------------------------------------------------------------------
Company was in default under certain of its other debt agreements as a
result of non-payments of scheduled payments at June 30, 2000 and
obtained a waiver through July 1, , 2000 from EXTL.
In April 2000, the Agreement was amended and EXTL consented to the
Company's (1) assumption of the Coast notes payable, (2) guarantee of
these Coast notes and (3) the granting of a security interest in the
assets currently securing the Notes as well as the Coast assets to the
Coast note holder.
(2) Coast has two outstanding unsecured promissory notes with an affiliate
of EXTL for $3.0 million and $250,000, bearing interest at an 11% rate.
Interest on both notes is payable monthly with the principal due July
1, 2000 and November 29, 2000, respectively. In April 2000, the
agreement was amended and the note holder consented to permit Coast to
guarantee the EXTL Notes and Revolver and to secure such guarantee, and
revise the debt covenants to be consistent with those in the EXTL
Notes. The Company agreed to guarantee these notes and granted a
security interest in the assets securing the EXTL Notes as well as the
Coast assets to the Coast note holder. The Company obtained a waiver
from EXTL through July 1, 2000 for the $3.3 million debt payments in
arrears as of June 30, 2000 see (1) above.
(3) The Company has an outstanding 6% unsecured note with affiliate i1.com
for $2.0 million, which matures on February 1, 2001. The note was used
to purchase 800,000 shares of i1.com's Class B stock. See Note 5 for
further discussion of this investment.
(4) The Company had an outstanding 14% unsecured $1.0 million note with an
existing stockholder. The lender had the option to exchange the
principal of the note (up to a maximum amount of $750,000) for: (1)
shares of common stock of the Company at a price per share of $1.56 and
(2) warrants to purchase shares of common stock of the Company at a
price of $1.00 (60,000 shares per $250,000 of debt exchanged). On April
17, 2000, this note was exchanged for 543,270 shares of common stock
and warrants to purchase 180,000 shares of common stock, with an
exercise price of $1.00 per share. The additional $250,000 of loan
principal converted at a rate of $4.00 per share, the closing price of
the Company's common stock on the date of the transaction. On July 19,
2000, the Company issued an additional 37,500 shares of common stock to
reflect an agreed adjustment to the original conversion price for the
$250,000 of the additional loan principal converted to stock. The value
of these shares of 37,500 was recorded as additional interest expense
in 2000.
NOTE 9 - STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------
PREFERRED STOCK
The following is a summary of the Company's series of Preferred Stock and the
amounts authorized and outstanding as of June 30, 2000 and December 31, 1999.
See Note 11 for further discussion of redeemable preferred stock.
8% Series D Cumulative Convertible Preferred Stock, 0 and 125 shares authorized,
0 and 35 shares, respectively, issued and outstanding ($3.5 million aggregate
liquidation preference) (converted in January 2000 into 2,537,500 shares of
common stock, including payment of dividends) (Series eliminated in February
2000).
25
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
--------------------------------------------------------------------------------
8% Series E Cumulative Convertible Redeemable Preferred Stock, 125 shares
authorized, 0 and 50 shares, respectively, issued and outstanding (converted on
January 31, 2000 into 2,352,941 shares of common stock).
Series F Convertible Preferred Stock, 2,020,000 shares authorized, 0 and
1,010,000 shares, respectively, issued and outstanding (converted on January 3,
2000 into 1,209,584 shares of common stock) (Series eliminated in July 2000)
(See Note 4).
Series H Convertible Preferred Stock, 0 and 500,000 shares authorized, 0 and
500,000 shares, respectively, issued and outstanding (converted on January 31,
2000 into 3,262,500 shares of common stock) (Series eliminated in February
2000).
Series I Convertible Optional Redemption Preferred Stock, 400,000 shares
authorized, 250,000 and 400,000 shares, respectively, issued and outstanding
(150,000 shares plus the 8% premium converted on February 14, 2000 into 166,304
shares of common stock) (Series eliminated in July 2000).
5% Series J Cumulative Convertible Preferred Stock, 40 shares authorized, 0 and
40 shares, respectively, issued and outstanding ($4.0 million aggregate
liquidation preference) (converted on January 31, 2000 into 2,564,102 shares of
common stock).
5% Series K Cumulative Convertible Preferred Stock, 0 and 30 shares authorized,
0 and 30 shares, respectively, issued and outstanding ($3.0 million aggregate
liquidation preference) (converted on January 31, 2000 into 1,923,077 shares of
common stock) (Series eliminated in February 2000).
20% Series M Convertible Preferred Stock, 1 share authorized, 0 and 1 share,
respectively, issued and outstanding ($9.0 million aggregate liquidation
preference) (converted on April 17, 2000 into 3,773,584 shares of common stock)
(Series eliminated in July 2000).
8% Series N Cumulative Convertible Preferred Stock, 0 and 20,000 shares
authorized, 0 and 1,535 shares, respectively, issued and outstanding ($1.5
million liquidation preference) (converted during January 2000 into 530,656
shares of common stock) (Series eliminated in February 2000).
Series O Convertible Preferred Stock, 16,100 shares authorized, 0 and 16,100
shares, respectively, issued and outstanding ($16.0 million aggregate
liquidation preference) (converted on April 30, 2000 into 3,220,000 shares of
common stock).
26
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
--------------------------------------------------------------------------------
The following is a detailed discussion of certain series of preferred stock
outstanding during the six months ended June 30, 2000.
SERIES I CONVERTIBLE PREFERRED STOCK
On February 14, 2000, 150,000 shares of the Series I Preferred Stock plus the 8%
accrued premium automatically converted into 166,304 shares of common stock
pursuant to the terms of the stock agreement.
The Company had an option to redeem the remaining 250,000 shares of Series I
Preferred Stock prior to July 17, 2000 at a price of $10.00 per share plus 8% of
the value of Series I Preferred Stock per annum from December 2, 1998 through
the date of redemption for cash, common stock or a combination of the two. Any
Series I Preferred Stock not redeemed by July 17, 2000 as discussed above
automatically converts into common stock based on a conversion price of $10.00
per share plus 8% per annum of the value of the Series I Preferred Stock from
December 2, 1998 through the date of conversion divided by the greater of the
average closing price of common stock over the 15 days immediately prior to
conversion or $2.00 up to a maximum (considering the shares issued in February
2000) of 2.4 million shares of common stock. The Company made a written election
in August 1999 to pay the 8% premium in shares of common stock upon redemption
or conversion.
On July 17, 2000, the remaining 250,000 shares of Series I Preferred Stock
plus the 8% accrued premium automatically converted into 938,210 shares of
common stock.
SERIES M CONVERTIBLE PREFERRED STOCK
The share of Series M Preferred Stock carried an annual cumulative dividend of
20% which would accrue and be payable annually or at conversion in cash or
shares of common stock, at the option of the Company. The above market dividend
resulted in a premium of $643,000 which was being amortized as a deemed
preferred stock dividend over the one-year period from the issuance date. The
Series M Preferred Stock was convertible, at the option of the holder, one year
after the issue date at a conversion price of $2.385. The Company recorded a
dividend on the Series M Preferred Stock of approximately $1.4 million for the
beneficial conversion feature based on the excess of the common stock closing
price on the effective date of the acquisition over the conversion price. The
dividend was being amortized as a deemed preferred dividend over the one-year
period from the date of issuance.
27
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
--------------------------------------------------------------------------------
On April 17, 2000, the Company and HGP entered into a renegotiation
agreement which is summarized as follows:
(1) The one share of Series M Preferred Stock was converted into
3,773,584 shares of common stock and HGP waived all rights to
accrued Series M Preferred Stock dividends. The $5.5 million
difference between the fair value of the common stock issued and the
carrying value of the Series M Preferred Stock (net of any
unamortized premium or discount and the accrued Series M dividends
that were waived) was recorded as a dividend in April 2000. The
dividend amount is being reflected in the Company's statement of
operations for the six months ended June 30, 2000 as an increase in
the net loss attributable to common stockholders.
HGP has agreed in the event it wishes to sell all or part of the
Company's common stock, it will notify the Company ("Revelant Date")
at least 30 days prior to the sale. The Company shall have the
right, by notice to the HGP, to repurchase or place with a third
party the stock proposed to be sold at a price equal to (i) 20% less
than the average closing price of the Company's common stock over
the ten trading days prior to the Relevant Date, if such average is
$8 or less; (ii) 15% less than the average closing price of the
Company's common stock over the ten trading days prior to the
Relevant Date, if such price is $8.00 or more but less than $14.00;
and (iii) 10% less than the average closing price of the Company's
common stock over the ten trading days prior to the Relevant Date,
if such average price is $14.00 or more. If the Company does not
exercise its repurchase rights, HGP is free to sell the stock,
provided it agrees to use reasonable efforts to avoid events
significantly and adversely affecting the market price of the
Company's common stock. This repurchase agreement expires October
31, 2000;
(2) The Company agreed to file a registration statement to register the
3,773,584 shares of common stock prior to May 31, 2000. If the
registration statement is not filed by May 31, 2000, the Company
agreed to pay a penalty of $40,000 for each 30-day period that such
registration statement has not been filed.
(3) The Company agreed to pay the amounts in arrears under the note owed
in connection with the acquisition prior to June 1, 2000. (See Note
7 for discussion of note)
28
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
-------------------------------------------------------------------------------
SERIES N CUMULATIVE CONVERTIBLE PREFERRED STOCK
During January 2000, the shares of Series N Preferred Stock outstanding at
December 31, 1999 were converted into 375,262 shares of common stock.
In January 2000, the Company sold an additional 525 shares of Series N Preferred
Stock and warrants to purchase 42,457 shares of common stock for proceeds of
$0.5 million. These shares of Series N Preferred Stock were converted, at the
holders' option, into 155,394 shares of the Company's common stock at conversion
prices between $3.37 and $3.51. The warrants are exercisable one year from
issuance and expire three years from issuance with an exercise price of $7.50
per share. In addition, the holders may elect to make a cash-less exercise. The
values of the warrants totaling $157,000 were recorded as dividends at the
issuance dates because the Series N Preferred Stock was immediately convertible.
In February 2000, the Company issued warrants to a certain Series N Preferred
stockholder to purchase 200,000 shares of the Company's common stock at a price
per share equal to $7.50. The warrants are exercisable in whole or in part at
any time beginning on the date that is one year after the date of issuance until
the third anniversary of the date of issuance. These warrants were issued due to
a delay in registering shares of the Company's common stock, accordingly, the
value of these warrants of $1.6 million was included in selling, general and
administrative expense for the six months ended June 30, 2000.
SERIES O CONVERTIBLE PREFERRED STOCK
In December 1999, the Company issued 16,100 shares of Series O Preferred Stock
in connection with the acquisition of Coast. See Note 4 for further discussion.
The estimated value of the Series O Preferred Stock of $13.4 million was based
upon a third party appraisal. The Series O Preferred Stock carried an annual
dividend of 10% and all dividends that would accrue through November 30, 2001 on
each share of Series O Preferred Stock were payable in full upon conversion of
such shares. The final appraisal included a present value of $2.5 million for
dividends through November 30, 2001. The difference between the undiscounted
value of the dividends and $2.5 million was being accrued as a dividend over the
period from the issuance date to the date that the Series O Preferred Stock
could first be converted by the holder.
29
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
--------------------------------------------------------------------------------
The shares of Series O Preferred Stock had a liquidation value of $16.1 million
and were convertible, at the holder's option, into a maximum 3,220,000 shares of
common stock at any time after the later of (a) one year after the date of
issuance and (b) the date the Company had received stockholder approval for such
conversion (received March 23, 2000) and the applicable Hart-Scott-Rodino
waiting period has expired or terminated (the "Clearance Date"), at a conversion
price equal to $5.00. The shares of Series O Preferred Stock automatically
convert into shares of common stock, on the occurrence of certain events
including the first date as of which the last reported sales price of the
Company's common stock on Nasdaq is $6.00 or more for any 15 consecutive trading
days during any period in which Series O Preferred Stock was outstanding.
On January 26, 2000, the closing sales price of the Company's common stock was
$6.00 or more for 15 consecutive trading days and accordingly, on the Clearance
Date, April 30, 2000, the outstanding Series O Preferred Stock converted into
3,220,000 shares of common stock. On this date the remaining unamortized
dividend of $0.4 million was recorded.
COMMON STOCK
During the six months ended June 30, 2000, Series D Preferred Stock, Series E
Preferred Stock, Series F Preferred Stock, Series H Preferred Stock, 150,000
shares plus the 8% value Series I Preferred Stock, Series J Preferred Stock,
Series K Preferred Stock, Series N Preferred Stock and Series O Preferred Stock
converted into shares of common stock. See above discussion.
Upon the execution of the Coast merger agreement, one of the Coast stockholders
signed an employment agreement with the Company. Under a side letter to the
employment agreement, the Company was obligated to repurchase the 247,213 shares
of common stock issued to this employee in the Coast acquisition for $700,000
under certain conditions. Accordingly, the redemption value of $700,000 for
these shares was reflected as Redeemable Common Stock at December 31, 1999. In
January 2000, this employee waived the redemption feature and this amount was
reclassified to Stockholders' Equity.
In December 1999, the Company entered into a promissory note with a bank, as
amended on February 1, 2000, for a principal amount of $14.0 million. In
connection with the note agreement, a security and pledge agreement was signed
whereby the Company assigned all of its rights to 4,961,000 shares of eGlobe
common stock to the lender. However, the lender failed to fund the note on a
timely basis and in March 2000,
30
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
--------------------------------------------------------------------------------
the Company advised the lender that they were terminating the agreement and
demanded the lender return eGlobe's stock certificates. The lender returned the
certificates on April 17, 2000.
On April 17, 2000, an existing stockholder exchanged his loan of $1,000,000 for
543,270 shares of the Company's common stock and warrants to purchase 180,000
shares of common stock. See Note 8 for further discussion.
Also on April 17, 2000, the one share of Series M Preferred Stock was converted
into 3,773,584 shares of common stock and the holder waived all rights to Series
M dividends. The $5.5 million difference between the fair value of common stock
issued and the carrying value of the Series M Preferred Stock (net of any
unamortized premium or discount and the accrued dividends that were waived) was
recorded as a dividend in April 2000. See Series M Preferred Stock above.
On May 12, 2000 Oasis exchanged its interest in the LLC for 1,500,000 shares of
the Company's common stock and warrants to purchase 204,909 shares of common
stock held by the LLC. See Note 4 for further discussion.
In May 2000, the Company issued 757,500 shares of the Company's common stock as
a result of the Company's final agreement with the former stockholders of
Telekey to restructure certain elements of the original purchase agreement. See
Note 4 for further discussion.
During the six months ended June 30, 2000, the Company received proceeds of
approximately $1.9 million from the exercise of options to acquire 763,015
shares of common stock.
During the six months ended June 30, 2000, the Company received proceeds of
approximately $0.8 million from the exercise of warrants to acquire 704,909
shares of common stock. In addition, there was a cash-less exercise of warrants
to purchase 306,667 shares of common stock for which 184,218 shares were issued.
31
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
--------------------------------------------------------------------------------
The Company loaned certain of its executive officers money in connection with
their exercise of non-qualified stock options in December 1999. These options
were not granted under the Employee Stock Option and Appreciation Rights Plan
(the "Employee Plan") discussed below. The notes receivable of $1,210,000 are
full recourse promissory notes bearing interest at 6% and are collateralized by
the 430,128 shares of stock issued upon exercise of the stock options. Interest
is payable quarterly in arrears and principal is due the earlier of (a) for
$177,000 of the notes December 16, 2003 and for $1,033,000 of the notes December
16, 2004 or (b) the date that is 90 days after the date that the employee's
employment terminates, unless such termination occurs other than "for cause" (as
defined). In June 2000, pursuant to a termination agreement, a certain
employee's due date was extended to 120 days after the date of employment was
terminated. The employees also agreed to promptly redeem the outstanding note
balances upon the sale of the underlying stock. The notes receivable are shown
in the consolidated balance sheet as a reduction to stockholders' equity.
On January 1, 2000, the Company loaned an executive of the Company money in
connection with the executive's purchase of 36,000 shares of common stock. The
note receivable of $159,000 is a full recourse promissory note bearing interest
at 8% and is collateralized by the 36,000 shares of stock issued. Interest in
arrears and principal are due the earlier of (a) January 1, 2004 or (b) the date
that is 90 days after the date that the employee's employment terminates, unless
such termination occurs other than "for cause" (as defined).
OPTIONS
As of December 31, 1999, options outstanding under the Employee Plan exceeded
the shares available for grant by 1,995,468 shares. The Board of Directors
granted these options to certain executive officers and directors subject to
stockholder approval of the increase in the number of shares available under the
Employee Plan. The stockholders approved the increase of the number of shares
available under the Employee Plan from 3,250,000 to 7,000,000 shares on March
23, 2000. During the period from January 1, 2000 through March 23, 2000, an
additional 567,070 options were granted that exceeded the shares available under
the Employee Plan. This amount excludes the 532,163 options granted to certain
IDX employees and others as discussed below. The excess of the market price of
$9.94 on March 23, 2000 (stockholder approval date) and the option exercise
price for these options was $15.2 million and is being recorded as compensation
expense over the vesting period of the options. For the three and six months
ended June 30, 2000, $1.9 million and $6.1 million, respectively has been
recorded as compensation expense.
32
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
--------------------------------------------------------------------------------
As discussed in Note 4, the Company granted 532,163 options on January 7, 2000
to certain IDX employees and others. These options exceeded the shares available
for grant under the Employee Plan. The excess of (1) the excess of the market
price of the Company's common stock on March 23, 2000 over the exercise price of
the options granted to current IDX employees over (2) the carrying value as of
March 23, 2000 of the original grants to these employees, was $1.2 million.
This amount is being recorded as compensation expense over the vesting period of
the options and $0.3 and $0.9 million was recorded for the three and six months
ended June 30, 2000, respectively. The 244,673 options granted to non-employees
were valued using the Black Scholes option-pricing model. The $1.1 million
excess value of the fair value of these options over the carrying value of the
original grants was recorded as compensation expense for the six months ended
June 30, 2000.
In the six months ended June 30, 2000, pursuant to a termination agreement, the
Company accelerated the vesting of certain options issued to an employee. The
intrinsic value of these options on this date of $0.3 million was recorded as
compensation expense for the three and six months ended June 30, 2000.
NOTE 10 - EARNINGS (LOSS) PER SHARE
--------------------------------------------------------------------------------
Earnings (loss) per share are calculated in accordance with SFAS No. 128,
"Earnings Per Share". The net loss of $28.0 million and $12.7 million
attributable to common stockholders for the three months ended June 30, 2000 and
1999 includes preferred stock dividends of $6.5 million and $0.6 million,
respectively. The net loss of $66.3 million and $24.0 million attributable to
common stockholders for the six months ended June 30, 2000 and 1999 includes
preferred stock dividends of $16.7 million and $4.3 million, respectively. The
weighted average shares outstanding for calculating basic earnings (loss) per
share were 87,888,376 and 59,913,449 for the three months ended June 30, 2000
and 1999, respectively. The weighted average shares outstanding for calculating
basic earnings (loss) per share were 84,596,873 and 58,904,001 for the six
months ended June 30, 2000 and 1999, respectively. Common stock options and
warrants of 5,735,114 and 8,175,514 outstanding at June 30, 2000 and 2,106,083
and 3,115,763 outstanding at June 30,1999 were not included in diluted earnings
(loss) per share as the effect was antidilutive due to the Company recording a
loss in the periods presented. Contingent warrants of 1,162,500 and 2,500,000
were not included in diluted earnings (loss) per share for the six months ended
June 30, 2000 and 1999 as conditions for inclusion had not been met.
33
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
--------------------------------------------------------------------------------
In addition, convertible preferred stock, stock to be issued, and debt
convertible into 7.7 million and 12.0 million shares of common stock for the
three and six months ended June 30, 2000 and 1999, respectively, were not
included in diluted earnings (loss) per share due to the losses for the
respective periods.
The shares of common stock held in escrow to cover eGlobe's potential
indemnification obligations under the Trans Global merger agreement, are not
included in the computation of basic and diluted loss per share.
The following table lists preferred dividends by preferred stock series for the
three months ended June 30, 2000 and 1999.
Three Three
Preferred Stock Months Ended Months Ended
Series June 30, 2000 June 30, 1999
------------------------------------------------------------------------------
E $ -- $ 595,000
I 50,000 22,000
M 5,658,000 --
O 458,000 --
P 254,000 --
Q 59,000 --
------------------------------------------------------------------------------
TOTAL $ 6,479,000 $ 617,000
------------------------------------------------------------------------------
The following table lists preferred dividends by preferred stock series for the
six months ended June 30, 2000 and 1999.
Six Six
Preferred Stock Months Ended Months Ended
Series June 30, 2000 June 30, 1999
------------------------------------------------------------------------------
C $ $ 2,215,000
--
D -- 1,497,000
E 33,000 595,000
I 327,000 22,000
J 17,000 --
K 13,000 --
M 6,292,000 --
N 571,000 --
O 643,000 --
P 6,889,000 --
Q 1,918,000 --
------------------------------------------------------------------------------
TOTAL $ 16,703,000 $ 4,329,000
------------------------------------------------------------------------------
34
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
--------------------------------------------------------------------------------
NOTE 11- REDEEMABLE CONVERTIBLE PREFERRED STOCK
--------------------------------------------------------------------------------
The following is a summary of the Company's series of redeemable
preferred stock and the amounts authorized and outstanding as of June
30, 2000 and December 31, 1999.
Series P Redeemable Convertible Preferred Stock, 15,000 and 0 shares
authorized, 15,000 and 0 shares, respectively, issued and outstanding
($15.0 million plus 5% per annum aggregate liquidation preference).
Series Q Redeemable Convertible Preferred Stock, 10,000 and 0 shares
authorized, 4,000 and 0 shares, respectively, issued and outstanding
($4.0 million plus 5% per annum aggregate liquidation preference).
<TABLE>
<CAPTION>
June 30, 2000
(unaudited) December 31, 1999
-------------------------------------------------
<S> <C> <C>
Series P Convertible Preferred Stock $ 18,385,000 $ --
Series Q Convertible Preferred Stock 4,870,000 --
-------------------------------------------------
Total $ 23,255,000 $ --
=================================================
</TABLE>
Following is a detailed discussion of each series of redeemable convertible
preferred stock outstanding at June 30, 2000.
SERIES P CONVERTIBLE PREFERRED STOCK
On January 27, 2000, the Company issued 15,000 shares of Series P Redeemable
Convertible Preferred Stock ("Series P Preferred Stock") and warrants to
purchase 375,000 shares of common stock with an exercise price of $12.04 per
share for proceeds of $15.0 million to RGC International Investors, LDC ("RGC").
The Series P Preferred Stock is classified as redeemable stock on the balance
sheet at the redemption value. The shares of Series P Preferred Stock carry an
effective annual yield of 5% (payable in kind at the time of conversion) and are
convertible, at the holder's option, into shares of common stock. The shares of
Series P Preferred Stock will automatically be converted into shares of common
stock on January 26, 2003, subject to delay for specified events. The conversion
price for the Series P Preferred Stock was $12.04 until April 26, 2000, and
thereafter is equal to the lesser of: (i) the average closing price of the
Company's common stock on Nasdaq for any five consecutive trading days during
the 22 trading days prior to conversion, or (ii) $12.04. The Company can force a
conversion of the Series P Preferred Stock on any trading day following a period
in which the closing bid price of the Company's common stock has been greater
than $24.08 for a period of at least 35 trading days after the earlier of (1)
the first anniversary of the date the common stock issuable upon conversion of
the Series P Preferred Stock and warrants are
35
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
--------------------------------------------------------------------------------
registered for resale, or (2) the completion of a firm commitment underwritten
public offering with gross proceeds to the Company of at least $45.0 million
provided that shares issuable upon conversion and warrants have been registered
for resale for at least 45 days.
The shares of Series P Preferred Stock are convertible into a maximum of
5,151,871 shares of common stock. This maximum share amount is subject to
increase if the average closing bid prices of the Company's common stock for the
20 trading days ending on the later of June 30, 2000 and the 60th calendar day
after the common stock issuable upon conversion of the Series P Preferred Stock
and warrants is registered is less than $9.375, provided that under no
circumstances will the Series P Preferred Stock (together with the Series Q
Preferred Stock and related warrants) be convertible into more than 7,157,063
shares of the Company's common stock unless we obtain stockholder approval of
the issuance of more shares. In addition, no holder may convert the Series P
Preferred Stock or exercise the warrants it owns for any shares of common stock
that would cause it to own following such conversion or exercise in excess of
4.9% of the shares of the Company's common stock then outstanding.
Except in the event of a firm commitment underwritten public offering of
eGlobe's securities, the issuance of securities in connection with a merger,
acquisition or purchase of assets or a sale of up $15.0 million of common stock
to a specified investor, the Company may not obtain any additional equity
financing without the Series P Preferred holder's consent for a period of 120
days following the date the common stock issuable upon conversion of the Series
P Preferred Stock and warrants is registered for resale. The holder also has a
right of first offer to provide any additional equity financing that the Company
needs until the first anniversary of such registration.
The Company may be required to redeem the Series P Preferred Stock in the
following circumstances:
(a) if the Company fails to perform specified obligations under the
securities purchase agreement or related agreements;
(b) if the Company or any of its subsidiaries make an assignment for the
benefit of creditors or becomes involved in bankruptcy, insolvency,
reorganization or liquidation proceedings;
(c) if the Company merges out of existence without the surviving company
assuming the obligations relating to the Series P Preferred Stock;
36
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
--------------------------------------------------------------------------------
(d) if the Company's common stock is no longer listed on the Nasdaq
National Market, the Nasdaq SmallCap Market, the NYSE or the AMEX;
(e) if the Series P Preferred Stock is no longer convertible into common
stock because it would result in an aggregate issuance of more than
5,151,871 shares of common stock, as such number may be adjusted, and
the Company has not waived such limit or obtained stockholder approval
of a higher limit; or
(f) if, assuming the criteria are met for issuance of more than 5,151,871
shares, the Series P Preferred Stock is no longer convertible into
common stock because it would result in an aggregate issuance of more
than 7,157,063 shares of the Company's common stock and the Company has
not obtained stockholder approval of a higher limit.
If the Series P Preferred Stock is redeemed under situations (a), (b), (c) or
(d) above, the redemption value is equal to the greater of (a) 120% multiplied
by the sum of (i) the stated value ($1,000 per share) plus (ii) 5% per annum
plus (iii) any penalties in arrears (as defined in the agreement) and (b) the
sum of (i) the stated value plus (ii) 5% per annum, divided by the then
effective conversion rate (as defined above) multiplied by the highest closing
price for the common stock during the period from the date of the first
occurrence of the mandatory redemption event until one day prior to the
mandatory redemption date.
If the Series P Preferred Stock is redeemed under situation (e) and (f) above,
the redemption value is equal to $1,000 per share multiplied by 5% per annum.
On July 15, 2000, the Company failed to register the shares of common stock
issuable upon conversion of the Series P Preferred Stock and associated warrants
with the SEC, however the holder of the Series P Preferred Stock has advised the
Company in writing that it has no present intention to exercise its right to
demand redemption described in (a) above, so long as the common stock and
associated warrants are registered and declared effective by August 31, 2000.
The warrants valued at $2.6 million are exercisable from issuance and expire
five years from issuance. The exercise price is $12.04 per share.
The Series P Preferred Stock has been recorded at the maximum redemption value
of $18.4 million as of June 30, 2000. The difference of $6.9 million between the
redemption value and the fair value at issuance, including offering costs of
$0.9 million and the warrant value of $2.6 million, was recorded as a dividend
because the Series P Preferred Stock is redeemable upon the occurrence of any of
the above events.
SERIES Q CONVERTIBLE PREFERRED STOCK
On March 15, 2000, the Company issued 4,000 shares of Series Q Redeemable
Convertible Preferred Stock ("Series Q Preferred Stock") and warrants to
purchase 100,000 shares of eGlobe common stock with an exercise price per share
equal to $12.04, subject to adjustment for issuances of shares of common stock
below market price, for proceeds of $4.0 million to RGC.
37
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
--------------------------------------------------------------------------------
The Series Q Preferred Stock agreement also provides that the Company may issue
up to 6,000 additional shares of Series Q Preferred Stock and warrants to
purchase an additional 150,000 shares of common stock to RGC for an additional
$6.0 million at a second closing to be completed no later than July 15, 2000.
RGC has advised the Company in writing that it has no present intention to
exercise its right to demand redemption so long as the shares are registered and
declared effective by August 31, 2000. The primary condition to the second
closing is the effectiveness of a registration statement registering the resale
of common stock underlying the Series Q Preferred Stock and the warrants and the
Series P Preferred Stock and warrants issued in January 2000 to RGC (see above
discussion "Series P Convertible Preferred Stock"). The Series Q Preferred Stock
is classified as redeemable stock on the balance sheet at the redemption value.
The shares of Series Q Preferred Stock carry an effective annual yield of 5%
(payable in kind at the time of conversion) and are convertible, at the holder's
option, into shares of common stock. The shares of Series Q Preferred Stock will
automatically be converted into shares of common stock on March 15, 2003,
subject to delay for specified events. The conversion price for the Series Q
Preferred Stock was $12.04 until April 26, 2000, and thereafter is equal to the
lesser of: (i) the average closing price of the Company's common stock on Nasdaq
for any five consecutive trading days during the 22-trading days prior to
conversion, or (ii) $12.04.
The Company can force a conversion of the Series Q Preferred Stock on any
trading day following a period in which the closing bid price of the Company's
common stock has been greater than $24.08 for a period of at least 35 trading
days after the earlier of (1) the first anniversary of the date the common stock
issuable upon conversion of the Series Q Preferred Stock and warrants is
registered for resale, or (2) the completion of a firm commitment underwritten
public offering with gross proceeds to the Company of at least $45.0 million
provided that shares issuable upon conversion and warrants have been registered
for resale for at least 45 days.
The Series Q Preferred Stock is convertible into a maximum of 3,434,581 shares
of common stock. This maximum share amount is subject to increase if the average
closing bid prices of the Company's common stock for the 20 trading days ending
on the later of June 30, 2000 and the 60th calendar day after the common stock
issuable upon conversion of the Series Q Preferred Stock and warrants is
registered is less than $9.375, provided that under no circumstances will the
Series Q Preferred Stock (together with the Series P Preferred Stock and related
warrants) be converted into more than 7,157,063 shares of common stock (unless
the Company obtains stockholder approval of the issuance of more shares).
38
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
--------------------------------------------------------------------------------
In addition, no holder may convert the Series Q Preferred Stock or exercise the
warrants it owns for any shares of common stock that would cause it to own
following such conversion or exercise in excess of 4.9% of the shares of the
Company's common stock then outstanding.
The Company may be required to redeem the Series Q Preferred Stock in the
following circumstances:
(a) if the Company fails to perform specified obligations under the
securities purchase agreement or related agreements;
(b) if the Company or any of its subsidiaries makes an assignment for the
benefit of creditors or become involved in bankruptcy insolvency,
reorganization or liquidation proceedings;
(c) if the Company's common stock is no longer listed on the Nasdaq
National Market, the Nasdaq SmallCap Market, the NYSE or the AMEX;
(d) if the Series Q Preferred Stock is no longer convertible into common
stock because it would result in an aggregate issuance of more than
3,434,581 shares of common stock, as such number may be adjusted, and
the Company has not waived such limit or obtained stockholder approval
of a higher limit; or
(e) if, assuming the criteria are met for issuance of more than 3,434,581
shares, the Series Q Preferred Stock is no longer convertible into
common stock because it would result in an aggregate issuance of more
than 7,157,063 shares of the Company's common stock and the Company has
not obtained stockholder approval of a higher limit.
If the Series Q Preferred Stock is redeemed under situations (a), (b) or (c)
above, the redemption value is equal to the greater of (a) 120% multiplied by
the sum of (i) the stated value ($1,000 per share) plus (ii) 5% per annum plus
(iii) any penalties in arrears (as defined in the agreement) and (b) the sum of
(i) the stated value plus (ii) 5% per annum, divided by the then effective
conversion rate (as defined above) multiplied by the highest closing price for
the common stock during the period from the date of the first occurrence of the
mandatory redemption event until one day prior to the mandatory redemption date.
If the Series Q Preferred Stock is redeemed under situation (d) or (e) above,
the redemption value is equal to $1,000 per share multiplied by 5% per annum.
39
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
--------------------------------------------------------------------------------
The warrants, valued at $0.8 million, are exercisable from issuance and
expire five years from issuance. The exercise price is $12.04 per share.
On July 15, 2000, the Company failed to register the shares of common
stock issuable upon conversion of the Series Q Preferred Stock and
associated warrants with the SEC, however the holder of the Series Q
Preferred Stock has advised the Company in writing that it has no
present intention to exercise its right to demand redemption described
in (a) above, so long as the common stock and associated warrants are
registered and declared effective by August 31, 2000.
The Series Q Preferred Stock has been recorded at the maximum redemption
value of $4.9 million as of June 30, 2000. The difference of $1.9
million between the redemption value and the fair value at issuance,
including offering costs of $0.2 million and the warrant value of $0.8
million, was recorded as a dividend because the Series Q Preferred Stock
is redeemable upon the occurrence of any of the above events.
NOTE 12 - OPERATING SEGMENT INFORMATION
--------------------------------------------------------------------------------
The Company has four operating reporting segments consisting of Enhanced
Services Network Services, Customer Care and Retail Services. The
Company's basis for determining the segments relates to the type of
services each segment provides. Enhanced Services includes the unified
messaging services, telephone portal services, interactive voice and
data services and the card services. Network Services includes low-cost
transmission services, voice services (CyberCall and CyberFax) and
several other additional services including billing and report
generation designed exclusively to support CyberCall and CyberFax.
Customer Care Services includes the state-of-art call center, which was
part of the Company's acquisition of ORS. Retail Services primarily
includes a small North American retail center. Segment results reviewed
by the Company decision makers do not include general and administrative
expenses, interest, depreciation and amortization and other
miscellaneous income and expense items. All material intercompany
transactions have been eliminated in consolidation.
40
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The following unaudited table presents operating segment information:
ENHANCED NETWORK CUSTOMER RETAIL
SERVICES SERVICES CARE SERVICES TOTAL
--------------------------------------------------------------------------------------
FOR THE THREE MONTHS
ENDING
JUNE 30, 2000
<S> <C> <C> <C> <C> <C>
REVENUE $ 3,690,000 $ 26,445,000 $ 1,309,000 $ 1,689,000 $ 33,133,000
INTER-SEGMENT (3,000) (3,020,000) (156,000) -- (3,179,000)
--------------------------------------------------------------------------------------
TOTAL REVENUE $ 3,687,000 $ 23,425,000 $ 1,153,000 $ 1,689,000 $ 29,954,000
GROSS PROFIT (LOSS) $ 973,000 $ 1,112,000 $ (17,000) $ 933,000 $ 3,001,000
TOTAL ASSETS $ 33,403,000 $ 50,084,000 $ 5,853,000 $18,045,000 $ 107,385,000
FOR THE THREE MONTHS
ENDING
JUNE 30, 1999
REVENUE $ 5,371,000 $ 30,888,000 $ -- $ 116,000 $ 36,375,000
INTER-SEGMENT -- (452,000) -- -- (452,000)
--------------------------------------------------------------------------------------
TOTAL REVENUE $ 5,371,000 $ 30,436,000 $ -- $ 116,000 $ 35,923,000
GROSS PROFIT (LOSS) $ 827,000 $ 162,000 $ -- $ (47,000) $ 942,000
TOTAL ASSETS $ 39,896,000 $ 49,381,000 $ -- $ 791,000 $ 90,068,000
</TABLE>
<TABLE>
<CAPTION>
ENHANCED NETWORK CUSTOMER RETAIL
SERVICES SERVICES CARE SERVICES TOTAL
--------------------------------------------------------------------------------------
FOR THE SIX MONTHS
ENDING
JUNE 30, 2000
<S> <C> <C> <C> <C> <C>
REVENUE $ 7,225,000 $ 58,560,000 $ 2,675,000 $ 3,486,000 $ 71,946,000
INTER-SEGMENT (3,000) (6,592,000) (310,000) -- (6,905,000)
--------------------------------------------------------------------------------------
TOTAL REVENUE $ 7,222,000 $ 51,968,000 $ 2,365,00 $ 3,486,000 $ 65,041,000
GROSS PROFIT $ 1,608,000 $ 2,140,000 $ 83,000 $ 1,838,000 $ 5,669,000
TOTAL ASSETS $ 33,403,000 $ 50,084,000 $ 5,853,000 $ 18,045,000 $ 107,385,000
FOR THE SIX MONTHS
ENDING
JUNE 30, 1999
REVENUE $ 11,786,000 $ 68,630,000 $ -- $ 235,000 $ 80,651,000
INTER-SEGMENT -- (536,000) -- -- (536,000)
--------------------------------------------------------------------------------------
TOTAL REVENUE $ 11,786,000 $ 68,094,000 $ -- $ 235,000 $ 80,115,000
GROSS PROFIT (LOSS) $ 1,465,000 $ 1,727,000 $ -- $ (133,000) $ 3,059,000
TOTAL ASSETS $ 39,896,000 $ 49,381,000 $ -- $ 791,000 $ 90,068,000
</TABLE>
41
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
--------------------------------------------------------------------------------
NOTE 13 - SUPPLEMENTAL INFORMATION TO CONSOLIDATED STATEMENTS OF CASH FLOWS AND
NON-CASH INVESTING AND FINANCING ACTIVITIES --
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, June 30,
2000 1999
(unaudited) (unaudited)
--------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash paid during the period for:
Interest $ 2,168,000 $ 321,000
Income taxes $ 151,000 $ 265,000
Non-cash investing and financing
activities:
Equipment acquired under
capital lease obligations $ 502,000 $ 400,000
Unamortized debt discount
related to warrants $ 5,702,000 $ 428,000
Common stock issued as
prepayment of debt $ -- $ 1,223,000
Preferred stock dividends $ 16,703,000 $ 4,329,000
Value of warrants issued and reflected as
debt discount $ -- $ 2,871,000
Increase in value of preferred stock as a
result of changes in conversion feature $ -- $ 1,485,000
Increase in value of investment and
common stock pursuant to Oasis
exchange of interest in LLC (Note 4) $ 5,050,000 $ --
Issuance of note payable for investment in
i1.com (Note 5) $ 2,000,000 $ --
Allocation of final iGlobe purchase
consideration (note 4): $ --
Decrease in Property and Equipment $ (700,000) $ --
Increase in Investment $ 1,000,000 $ --
Decrease in Purchase Price in excess of the
net assets acquired $ (1,000,000) $ --
Increase in Intangible Assets $ 700,000 $ --
</TABLE>
42
<PAGE>
eGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, June 30,
CONNECTSOFT 2000 1999
--------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C>
Working capital deficit, other than
cash acquired $ -- $ (2,118,000)
Property and equipment -- 514,000
Intangible assets -- 9,120,000
Purchase price in excess of the net assets acquired -- 993,000
Acquired debt -- (2,992,000)
Advances to Connectsoft prior to beginning of the period -- (971,000)
Issuance of Series G Cumulative Convertible Redeembable
Preferred Stock -- (3,000,000)
TELEKEY
Working capital deficit, other than cash acquired $ -- $ (1,284,000)
Property and equipment -- 481,000
Intangible assets -- 1,500,000
Purchase price in excess of the net assets acquired 971,000 3,500,000
Acquired debt -- (1,016,000)
Notes payable issued in acquisition -- (150,000)
Issuance of Series F Convertible Preferred Stock -- (1,000)
Additional paid-in capital (1,950,000) (1,956,000)
Stock to be issued 979,000 (979,000)
--------------------------------------------------------------------------------------------------------------
Net cash used to acquire companies $ -- $ 1,641,000
--------------------------------------------------------------------------------------------------------------
</TABLE>
43
<PAGE>
eGLOBE, INC.
JUNE 30, 2000
--------------------------------------------------------------------------------
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Statements included in Management's Discussion and Analysis of Financial
Condition and Results of Operations which are not historical in nature are
intended to be, and are hereby identified as, "forward-looking statements" for
purposes of the safe harbor provided by the Private Securities Litigation Reform
Act of 1995. Forward-looking statements may be identified by words including
"believes," "anticipates," "expects" and similar expressions. The Company
cautions readers that forward-looking statements, including without limitation,
those relating to the Company's business operations, business plan, revenues,
working capital, liquidity, need for funding and income, are subject to certain
risks and uncertainties that would cause actual results to differ materially
from those indicated in the forward-looking statements, due to several important
factors such as the rapid technological and market changes that create
significant business risks in the market for the Company's services, the
intensely competitive nature of the Company's industry and the possible adverse
effects of such competition, the Company's need for significant additional
financing, the availability of such financing, and the Company's dependence on
strategic relationships, among others, and other risks and factors identified
from time to time in the Company's reports filed with the Securities and
Exchange Commission, including the risk factors set forth under the caption "The
Business - Risk Factors" in the Company's Annual Report on Form 10-K for the
year ended December 31, 1999.
OVERVIEW
The Company incurred a net loss of $21.5 million and $49.6 million for the three
months and six months ended June 30, 2000 compared to a net loss of $12.1
million and $19.6 million for the same periods in 1999.
44
<PAGE>
The table below shows a comparative summary of certain significant charges to
income, which affected the reported losses:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE THREE MONTHS
MONTHS ENDED, ENDED,
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2000 1999 2000 1999
-------------------------------------------------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Additional allowance for doubtful accounts $ 3.5 $ 0.5 $ 2.4 $ 0.3
Amortization of goodwill and other intangibles
(primarily related to acquisitions) 5.7 1.6 2.9 1.0
Deferred compensation to employees of acquired
companies 1.4 1.0 -- --
Deferred compensation expense related to stock
options 8.4 -- 2.5 --
Depreciation and amortization 6.1 2.8 2.9 1.4
Interest expense, net of the amortization of debt
discounts related to debt 2.1 1.1 1.2 0.6
Amortization of debt discounts 1.6 3.0 0.8 0.3
Merger expenses 2.5 -- -- --
Penalty warrants expense 1.6 -- 0.5 --
Other items 1.7 -- -- --
-------------------------------------------------------
Total $ 34.6 $ 10.0 $ 13.2 $ 3.6
=======================================================
</TABLE>
The $2.5 million of merger expenses incurred by the Company related to
investment banking and advisory fees, legal and accounting costs and expenses
associated with printing and mailing the proxy statement for the special
stockholders' meeting.
After deducting the above items, the net loss for the three and six months ended
June 30, 2000 was $8.2 million and $15.0 million respectively, compared to a net
loss, of $8.5 million and $9.7 million, for the three and six months ended June
30, 1999 respectively. The principal factors for the losses incurred for the
three and six months ended June 30, 2000 are: (1) the continued incurrence of
upfront costs to build out capacity to meet the Company's anticipated growth
relating primarily to the traffic that resulted from the Trans Global merger,
(2) increased competition in the international telecommunications market, (3) a
change in pricing by Trans Global's primary supplier during 1999 which increased
costs and drove margins down, (4) the costs of integrating the Company's
acquisitions, (5) headcount increases, and (6) legal and other charges for
professional services principally incurred to support the acquisition
operations.
45
<PAGE>
GENERAL
The Company continually evaluates our operations and organization to ensure our
operations are conducted in the most efficient manner possible. As the Company
identifies redundant or inefficient operations, the Company may restructure the
organization to increase efficiency. Such an evaluation may lead to a
restructuring which could include the closing or removal of non-essential
equipment or facilities or selective reduction on head count. The Company may
incur charges in connection with such an action.
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THE THREE MONTHS ENDED JUNE
30, 1999.
REVENUE. Revenues for the three months ended June 30, 2000 of $30.0 million
decreased $5.9 million (16.4%) from $35.9 million for the same period in 1999.
This decrease in revenue occurred primarily in the Network Services segment
(primarily Trans Global). This decrease was in part due to Trans Global's
decision to shift away from being a purely arbitrage resale business to a direct
route and IP structure in order gain the advantage of better gross profit
margins. Positive effects of the shift to the direct route and IP structure were
evident in the 14.5% growth in revenue from the first quarter of 2000 of $35.1
million to revenue for the second quarter of 2000 of $30.0 million.
Additionally, declines were experienced in both Enhanced Services and Network
Services due to increasing competition, which has put downward pressure on both
prices and margins. This decrease was offset by revenue from the acquisitions of
ORS and Coast, which occurred in the third and fourth quarters of 1999. These
acquisitions added an additional $1.3 million and $1.7 million of revenue in the
quarter ended June 30, 2000 to the Customer Care and Retail Services segments,
respectively.
GROSS PROFIT. Gross profit for the three months ended June 30, 2000 was $3.0
million or 10.0% of revenue as compared to $0.9 million or 2.6% of revenue for
the same period in 1999. Network Services margins rose to 4.7% from 0.5% while
Enhanced Services margins rose to 26.4% from 15.49% for the three months ended
June 30, 2000 and June 30, 1999, respectively. This increase was offset by
revenue from the acquisitions of ORS and Coast, which occurred in the third and
fourth quarters of 1999. The improvement in margins in the Customer Care and
Retail segments of the business is due to acquisitions which occurred in the
third and fourth quarters of 1999. The improvement in Enhanced Services is in
part due to acquisitions of several companies in February and December of 1999
as well as more cost effective routing of telecommunications traffic. As long as
the Company continues to expand its global IP network and adds additional IP
routes, there will be pressure on gross margins since the Company expenses the
cost of turning up a new IP route. Although there are some initial start up
costs, a significant amount of the routes are now beginning to make a positive
contribution. However, the Company believes that the added efficiencies of the
IP routes will quickly (usually within two quarters) begin to add positively to
the gross margin. It is also expected that costs to build out the network to
accommodate the anticipated
46
<PAGE>
threefold increase in traffic resulting from the Trans Global merger and the
need to build out routes for Latin America to grow routes and services will
continue to contribute negatively to gross margins. Management believes margins
will continue to improve as the Company more efficiently fill its routes and
obtains additional owned capacity.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES, EXCLUSIVE OF, $2.5 MILLION AND
$0.043 MILLION REPORTED BELOW OF DEFERRED COMPENSATION RELATED TO STOCK OPTIONS
AND ACQUISITIONS. Selling, general and administrative expenses, exclusive of
$2.5 million, and $0.043 million reported below of deferred compensation related
to stock options and acquisitions totaled $131.8 million for the three months
ended June 30, 2000 compared to $7.6 million for the same period in 1999, for an
increase of $6.2 million. The increase in selling, general and administrative
expenses is in part due to certain non-cash charges detailed above. After taking
out the effect of these charges, the change in selling, general and
administrative costs total $2.8 million. This remaining increase is principally
the result of increases in personnel as a result of the acquisition activity
which added an additional $2.5 million in payroll related costs and a net
increased headcount of 200 employees from June 30, 1999 through June 30, 2000.
DEFERRED COMPENSATION RELATED TO STOCK OPTIONS. Deferred compensation expense
related to stock options of $2.5 million was recorded for the three months ended
June 30, 2000. This charge was to record the value of options granted in excess
of shares available for grant under the Employee Stock Option Plan ("Employee
Plan"). The Board of Directors granted these options to certain executives and
directors subject to stockholder approval of the increase in the number of
shares available under the Employee Plan. The stockholders approved the increase
of the number of shares available under the Employee Plan from 3,250,000 to
7,000,000 shares on March 23, 2000. The excess of the market price of $9.94 on
March 23, 2000 (stockholder approval date) and the option exercise price for
these options was $15.2 million and is being recorded as compensation expense
over the vesting period of the options. There were no similar charges recorded
in the quarter ended June 30, 1999.
DEFERRED COMPENSATION RELATED TO ACQUISITIONS. The Company recorded no deferred
compensation expense for the three months ended June 30, 2000 compared to $.043
million for the same period in 1999. This non-cash charge relates to stock
allocated to employees of acquired companies by their former owners out of
acquisition consideration paid by the Company. Such transactions, adopted by the
acquired companies prior to acquisition, require the Company to record the
market value of the stock issuable to employees as of the date of acquisition as
compensation expense with a corresponding credit to stockholders' equity and to
continue to record the effect of subsequent changes in the market price of the
issuable stock until actual issuance.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expenses
totaled $5.8 million for the three months ended June 30, 2000 compared to $2.5
million for the same period in 1999. This increase of $3.3 million is
principally due to amortization charges of $1.9 million related to goodwill and
other intangibles associated with the acquisitions completed since December 2,
1998. The remaining balance of $1.4 million was primarily attributable to
increases in the fixed assets related to acquired companies and additions at
Trans Global.
INTEREST EXPENSE. Interest expense totaled $1.7 million for the three months
ended June
47
<PAGE>
30, 2000 compared to $3.2 million for the same period in 1999. This decrease was
primarily due decrease in debt and of amortization of the debt discounts related
to the value of the warrants associated with various debt financings.
INTEREST INCOME. Interest income for the three months ended June 30, 2000 was
$0.091 million compared to $0.3 million for the same period in 1999. This
decrease in interest income is the result of the decrease in revenues and the
increase in acquisition activity both of which reduced cash reserves available
for investment.
FOR THE SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX MONTHS ENDED JUNE 30,
1999.
REVENUE. Revenues for the six months ended June 30, 2000 of $65.0 million
decreased $15.1 million (18.9%) from $80.1 million for the same period in 1999.
This decrease in revenue occurred primarily in the Network Services segment
(primarily Trans Global). This decrease was in part due to Trans Global's
decision to shift away from being a purely arbitrage resale business to a direct
route and IP structure in order to gain the advantage of better gross profit
margins. Positive effects of the shift to the direct route and IP structure were
evident in the 37% and 32.8% growth in revenue from the fourth quarter of 1999
of $16.5 million to revenue for the first quarter of 2000 of $22.6 million and
$30.0 million for the second quarter of 2000, respectively. Additionally,
declines were experienced in both Enhanced Services and Network Services due to
increasing competition, which has put downward pressure on both prices and
margins. This decrease was offset by revenue from the acquisitions of ORS and
Coast, which occurred in the third and fourth quarters of 1999. These
acquisitions added an additional $1.2 million and $4.2 million of revenue for
the six months ended June 30, 2000 to the Customer Care and Retail Services
segments, respectively.
GROSS PROFIT. Gross profit for the six months ended June 30, 2000 was $5.7
million or 7.3% of revenue as compared to $3.1 million or 3.8% of revenue for
the same period in 1999. Network Services margins rose to 4.1% from 2.5% while
Enhanced Services margins rose to 22.3% from 12.4% for the six months ended June
30, 2000 and June 30, 1999, respectively. The improvement in margins in the
Customer Care and Retail segments of the business is due to acquisitions which
occurred in the third and fourth quarters of 1999. The improvement in Enhanced
Services is in part due to acquisitions of several companies in February and
December of 1999 as well as more cost effective routing of telecommunications
traffic. As long as the Company continues to expand its global IP network and
adds additional IP routes, there will be pressure on gross margins since the
Company expenses the cost of turning up a new IP route. Although there are some
initial start up costs, a significant amount of the routes are now beginning to
make a positive contribution. However, the
48
<PAGE>
Company believes that the added efficiencies of the IP routes will quickly
(usually within two quarters) begin to add positively to the gross margin. It is
also expected that costs to build out the network to accommodate the anticipated
threefold increase in traffic resulting from the Trans Global merger and the
need to build out routes for Latin America to grow routes and services will
continue to contribute negatively to gross margins. Management believes margins
will continue to improve as the Company more efficiently fill its routes and
obtains additional owned capacity.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES, EXCLUSIVE OF $8.4 MILLION, $1.4
MILLION AND $0.9 MILLION REPORTED BELOW OF DEFERRED COMPENSATION RELATED TO
STOCK OPTIONS AND ACQUISITIONS. Selling, general and administrative expenses,
exclusive of $8.4 million, $1.4 million and $0.9 million reported below of
deferred compensation related to stock options and acquisitions totaled $29.3
million for the six months ended June 30, 2000 compared to $13.7 million for the
same period in 1999, for an increase of $15.6 million The increase in selling,
general and administrative expenses is in part due to certain non-cash charges
of $7.2 million, including $2.7 million increase in the reserve for doubtful
accounts, and other costs associated with the Trans Global merger, the special
proxy filing and related professional charges which added an additional $3.7
million in costs. After taking out the effect of these charges, the change in
selling, general and administrative costs total $8.4 million. This remaining
increase is principally the result of increases in personnel as a result of the
acquisition activity which added an additional $2.5 million in payroll related
costs and a net increased headcount of 200 employees from June 30, 1999 through
June 30, 2000.
COMPENSATION RELATED TO STOCK OPTIONS. Compensation expense related to stock
options of $8.4 million was recorded for the six months ended June 30, 2000.
This charge was to record the value of options granted in excess of shares
available for grant under the Employee Stock Option Plan ("Employee Plan"). The
Board of Directors granted these options to certain executives and directors
subject to stockholder approval of the increase in the number of shares
available under the Employee Plan. The stockholders approved the increase of the
number of shares available under the Employee Plan from 3,250,000 to 7,000,000
shares on March 23, 2000. The excess of the market price of $9.94 on March 23,
2000 (stockholder approval date) and the option exercise price for these options
was $15.2 million and is being recorded as compensation expense over the vesting
period of the options. There were no similar charges recorded in the six months
ended June 30, 1999.
DEFERRED COMPENSATION RELATED TO ACQUISITIONS. The Company recorded a deferred
compensation expense of $1.4 million for the six months ended June 30, 2000
compared to $0.9 million for the same period in 1999. This non-cash charge
relates to stock allocated to employees of acquired companies by their former
owners out of acquisition consideration paid by the Company. Such transactions,
adopted by the acquired companies prior to acquisition, required the Company to
record the market value of the stock issuable to employees as of the date of
acquisition as compensation expense with a corresponding credit to stockholders'
equity and
49
<PAGE>
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expenses
totaled $11.9 million for the six months ended June 30, 2000 compared to $4.4
million for the same period in 1999. This increase of $7.4 million is
principally due to amortization charges of $4.1 million related to goodwill and
other intangibles associated with the acquisitions completed since December 2,
1998. The remaining balance of $3.3 million was primarily attributable to
increases in the fixed assets related to acquired companies and additions at
Trans Global.
INTEREST EXPENSE. Interest expense totaled $3.7 million for the six months ended
June 30, 2000 compared to $4.1 million for the same period in 1999. This
decrease was primarily due a decrease in debt and $1.6 million of amortization
of the debt discounts related to the value of the warrants associated with
various debt financings.
INTEREST INCOME. Interest income for the six months ended June 30, 2000 was $0.2
million compared to $0.5 million for the same period in 1999. This decrease in
interest income is the result of the decrease in revenues and the increase in
acquisition activity both of which reduced cash reserves available for
investment.
LIQUIDITY, CAPITAL RESOURCES AND OTHER FINANCIAL DATA
As the Company continues its aggressive growth plan during the year 2000 and it
intends to pursue that plan into the foreseeable future, the Company will
require large cash demands and aggressive cash management. The Company has
raised significant financing through a combination of issuances of preferred
stock and proceeds from the exercise of warrants and options. Cash and cash
equivalents were $1.1 million at June 30, 2000 compared to $2.8 million at
December 31, 1999. Short-term investments were $3.0 million at June 30, 2000 as
compared to $1.5 million at December 31, 1999. The decrease in cash and cash
equivalents of $1.6 million was primarily due to use of cash to support the
Company's planned expansion of its telecommunication networks and its increased
operational costs associated with the various acquisitions and the merger with
Trans Global. The increase in short-term investments of $1.5 million was
primarily due to an increase in cash placed in Money Market Funds received from
equity-based financings and Certificates of Deposit purchased to back letters of
credit given as security for payments to various vendors. Accounts receivable,
net, increased by $0.8 million to $15.9 million at June 30, 2000 from $15.1
million at December 31, 1999, mainly due to increased revenues and the extension
of credit to new wholesale carrier customers. Cash outflows for operating
activities for the six months June 30, 2000 totaled $16.8 million, as compared
to cash outflows of $14.6million for the six months ended June 30, 1999. This
increase in outflows was due primarily to the Company's growth through
acquisitions and the effect that the acquisition activity and upfront costs to
add capacity had on operating losses and higher selling, general and
administrative expenses. See further discussion in "Results of Operations."
There was a net working capital deficiency of $53.2 million at June 30, 2000
compared to a deficiency of $44.7 million at December 31, 1999.
50
<PAGE>
Cash outflows for investing activities during the six months ended June 30, 2000
totaled $2.4 million, which was $2.3 million lower than the cash outflows for
the six months ended June 30, 1999. This decreased outflow was due to a decrease
in net purchases of property and equipment to $0.8 million in 2000 from $10.6
million in 1999, and a decrease in investments in acquisitions to zero in 2000
from $1.6 million in 1999. In addition the Company purchased short-term
investments of $1.6 million in 2000 as compared to selling short-term
investments of $7.7 million in 1999.
Cash generated from financing activities totaled $17.6 million during the six
months ended June 30, 2000 compared to $19.7 million during the six months ended
June 30, 1999. This decrease of $2.1 million was primarily due to net proceeds
from sales of preferred stock of $19.5 million (as compared to net proceeds of
$10.0 million in 1999), proceeds from the exercise of warrants and options of
$2.7 million and proceeds from notes payable -related party of $0.7 million.
These proceeds were offset by principal payments of $3.4 million on notes
payable, stock issuance of $1.0 million, and payments of $0.8 million on various
capital leases.
On an operating level, the Company is continuing to try to negotiate certain
contract and payment terms with an Enhanced Services customer that has a
significant outstanding balance due to the Company. The Company has recorded
significant reserves to cover this outstanding balance. The Company has not been
able to work out a resolution with this customer. The Company may have to take a
more aggressive course of action to resolve this matter and is considering all
alternatives at this time.
CURRENT FUNDING REQUIREMENTS
For the first six months of 2000, the Company met its cash requirements from (1)
proceeds from the exercise of options and warrants of $2.7 million, (2) proceeds
of $0.5 million from the sales of Series N Preferred Stock, (3) proceeds of
$15.0 million from the sale of Series P Convertible Preferred Stock ("Series P
Preferred Stock"), and (4) proceeds of $4.0 million from the sale of Series Q
Convertible Preferred Stock ("Series Q Preferred Stock").
Current funds will not permit the Company to achieve the growth, both short and
long-term that management is targeting. The plan under which the Company is
currently operating requires substantial additional funding through the second
quarter of 2001 of up to $43.1 million. This estimate is based on conservative
projections of a scaled growth plan using worst-case scenarios for operations.
Even if the Company meets its projections for becoming EBITDA (Earnings Before
Interest, Taxes, Depreciation and Amortization) positive after eliminating
non-cash items during the third quarter of 2000, the Company will still have
capital requirements through June 2001. The Company will need to fund its
pre-existing liabilities and notes payable obligations and the purchase of
capital equipment, along with financing its growth plans.
The Company requires financing in the third quarter to continue its plan. The
Company will receive $6.0 million in proceeds from the sale of additional shares
of Series Q Preferred Stock immediately upon the effectiveness of the
registration of the common stock underlying this preferred stock. The Company
anticipates that the additional capital needed will come from a combination of
financings that could consist of debt, private equity, or a line of credit
facility during the
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twelve-month period from July 2000 through June 2001. There is the possibility
that the amount of financing required could be diminished by secured
equipment-based financings.
In addition to the firm commitment discussed previously, the Company is
proceeding with other financing opportunities, which have not been finalized.
The Company has a variety of opportunities in both the debt and equity markets
to raise the necessary funds, which it needs to achieve its growth plan through
the end of the quarter ended June 30 , 2001.
The Company anticipates that increased sales in the international market with
higher margins will reduce its net working capital deficiency and contribute to
its funding requirements through the second quarter of 2001.
There is a risk that the Company will not reach breakeven on a cash basis
(excluding non-cash charges) as projected and will continue to incur operating
losses. If this occurs and should the Company be unsuccessful in its efforts to
raise additional funds to cover such losses, then the Company's growth plans
would be sharply curtailed and its business would be adversely affected.
On December 14, 1999, Trans Global entered into a letter agreement with AT&T,
Trans Global's largest supplier, regarding the payment of various past due
switch and circuit costs. Pursuant to that agreement, Trans Global agreed to pay
AT&T approximately $13.8 million in consecutive monthly installments at 9%
interest through January 1, 2001. The payable is secured by certain assets of
Trans Global. As of June 30, 2000, the remaining balance due to AT&T was $10.5
million. Trans Global, as of August 11, 2000 has not paid $5.5 million of
scheduled payments that were due in April, May and June 2000. In addition,
approximately $3.8 million of payables for current usage are in arrears. Trans
Global is currently in discussions with AT&T regarding alternative arrangements
for settlement of the outstanding obligations, and believes that conclusion of
an arrangement that is not materially adverse to the immediate or long-term
future operations of the Company is likely. There can be no assurance that Trans
Global will be able to satisfactorily resolve this matter. Should this not be
resolved and should AT&T take action to take possession of the assets held as
security, Trans Global believes that its business will not be adversely
impacted. Should a satisfactory resolution not be reached there maybe adverse
affects to the Company.
The Company is obligated under certain conditions to redeem the shares of Series
P Preferred Stock and Series Q Preferred Stock. See Note 11 to the Consolidated
Financial Statements for further discussion.
In order to be able to continue to pursue its growth plans, the Company believes
that it needs to conclude a significant financing, in the second half of 2000.
Without such a financing, the Company will have to sharply curtail its
activities, specifically development of its enhanced IP services.
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ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
--------------------------------------------------------------------------------
At June 30, 2000, we had other financial instruments consisting of cash and
fixed and variable rate debt which are held for purposes other than trading. The
substantial majority of our debt obligations have fixed interest rates and are
denominated in U.S. dollars, which is our reporting currency. We measure our
exposure to market risk at any point in time by comparing the open positions to
a market risk of fair value. The market prices we use to determine fair value
are based on management's best estimates, which consider various factors
including: closing exchange prices, volatility factors and the time value of
money. At June 30, 2000, the carrying value of our debt obligations, excluding
capital lease obligations, was $20.1 million, (net of unamortized discount of
$5.7 million) which also approximates fair value. The weighted average interest
rate of our debt obligations excluding capital lease obligations, at June 30,
2000 was 7.1%. At June 30, 2000, $0.05 million of our cash was restricted in
accordance with the terms of our financing arrangements and certain acquisition
holdback agreements. We actively monitor the capital and investing markets in
analyzing our capital raising and investing decisions. At June 30, 2000, we were
exposed to some market risk through interest rates on our long-term debt and
preferred stock and foreign currency. At June 30, 2000, our exposure to market
risk was not material. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
ITEM 1 LEGAL PROCEEDINGS
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The following information sets forth information relating to material
legal proceedings involving us and certain of our executive officers and
directors. From time to time, we and our executive officers and directors
become subject to litigation which is incidental to and arises in the ordinary
course of business. Other than as set forth herein, there are no material
pending legal proceedings involving us or our executive officers and directors.
AMERICAN INTERNATIONAL TELEPHONE V. EXECUTIVE TELECARD, LTD. This suit
was filed in July 1999 in the Supreme Court of New York, New York County and
concerns a transmission vendor seeking to collect approximately $300,000. We,
as successor to Executive Telecard, Ltd., have substantial counterclaims and
are vigorously defending this suit.
MCI WORLDCOM, INC. LITIGATION. In October 1999, MCI WorldCom filed suit
against us in the District Court, City and County of Denver, Colorado seeking
in excess of $2,500,000 pursuant to various service contracts. We dispute the
amount allegedly owed based on erroneous invoices, the quality of service
provided and unfair and deceptive billing practices. Moreover, we have filed a
counterclaim alleging significant offsets, among other items. We will continue
to vigorously defend this suit and prosecute our counterclaims.
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SWIFTCALL HOLDINGS (U.S.A.) LTD. V. EGLOBE, INC. Swiftcall Holdings
(U.S.A.) Ltd., the former stockholder of Swiftcall filed this lawsuit in May
2000 claiming damages on account of an alleged failure by us to file a
registration statement for resale of the shares of common stock received by the
plaintiff in connection with our acquisition of Swiftcall. This lawsuit was
brought in the United States District Court for the District of Columbia.
Plaintiff is seeking damages in excess of several million dollars. We have
filed an answer and intend to pursue settlement possibilities.
IDT CORP. V. EGLOBE, INC., CHRISTOPHER VIZAS AND DONALD SLEDGE. IDT
Corp. commenced this lawsuit in June 2000 in the United States District Court
for the District of Columbia claiming approximately $300,000 for amounts
allegedly past due under a Service Agreement and a Note and is claiming
approximately $5,500,000 in damages for the alleged failure to register shares
or release a restrictive legend on shares of our common stock so that IDT Corp.
could sell its shares in the market. IDT Corp. has moved for judgment on the
pleadings and we have moved to discuss the federal claims upon which
jurisdiction is based.
SPE OPERATIONS LTD. V. TGC TRANSGLOBAL COMMUNICATIONS (CANADA), LTD., ET
AL. This lawsuit was filed in June 2000 in the Ontario Superior Court of
Justice in Canada against one of our subsidiaries claiming indemnification in
the amount of approximately $25,000 for a default under an Offer to Lease Space
in a Toronto office building. We intend to pursue settlement possibilities.
AMERICAN UNITED GLOBAL, INC. V. EGLOBE, INC. American United Global,
Inc., the parent of Connectsoft Communications Corporation and Connectsoft
Holdings, Inc., filed suit in August 2000 in the New York Supreme Court, New
York County claiming $20 million in damages for breach of an alleged obligation
to register shares acquired by American United Global, Inc. under a
registration rights agreement.
NORTHWEST CONTRACT SERVICES, INC. V. VOGO NETWORKS LLC. Northwest
Contract Services, Inc. filed suit against one of our subsidiaries in the
Superior Court of Washington for Snohomish County alleging breach of a contract
involving employee referral services and seeking $22,500 in damages.
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ITEM 2 CHANGES IN SECURITIES
During the three months ended June 30, 2000, the Company offered and sold
the following equity securities that were not registered under the Securites
Act:
1. On April 19, 2000, the Company issued warrants to purchase 8,259 shares of
common stock to Penny Vane for marketing services. The securities issued in
such private placement were exempt from the registration requirements of the
Securities Act under Rule 506 of Regulation D because the purchaser was an
accredited investor or with her purchaser representative has such knowledge
and experience in financial and business matters that she is capable of
evaluating the merits and risks of the prospective investment or we
resonably believed immediately prior to making any sale that such purchase
fell within this description and we satisfied the information delivery
requirements of Rule 502.
2. On April 26, 2000, the Company issued 4,000,000 shares of common stock to
eGlobe No. 1 LLC as our capital contribution in the single member limited
liability company. The shares issued in such private placement were exempt
from the registration requirements of the Securities Act under Rule 506 of
Regulation D because the purchaser was an accredited investor.
3. On April 28, 2000, the Company issued 3,773,584 shares of common stock in
exchange for the outstanding share of Series M Preferred Stock. The shares
issued in such private placement were exempt from the registration
requirements of the Securities Act under Rule 506 of Regulation D because
the purchaser was an accredited investor.
4. On April 30, 2000, the Company issued 3,220,000 shares of common stock to
former stockholders of Coast upon conversion of the Series O Preferred
Stock.
5. On May 15, 2000, the Company issued warrants to purchase 100,000 shares of
common stock to Wolfe Axelrod Weinberger as a retainer for investment
consulting services. The securities issued in such private placement were
exempt from the registration requirements of the Securities Act under Rule
506 of Regulation D because the purchaser was an accredited investor.
6. On May 22, 2000, the Company issued warrants to purchase 204,909 shares of
common stock to Oasis as part of an earnout. The warrants were exercised
upon issuance. We used the proceeds of such warrant exercise for general
corporate purposes and/or working capital expenses incurred in the ordinary
course of business.
7. On May 23, 2000, the Company issued 543,270 shares of common stock and
warrants to purchase 180,000 shares of common stock to Seymour Gordon and
his affiliates upon conversion of a loan to Mr. Gordon. The securities
issued in such private placement were exempt from the registration
requirements of the Securities Act under Rule 506 of Regulation D because
each purchaser was an accredited investor.
8. On May 24, 2000, the Company issued 757,500 shares of common stock to the
former Telekey stockholders in payment of an earnout. The shares issued in
such private placement were exempt from the registration requirements of the
Securities Act under Rule 506 of Regulation D because each purchaser was an
accredited investor.
9. On June 28, 2000, the Company issued 10,013 shares of common stock to TI
Partners as payment for investment services. The shares issued in such
private placement were exempt from the registration requirements of the
Securities Act under Rule 506 of Regulation D because the purchaser was an
accredited investor.
10. On June 30, 2000, the Company issued warrants to purchase 290,909 shares of
common stock to Oasis because the initial registration statement had not
become effective.
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ITEM 3 DEFAULTS UPON SENIOR SECURITIES
--------------------------------------------------------------------------------
None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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ITEM 5 OTHER INFORMATION
None
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------------------------------------------------------
a. Exhibits
None.
b. Reports on Form 8-K
1. A report on Form 8-K dated March 23, 2000 under Item 2 was filed
with the Securities and Exchange Commission on April 7, 2000 to
report the closing of the acquisition of Trans Global
Communications, Inc.
2. A report on Form 8-K/A dated March 23, 2000 under Item 7 was filed
with the Securities and Exchange Commission on May 22, 2000 to
file financial statements of Trans Global Communications, Inc.
3. A report on Form 8-K dated March 23, 2000 under Item 7 was filed
with the Securities and Exchange Commission on May 22, 2000 to
file restated combined financial statements which reflect the
merger with Trans Global Communications, Inc. using pooling of
interests accounting.
4. A report on Form 8-K dated March 23, 2000 under Item 5 was filed
with the Securities and Exchange Commission on August 7, 2000 to
file financial statements for the month ended April 30, 2000.
5. A report on Form 8-K/A dated March 23, 2000 under Item 7 was filed
with the Securities and Exchange Commission on August 18, 2000 to
file restated combined financial statements which reflect the
merger with Trans Global Communications, Inc. using pooling of
interests accounting.
6. A report on Form 8-K/A dated January 27, 2000 under Item 5 was
filed with the Securities and Exchange Commission on August 18,
2000 to report the closing of a $15 million equity private
placement with RGC International Investors LDC.
7. A report on Form 8-K/A dated March 17, 2000 under Item 5 was filed
with the Securities and Exchange Commission on August 18, 2000 to
report the closing of a $4 million equity private placement with
RGC International Investors LDC.
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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: August 21, 2000 By /S/ Anne Haas
-----------------------------------
Anne Haas
Chief Accounting Officer, Treasurer
(Principal Accounting Officer)
Date: August 21, 2000 By /S/ David Skriloff
-------------------------------------
David Skriloff
Chief Financial Officer
57
