SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date Commission File
of earliest event Number:
reported):
MARCH 23, 2000 1-10210
eGLOBE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3486421
(State or other jurisdiction of (IRS Employer Identification
incorporation) Number)
1250 24th Street, NW, Suite 725
Washington, D.C. 20037
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(202) 822-8981
(Former name or former address, if changed since last report)
NA
<PAGE>
eGLOBE, INC.
--------------------------------------------------------------------------------
EXPLANATORY NOTE
Pursuant to Items 7(a)(4) and 7(b)(2) of the Securities and Exchange
Commission's (the "Commission") General Instructions for Form 8-K, eGlobe, Inc.
(the "Company") hereby amends Items 7(a) and 7(b) of its Current Report on Form
8-K, filed with the Commission on April 7, 2000 to file financial statements and
pro forma financial information for the Company reflecting the merger (the
"Merger") with Trans Global Communications, Inc. ("Trans Global") which was
effective March 23, 2000. The Merger has been accounted for as a pooling of
interests.
The Company has included a brief description of the Company's Merger with Trans
Global along with the pro forma information for the Company. In addition to the
Trans Global transaction reported on this 8-K/A, on December 2, 1999, the
Company acquired Coast International, Inc. ("Coast"). On September 20, 1999, the
Company, acting through a newly formed subsidiary, acquired control of Oasis
Reservations Services, Inc. ("ORS") from its sole stockholder, Outsourced
Automated Services and Integrated Solutions, Inc. ("Oasis"). Effective August 1,
1999, the Company assumed operational control of Highpoint International
Telecom, Inc. and certain assets and operations of Highpoint Carrier Services
and Vitacom, Inc. (collectively "Highpoint"). On October 14, 1999, substantially
all the operating assets of Highpoint were transferred to iGlobe, Inc.
("iGlobe"), at which time the Company acquired all of the issued and outstanding
common stock of iGlobe. On June 17, 1999, the Company acquired Connectsoft
Communications Corporation and Connectsoft Holding Corp. ("Connectsoft") through
the Company's new subsidiary Vogo Networks, LLC ("Vogo"). On February 12, 1999,
the Company acquired Telekey, Inc and Subsidiary and Travelers Services, Inc.
("Telekey"). On December 31, 1998, the Company acquired UCI Tele Networks, Ltd.
("UCI") and on December 2, 1998, the Company acquired IDX International Inc. and
Subsidiaries ("IDX"). These acquisitions were accounted for as purchases. The
Coast acquisition was previously reported on 8-K/A filed on February 15, 2000.
The iGlobe acquisition was previously reported on 8-K/A filed on December 28,
1999. The ORS acquisition was previously reported on Form 8-K/A filed December
6, 1999 and amended on December 10, 1999. The Connectsoft acquisition was
previously reported on Form 8-K/A filed on August 31, 1999. The Telekey, UCI and
IDX acquisitions were previously reported on Form 8-K/A filed on April 30, 1999.
2
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
ITEM 7(a). FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
Filed herewith as part of this report are the following financial statements:
Trans Global Communications, Inc., (i) Report of Independent Auditors, (ii)
Consolidated Balance Sheets as of December 31, 1999 and 1998, (iii) Consolidated
Statements of Operations for the years ended December 31, 1999, 1998 and 1997,
(iv) Consolidated Statements of Stockholders' Equity (Deficit) for the years
ended December 31, 1999, 1998 and 1997, (v) Consolidated Statements of Cash
Flows for the years ended December 31, 1999, 1998 and 1997, and (vi) Notes to
Consolidated Financial Statements.
ITEM 7(b). PRO FORMA FINANCIAL INFORMATION
Filed herewith as part of this report are the Company's Unaudited Pro Forma
Condensed Combined Balance Sheet as of December 31, 1999, Unaudited Pro Forma
Condensed Combined Statements of Operations for the years ended December 31,
1999 and 1998 and March 31, 1998 and the notes thereto.
ITEM 7(c). EXHIBITS
2.1 Agreement and Plan of Merger dated as of December 16, 1999 by and among
eGlobe, Inc., eGlobe, Merger Sub No. 6, Inc., Trans Global Communications, Inc.,
and The Stockholders of Trans Global Communications, Inc. (Incorporated by
reference to Exhibit 2.1 in Current Report on Form 8-K of eGlobe, Inc. filed
December 30, 1999).
2.2 Amendment No. 1 to Agreement and Plan of Merger, dated February 11, 2000, by
and among eGlobe, Inc., eGlobe, Merger Sub No. 6, Inc., Trans Global
Communications, Inc., and The Stockholders of Trans Global Communications, Inc.
(Incorporated by reference to Exhibit 2.2 in Current Report on Form 8-K of
eGlobe, Inc. filed April 7, 2000).
99.1 Press Release, dated March 23, 2000, regarding receipt of stockholder
approval for the merger discussed above. (Incorporated by reference to Exhibit
99.1 in Current Report on Form 8-K of eGlobe, Inc. filed April 7, 2000).
3
<PAGE>
eGLOBE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
The Unaudited Pro Forma Condensed Combined Financial Information reflects
financial information that gives effect to the Company's Merger with Trans
Global which provided for the issuance of 40,000,000 shares of eGlobe common
stock in exchange for all of the outstanding common stock of Trans Global. The
Merger was effective March 23, 2000. The Pro Forma Financial Information
included herein reflects the use of the pooling of interests method of
accounting, after giving effect to the pro forma adjustments discussed in the
accompanying notes.
The accompanying Unaudited Pro Forma Condensed Combined Balance Sheet presents
the financial position of the Company as if the Merger had occurred on December
31, 1999. The Unaudited Pro Forma Condensed Combined Statements of Operations
for the twelve months ended December 31, 1999 and 1998 and March 31, 1998 give
effect to the Merger as if it had occurred at the beginning of the earliest
period presented. Effective with the period ended December 31, 1998, the Company
changed its year end from a March 31 to a December 31 fiscal year end. For the
March 31, 1998 pro forma results, Trans Global amounts include its December 31,
1997 year end as compared to the Company's March 31, 1998 year end. The pro
forma statement of operations of the Company for the twelve months ended
December 31, 1998 includes the three month period ended March 31, 1998 which was
also included in the twelve months ended March 31, 1998.
The acquisitions of IDX, Telekey, Connectsoft, iGlobe, ORS, and Coast, as well
as the subsequent increase in the preferred conversion factor for preferred
shares originally issued to IDX stockholders, the July 1999 and December 1999
renegotiations of the terms of the IDX purchase agreement, the reclassification
of acquired goodwill to other identifiable intangibles and the exchange of the
Series G Preferred Stock for the Series K Preferred Stock are reflected in the
Company's historical Condensed Consolidated Balance Sheet as of December 31,
1999 contained elsewhere herein.
The Unaudited Pro Forma Condensed Combined Statement of Operations for the year
ended December 31, 1999 includes the operating results of the Company, Telekey,
Connectsoft, iGlobe, ORS and Coast assuming the acquisitions had been
consummated at January 1, 1999. Also, the reclassification of acquired goodwill
to other identifiable intangibles for Telekey and the exchange of the Series G
Preferred Stock for the Series K Preferred Stock were assumed to have occurred
on January 1, 1999. The acquisitions of UCI and IDX, along with the subsequent
reclassification of acquired goodwill to other identifiable intangibles, the
increase in the convertibility of the preferred stock issued to the IDX
stockholders and the subsequent renegotiations of the IDX purchase agreement are
reflected in the Company's historical Condensed Consolidated Statement of
Operations for the year ended December 31, 1999 contained elsewhere herein.
The following Unaudited Pro Forma Condensed Combined Financial Statements give
effect to the Company's merger with Trans Global, using the pooling of interests
method of accounting, and to the acquisitions by the Company of the entities
detailed above, using the purchase method of accounting, and are based on the
estimates and assumptions set forth herein and in the notes to such financial
statements. This pro forma presentation has been prepared utilizing historical
financial statements and notes thereto of which Trans Global is included herein
as well as pro forma adjustments as described in the Notes to Unaudited Pro
Forma Condensed Combined Financial Statements.
4
<PAGE>
eGLOBE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
The Unaudited Pro Forma Condensed Combined Financial Statements are presented
for illustrative purposes only and do not purport to represent what the
Company's results of operations or financial position would have been had the
acquisitions and Merger described herein occurred on the dates indicated for any
future period or at any future date, and are therefore qualified in their
entirety by reference to and should be read in conjunction with the historical
consolidated financial statements and notes thereto of the Company and the
historical financial statements of IDX, Telekey, Connectsoft, iGlobe, ORS,
Coast, and Trans Global.
MERGER WITH TRANS GLOBAL COMMUNICATIONS, INC.
On March 23, 2000, pursuant to an Agreement and Plan of Merger entered into on
December 16, 1999, a wholly-owned subsidiary of the Company merged with and into
Trans Global, with Trans Global continuing as the surviving corporation and
becoming a wholly-owned subsidiary of the Company. Trans Global is a leading
provider of international voice and data services to carriers in several markets
around the world. As part of the Merger, the Company exchanged 40,000,000 shares
of its common stock for all the stock of Trans Global.
Pursuant to the Merger, the Company withheld and deposited into escrow 2,000,000
shares of the 40,000,000 shares of its common stock issued to Trans Global
stockholders in the Merger. These escrowed shares cover the indemnification
obligations under the merger agreement. The Company deposited an additional
2,000,000 shares of its common stock into escrow to cover its potential
indemnification obligations under the Merger agreement. The Merger has been
accounted for as a pooling of interests, and accordingly, the Company will
restate, retroactively at the effective time of the Merger, its consolidated
financial statements to include the assets, liabilities, stockholders' equity
(deficit) and results of operations of Trans Global as if the companies had been
combined as of the earliest date reported by the combined financial statements.
5
<PAGE>
eGLOBE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
DECEMBER 31, 1999 (IN THOUSANDS)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADJUSTMENTS PRO FORMA
eGLOBE TRANS GLOBAL (NOTE A) COMBINED
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT
Cash and cash equivalents $ 1,093 $ 1,724 $ -- $ 2,817
Short-term investments, restricted -- 1,492 -- 1,492
Accounts receivable, net 9,290 6,015 (163) (1) 15,142
Other receivables -- 1,406 -- 1,406
Prepaid expenses 1,356 228 -- 1,584
Other current assets 639 31 (31) (2) 639
--------------------------------------------- ---------------------------------------------------------------
TOTAL CURRENT ASSETS 12,378 10,896 (194) 23,080
PROPERTY AND EQUIPMENT, NET 25,919 16,159 -- 42,078
GOODWILL, NET 24,904 -- -- 24,904
OTHER INTANGIBLES, NET 21,674 -- -- 21,674
DEFERRED TAX ASSET -- 614 (614) (3) --
OTHER ASSETS
Deposits 1,659 -- -- 1,659
Other assets 81 319 -- 400
--------------------------------------------- ---------------------------------------------------------------
TOTAL OTHER ASSETS 1,740 319 -- 2,059
--------------------------------------------- ---------------------------------------------------------------
TOTAL ASSETS $ 86,615 $ 27,988 $ (808) $ 113,795
--------------------------------------------- ---------------------------------------------------------------
LIABILITIES, MINORITY INTERESTS, REDEEMABLE
COMMON STOCK AND STOCKHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 18,029 $ 23,692 $ (163) (1) $ 41,558
Accrued expenses 10,657 335 2,795 (4) 13,787
Income tax payable 560 -- -- 560
Notes payable and current maturities of
long-term debt 6,813 1,055 -- 7,868
Notes payable and current maturities of
long-term debt-related party 4,676 -- -- 4,676
Deferred revenue 1,331 -- -- 1,331
Other current liabilities 796 -- -- 796
--------------------------------------------- ---------------------------------------------------------------
TOTAL CURRENT LIABILITIES 42,862 25,082 2,632 70,576
DEFERRED TAX LIABILITY -- 820 (820) (5) --
ACCOUNTS PAYABLE - LONG-TERM -- 1,000 -- 1,000
LONG-TERM DEBT, net of current maturities 3,529 1,665 -- 5,194
LONG-TERM DEBT-RELATED PARTIES, net of
current maturities 8,301 -- -- 8,301
--------------------------------------------- ---------------------------------------------------------------
TOTAL LIABILITIES 54,692 28,567 1,812 85,071
--------------------------------------------- ---------------------------------------------------------------
MINORITY INTERESTS 2,748 52 -- 2,800
REDEEMABLE COMMON STOCK 700 -- -- 700
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock 2 -- -- 2
Common stock 30 50 (10) (6) 70
Stock to be issued 2,624 -- -- 2,624
Notes receivable (1,210) -- -- (1,210)
Additional paid-in capital 106,576 132 10 (6) 106,718
Accumulated deficit (80,034) (822) (2,620) (7) (83,476)
Accumulated other comprehensive
income 487 9 -- 496
--------------------------------------------- ---------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 28,475 (631) (2,620) 25,224
--------------------------------------------- ---------------------------------------------------------------
TOTAL LIABILITIES, MINORITY
INTERESTS, REDEEMABLE COMMON STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT) $ 86,615 $ 27,988 $ (808) $ 113,795
--------------------------------------------- ---------------------------------------------------------------
</TABLE>
See notes to unaudited pro forma condensed combined financial statements
6
<PAGE>
eGLOBE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COAST
eGLOBE TELEKEY CONNECTSOFT iGLOBE ORS ELEVEN
TWELVE MONTHS ONE MONTH FIVE MONTHS SEVEN MONTHS EIGHT MONTHS MONTHS
ENDED ENDED ENDED ENDED ENDED ENDED ADJUSTMENTS
12/31/99 1/31/99 5/31/99 7/31/99 8/31/99 11/30/99 (NOTE B)
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUE $ 42,002 $ 190 $ 73 $ 5,067 $ 4,055 $ 11,624 $ (214) (8)
COST OF REVENUE 41,911 59 65 5,220 3,746 5,649 (214) (9)
-------------------------------------------------------------------------------------------------------------- ----------
GROSS PROFIT (LOSS) 91 131 8 (153) 309 5,975 --
-------------------------------------------------------------------------------------------------------------- ----------
COSTS AND EXPENSES:
Selling, general and
administrative 29,744 141 436 4,794 253 5,307 221 (10)
Research and development 57 -- 1,092 -- -- -- --
Depreciation and
amortization 12,245 16 129 1,411 160 463 4,790 (11)
-------------------------------------------------------------------------------------------------------------- ----------
TOTAL COSTS AND EXPENSES 42,046 157 1,657 6,205 413 5,770 5,011
-------------------------------------------------------------------------------------------------------------- ----------
INCOME (LOSS) FROM OPERATIONS (41,955) (26) (1,649) (6,358) (104) 205 (5,011)
OTHER INCOME (EXPENSE) (7,612) (6) (162) (182) (4) (256) 6 (12)
-------------------------------------------------------------------------------------------------------------- ----------
LOSS BEFORE (TAXES) BENEFIT ON
INCOME (LOSS) AND
EXTRAORDINARY ITEM (49,567) (32) (1,811) (6,540) (108) (51) (5,005)
(TAXES) BENEFIT ON INCOME
(LOSS) -- -- -- -- -- -- --
-------------------------------------------------------------------------------------------------------------- ----------
NET LOSS BEFORE EXTRAORDINARY
ITEM (49,567) (32) (1,811) (6,540) (108) (51) (5,005)
PREFERRED STOCK DIVIDENDS 11,930 -- -- -- -- -- 2,658 (13)
-------------------------------------------------------------------------------------------------------------- ----------
NET LOSS BEFORE EXTRAORDINARY
ITEM ATTRIBUTABLE TO COMMON
STOCKHOLDERS $ (61,497) $ (32) $(1,811) $ (6,540) $ (108) $ (51) $(7,663)
-------------------------------------------------------------------------------------------------------------- ----------
NET LOSS PER SHARE BEFORE
EXTRAORDINARY ITEM (BASIC AND
DILUTED) $ (2.99) $ -- $ -- $ -- $ -- $ -- $ --
-------------------------------------------------------------------------------------------------------------- ----------
WEIGHTED AVERAGE SHARES
OUTSTANDING 20,611 -- -- -- -- -- 810 (14)
</TABLE>
See notes to unaudited pro forma condensed combined financial statements
7
<PAGE>
eGLOBE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TRANS GLOBAL ADJUST-
TWELVE MONTHS MENTS PRO FORMA
PRO FORMA ENDED 12/31/99 (NOTE B) COMBINED
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE $ 62,797 $ 100,445 $ (499)(15) $ 162,743
COST OF REVENUE 56,436 95,529 (499)(16) 151,466
--------------------------------------------------------------------------------------
GROSS PROFIT (LOSS) 6,361 4,916 -- 11,277
--------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Selling, general and
administrative 40,896 6,651 -- 47,547
Research and development 1,149 -- -- 1,149
Depreciation and
amortization 19,214 3,223 -- 22,437
--------------------------------------------------------------------------------------
TOTAL COSTS AND EXPENSES 61,259 9,874 -- 71,133
--------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS (54,898) (4,958) -- (59,856)
OTHER INCOME (EXPENSE) (8,216) 360 -- (7,856)
--------------------------------------------------------------------------------------
LOSS BEFORE (TAXES) BENEFIT ON
INCOME (LOSS) AND
EXTRAORDINARY ITEM (63,114) (4,598) -- (67,712)
(TAXES) BENEFIT ON INCOME
(LOSS) -- 1,215 (253)(17) 962
--------------------------------------------------------------------------------------
NET LOSS BEFORE EXTRAORDINARY
ITEM (63,114) (3,383) (253) (66,750)
PREFERRED STOCK DIVIDENDS 14,588 -- -- 14,588
--------------------------------------------------------------------------------------
NET LOSS BEFORE EXTRAORDINARY
ITEM ATTRIBUTABLE TO COMMON
STOCKHOLDERS $ (77,702) $ (3,383) $ (253) $ (81,338)
--------------------------------------------------------------------------------------
NET LOSS PER SHARE BEFORE
EXTRAORDINARY ITEM (BASIC AND
DILUTED) $ (3.63) $ -- $ -- $ (1.32)
--------------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES
OUTSTANDING 21,421 -- 40,000 (18) 61,421
</TABLE>
See notes to unaudited pro forma condensed combined financial statements
8
<PAGE>
eGLOBE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
eGLOBE
TWELVE MONTHS TRANS GLOBAL
ENDED 12/31/98 TWELVE MONTHS ADJUSTMENTS PRO FORMA
(NOTE C(20)) ENDED 12/31/98 (NOTE C) COMBINED
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE $ 30,030 $ 85,119 $ -- $ 115,149
COST OF REVENUE 16,806 76,240 -- 93,046
---------------------------------------- ---------------- ------------------ ----------------- --------------
GROSS PROFIT 13,224 8,879 -- 22,103
---------------------------------------- ---------------- ------------------ ----------------- --------------
COSTS AND EXPENSES:
Selling, general and administrative 18,070 5,273 -- 23,343
Depreciation and amortization 3,070 1,514 -- 4,584
---------------------------------------- ---------------- ------------------ ----------------- --------------
TOTAL COSTS AND EXPENSES 21,140 6,787 -- 27,927
---------------------------------------- ---------------- ------------------ ----------------- --------------
INCOME (LOSS) FROM OPERATIONS (7,916) 2,092 -- (5,824)
OTHER INCOME (EXPENSE)
Proxy related litigation expenses (3,647) -- -- (3,647)
Other income (expense) net (1,981) 449 -- (1,532)
---------------------------------------- ---------------- ------------------ ----------------- --------------
TOTAL OTHER INCOME (EXPENSE) (5,628) 449 -- (5,179)
---------------------------------------- ---------------- ------------------ ----------------- --------------
INCOME (LOSS) BEFORE TAXES ON INCOME
(LOSS) (13,544) 2,541 -- (11,003)
TAXES ON INCOME (LOSS) 1,500 1,135 142 (21) 2,777
---------------------------------------- ---------------- ------------------ ----------------- --------------
NET INCOME (LOSS) $(15,044) $ 1,406 $ (142) $ (13,780)
---------------------------------------- ---------------- ------------------ ----------------- --------------
NET LOSS PER SHARE (BASIC AND
DILUTED) $ (0.85) $ -- $ -- $ (0.24)
WEIGHTED AVERAGE SHARES OUTSTANDING 17,737 -- 40,000 (22) 57,737
</TABLE>
See notes to unaudited pro forma condensed combined financial statements
9
<PAGE>
eGLOBE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
eGLOBE TRANS GLOBAL
TWELVE MONTHS TWELVE MONTHS ADJUSTMENTS PRO FORMA
ENDED 3/31/98 ENDED 12/31/97 (NOTE D) COMBINED
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE $ 33,123 $ 46,473 $ -- $ 79,596
COST OF REVENUE 18,866 39,885 -- 58,751
---------------------------------------- ---------------- ------------------ ------------------- ------------
GROSS PROFIT 14,257 6,588 -- 20,845
---------------------------------------- ---------------- ------------------ ------------------- ------------
COSTS AND EXPENSES:
Selling, general and administrative 14,049 3,206 -- 17,255
Corporate realignment expense 3,139 -- -- 3,139
Depreciation and amortization 2,770 758 -- 3,528
---------------------------------------- ---------------- ------------------ ------------------- ------------
TOTAL COSTS AND EXPENSES 19,958 3,964 -- 23,922
---------------------------------------- ---------------- ------------------ ------------------- ------------
INCOME (LOSS) FROM OPERATIONS (5,701) 2,624 -- (3,077)
OTHER INCOME (EXPENSE)
Proxy related litigation expenses (3,901) -- -- (3,901)
Other expense net (2,048) (270) -- (2,318)
---------------------------------------- ---------------- ------------------ ------------------- ------------
TOTAL OTHER EXPENSES (5,949) (270) -- (6,219)
---------------------------------------- ---------------- ------------------ ------------------- ------------
INCOME (LOSS) BEFORE TAXES
(BENEFIT) ON INCOME (LOSS) (11,650) 2,354 -- (9,296)
TAXES (BENEFIT) ON INCOME (LOSS) 1,640 789 (468) (23) 1,961
---------------------------------------- ---------------- ------------------ ------------------- ------------
NET INCOME (LOSS) $(13,290) $ 1,565 $ 468 $ (11,257)
---------------------------------------- ---------------- ------------------ ------------------- ------------
NET LOSS PER SHARE (BASIC AND DILUTED) $ (0.78) $ -- $ -- $ (0.20)
WEIGHTED AVERAGE SHARES OUTSTANDING 17,082 -- 40,000 (24) 57,082
</TABLE>
See notes to unaudited pro forma condensed combined financial statements
10
<PAGE>
eGLOBE, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------------------------------
NOTE A. UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF DECEMBER 31,
1999
The following pro forma adjustments to the unaudited condensed combined balance
sheet are as if the Trans Global Merger had been completed as of December 31,
1999 and are not indicative of what would have occurred if the Merger actually
had been completed as of such date.
<TABLE>
<CAPTION>
<S> <C>
(1) Elimination of Trans Global accounts payable to the Company $ (163)
========
(2) Adjustment to current deferred tax asset to reflect deferred taxes on a
combined basis $ (31)
========
(3) Adjustment to deferred tax asset to reflect deferred taxes on a
combined basis $ (614)
========
(4) Accrual for costs associated with the Merger $ 2,795
========
(5) Adjustment to deferred tax liability to reflect deferred taxes on a
combined basis $ (820)
========
(6) Adjustment to reclass the par value of the shares of Trans Global common
stock to additional paid-in capital, net of the par value of the newly
issued eGlobe common stock $ (10)
========
(7) Adjustments to Accumulated Deficit:
Accrual for costs associated with the Merger $ (2,795)
Adjustment to reflect deferred taxes on a combined basis 175
--------
$ (2,620)
========
</TABLE>
NOTE B. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE
YEAR ENDED DECEMBER 31, 1999
The following pro forma adjustments to the unaudited pro forma condensed
combined statement of operations are as if the acquisitions and related
transactions had been completed at the beginning of the fiscal period presented
and the Trans Global Merger had been completed at the beginning of the earliest
period presented and are not indicative of what would have occurred had the
acquisitions actually been made as of such dates. Coast was acquired in December
1999, ORS was acquired in September 1999, iGlobe was acquired effective August
1999, Connectsoft was acquired in June 1999 and Telekey was acquired in February
1999; therefore, the results of operations of Coast for December 1999, ORS for
September through December 1999, iGlobe for August through December 1999,
Connectsoft for June through December 1999 and Telekey for February through
December 1999 are included in the historical results of operations for the
Company for the year ended December 31, 1999.
11
<PAGE>
eGLOBE, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------------------------------
NOTE B. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE
YEAR ENDED DECEMBER 31, 1999 (CON'T)
<TABLE>
<CAPTION>
<S> <C>
(8) Adjustment to revenue:
Elimination of iGlobe billings to the Company $ (214)
========
(9) Adjustment to cost of revenue: $ (214)
Elimination of iGlobe billings to the Company ========
(10) Adjustment to selling, general and administrative expenses:
Adjustment for the incremental increase in Connectsoft management
Compensation $ 72
Adjustment for various general and administrative services provided by
Oasis to ORS not reflected in statement of operations 76
Adjustment for the incremental increase in Coast management compensation 73
--------
$ 221
========
(11) Adjustments to depreciation and amortization expenses:
One month of amortization of identifiable intangibles acquired in the
Telekey purchase (3-7 year straight-line amortization) $ 47
One month of amortization of costs in excess of net assets acquired
in the Telekey purchase (7 year straight-line amortization) 25
Five months of amortization of identifiable intangibles acquired in the
Connectsoft purchase (3-5 year straight-line amortization) 779
Five months of amortization of costs in excess of net assets acquired in the
Connectsoft purchase (7 year straight-line amortization) 62
Seven months of amortization of identifiable intangibles acquired in the
iGlobe purchase (3 year straight-line amortization) 893
Seven months of amortization of costs in excess of net assets acquired in the
iGlobe purchase (7 year straight-line amortization) 147
Eight months of amortization of identifiable intangibles acquired in the
ORS purchase (3-5 year straight-line amortization) 339
Eight months of amortization of costs in excess of net assets acquired in the ORS
purchase (7 year straight-line amortization) 35
Eleven months of amortization of identifiable intangibles acquired in the Coast
purchase (5 year straight-line amortization) 585
Eleven months of amortization of costs in excess of net assets acquired in the
Coast purchase (7 year straight-line amortization) 1,878
--------
$ 4,790
========
</TABLE>
12
<PAGE>
eGLOBE, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------------------------------
NOTE B. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE
YEAR ENDED DECEMBER 31, 1999 (CON'T)
<TABLE>
<CAPTION>
<S> <C>
(12) Adjustment to other income (expense):
Interest on $0.5 million note payable to seller of Connectsoft $ (30)
Interest on $0.451 million Oasis note (22)
Adjustment to record 10% minority interest in LLC's loss owned by Oasis 58
---------
$ 6
=========
(13) Adjustment to preferred stock dividends:
Eight months dividend on 5% Series K Preferred Stock (exchanged for 6% Series
G Preferred Stock issued in Connectsoft acquisition) $ 100
Nine months dividend on 20% Series M Preferred Stock 1,350
Nine months amortization of premium on Series M Preferred Stock (507)
Nine months amortization of discount on Series M Preferred Stock 1,085
Eleven months dividend on 10% Series O Preferred Stock 630
---------
$ 2,658
=========
(14) Adjustment to the basic weighted average number of shares outstanding of
20,611 shares (in thousands) as if the Coast acquisition had been completed
at the beginning of the period presented 810
=========
(15) Adjustment to revenue:
Elimination of billings between the Company and Trans Global $ (499)
=========
(16) Adjustment to cost of revenue:
Elimination of billings between the Company and Trans Global $ (499)
=========
(17) Adjustment to (taxes) benefit on income (loss):
Adjustment to reflect deferred taxes on a combined basis $ (253)
=========
(18) Adjustment to the pro forma basic weighted average number of shares
outstanding of 21,421 shares (in thousands) as if the Trans Global Merger had
been completed at the beginning of the earliest period presented:
Issuance of additional common stock issued in connection with the Merger 40,000
=========
</TABLE>
13
<PAGE>
eGLOBE, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------------------------------
NOTE B. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE
YEAR ENDED DECEMBER 31, 1999 (CON'T)
(19) Convertible preferred stock was not included in diluted loss per share
before extraordinary item due to the Company recording a loss for the period
presented. The following table reflects the shares (in thousands) of common
stock that would have been issuable upon conversion as of December 31, 1999.
Subsequent to December 31, 1999, the Series F, H and K Preferred Stocks and
150,000 shares of the Series I Preferred Stock automatically converted into
common stock.
<TABLE>
<CAPTION>
<S> <C>
Series F Preferred Stock 1,814
Series H Preferred Stock 3,263
Series I Preferred Stock, including payment of accrued dividends 1,293
Series K Preferred Stock 1,923
Series M Preferred Stock 3,774
Series O Preferred Stock 3,220
------
15,287
======
</TABLE>
14
<PAGE>
eGLOBE, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------------------------------
NOTE C. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE
TWELVE MONTHS ENDED DECEMBER 31, 1998
(20) Effective with the period ended December 31, 1998, the Company changed from
a March 31 to a December 31 fiscal year end. As a result, the following table is
required to reflect twelve months of operations (in thousands).
<TABLE>
<CAPTION>
Nine Months Three Months Twelve Months
Ended 12/31/98 Ended 3/31/98 Ended 12/31/98
-------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $22,491 $ 7,539 $ 30,030
Cost of revenue 12,619 4,187 16,806
-------------------------------------------------------------------------------------------------------------------------
Gross profit 9,872 3,352 13,224
Costs and expenses:
Selling, general and administrative 13,555 4,515 18,070
Depreciation and amortization 2,256 814 3,070
-------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 15,811 5,329 21,140
-------------------------------------------------------------------------------------------------------------------------
Loss from operations (5,939) (1,977) (7,916)
Other income (expense):
Proxy related litigation expenses (120) (3,527) (3,647)
Other expense (1,031) (950) (1,981)
-------------------------------------------------------------------------------------------------------------------------
Total other expenses (1,151) (4,477) (5,628)
-------------------------------------------------------------------------------------------------------------------------
Loss before taxes on income (loss) (7,090) (6,454) (13,544)
Taxes on income (loss) -- 1,500 1,500
-------------------------------------------------------------------------------------------------------------------------
Net loss $(7,090) $(7,954) $(15,044)
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
eGLOBE, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------------------------------
NOTE C. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE
TWELVE MONTHS ENDED DECEMBER 31, 1998 (CON'T)
The following pro forma adjustments to the Unaudited Pro Forma Condensed
Combined Statement of Operations are as if the Merger had been completed at the
beginning of the earliest period presented and are not indicative of what would
have occurred had the Merger and related transactions actually been made as of
such date.
<TABLE>
<S> <C>
(21) Adjustment to taxes on income (loss):
Adjustment to reflect deferred income tax expenses on a combined basis $ 142
=======
(22) Adjustment to the basic weighted average number of shares outstanding of
17,737 shares (in thousands) as if the Trans Global Merger had been completed at
the beginning of the earliest period presented:
Issuance of additional common stock issued in connection with the Merger 40,000
=======
</TABLE>
NOTE D. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE
TWELVE MONTHS ENDED MARCH 31, 1998
The following pro forma adjustments to the Unaudited Pro Forma Condensed
Combined Statement of Operations are as if the Merger had been completed at the
beginning of the earliest period presented and are not indicative of what would
have occurred had the Merger and related transactions actually been made as of
such date.
<TABLE>
<S> <C>
(23) Adjustment to taxes (benefit) on income (loss):
Adjustment to reflect deferred income tax expense on a combined basis $ (468)
=======
(24) Adjustment to the basic weighted average number of shares outstanding of
17,082 shares (in thousands) as if the Trans Global Merger had been completed at
the beginning of the earliest period presented:
Issuance of additional common stock issued in connection with the Merger 40,000
=======
</TABLE>
16
<PAGE>
eGLOBE, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------------------------------
NOTE E. CONTINGENCIES AFTER THE TRANS GLOBAL MERGER
The following adjustments to the unaudited pro forma combined basic net loss per
share before extraordinary item for the year ended December 31, 1999 are to
reflect the following: (1) the issuance of additional shares of Series F
Preferred Stock and IDX warrants which would have occurred if Telekey and IDX,
respectively, had met their earn-out formulas at the beginning of the period
presented; (2) the additional shares of common stock to be issued to UCI
shareholders assuming UCI had met its earn-out provision; (3) the estimated
additional compensation expense related to the Telekey stockholders' grant of
shares under the original agreements; (4) the assumption that the Company's
common stock met the guaranteed trading price of $8.00 per share for UCI related
shares and (5) the assumption that ORS met its earn-out formulas and Oasis
exchanged its ownership in the LLC for the Company's common stock and warrants
at the beginning of the period presented. The increase in goodwill amortization
expense is the result of the additional goodwill recorded as a result of the
above issuances amortized over 7 years using straight-line amortization. It is
assumed that the warrants related to the IDX and ORS earn-outs are exercised at
the beginning of the period presented. In addition, if the Company's common
stock does not trade at the guaranteed trading prices for UCI related shares,
and subject to UCI meeting its earn-out objectives, the Company will be required
to issue additional shares of common stock and the estimated goodwill
amortization reflected below will change.
The final purchase price allocations will be determined when certain
contingencies are resolved as discussed earlier and additional information
becomes available. This is not indicative of what would have occurred had the
acquisitions actually been made as of such date.
The adjusted pro forma weighted average shares outstanding do not include the
2,000,000 shares of common stock held in escrow to cover eGlobe's potential
indemnification obligations under the Merger Agreement.
17
<PAGE>
eGLOBE, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------------------------------
NOTE E. CONTINGENCIES AFTER THE TRANS GLOBAL MERGER (CON'T)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
DECEMBER 31, 1999
-------------------
<S> <C>
PRO FORMA COMBINED BASIC AND DILUTED LOSS PER SHARE:
NUMERATOR
Pro forma net loss before extraordinary item
attributable to common stockholders $(81,338)
Increase in goodwill amortization expense for
earn-out formulas (7 year straight-line
` amortization) (3,292)
Estimated compensation adjustment related to
stock granted to Telekey employees by
Telekey stockholders after the Company's
purchase of Telekey (266)
Reversal of minority interest in loss of ORS due to Oasis's
exchange of its interest in the LLC (84)
--------
Adjusted pro forma net loss before extraordinary
item attributable to common stockholders $(84,980)
--------
DENOMINATOR
Pro forma weighted average shares outstanding 61,421
Number of shares of common stock issuable
under earn-out formulas:
UCI (contingent earn-out stock) 63
IDX warrants 1,088
Number of shares of common stock issuable to
Oasis for its ownership in LLC (assuming
exercise of warrants) 4,000
--------
Adjusted pro forma basic weighted average
shares outstanding 66,572
--------
PER SHARE AMOUNTS
Adjusted pro forma basic and diluted loss per
share before extraordinary item $ (1.28)
</TABLE>
18
<PAGE>
eGLOBE, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------------------------------
NOTE E. CONTINGENCIES AFTER THE TRANS GLOBAL MERGER (CON'T)
The diluted loss per share before extraordinary item for the year ended December
31, 1999 in the above table does not reflect the 15,287 shares (in thousands) of
common stock that would be issuable upon the conversion of the preferred stock
as discussed in Note B (19). As the Company reported a loss in the period, the
effects of these transactions are anti-dilutive.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed in its
behalf by the undersigned, thereunto duly authorized.
eGLOBE, INC.
(Registrant)
By /s/ David Skriloff
--------------------------------
David Skriloff
Chief Financial Officer
Principal Financial Officer)
Date: August 18, 2000
20
<PAGE>
Consolidated Financial Statements
Trans Global Communications, Inc.
Years ended December 31, 1999, 1998 and 1997
with Report of Independent Auditors
<PAGE>
Trans Global Communications, Inc.
Consolidated Financial Statements
Years ended December 31, 1999, 1998 and 1997
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Auditors....................................................................... 1
Consolidated Balance Sheets.......................................................................... 2
Consolidated Statements of Operations................................................................ 3
Consolidated Statements of Stockholders' Equity (Deficit)............................................ 4
Consolidated Statements of Cash Flows................................................................ 5
Notes to Consolidated Financial Statements........................................................... 6
</TABLE>
<PAGE>
Report of Independent Auditors
Board of Directors
Trans Global Communications, Inc.
We have audited the accompanying consolidated balance sheets of Trans Global
Communications, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for each of the three years in the period ended December 31,
1999. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company at December 31, 1999 and 1998, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with accounting principles generally accepted in
the United States.
/s/ Ernst & Young LLP
February 25, 2000
New York, New York
1
<PAGE>
Trans Global Communications, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,724,447 $ 2,623,772
Short-term investments, restricted 1,491,743 1,131,464
Short-term investments -- 11,166,491
Trade accounts receivable, less allowance for doubtful accounts
of approximately $205,000 and $230,000 at December 31,
1999 and 1998, respectively 6,015,445 3,375,499
Other receivables 1,405,351 651,219
Deferred tax asset--current 31,000 96,024
Prepaid expenses and taxes 228,076 1,379,487
----------- -----------
Total current assets 10,896,062 20,423,956
Property, plant and equipment, net 16,159,469 7,045,678
Deferred tax asset 614,000 --
Other assets 318,553 617,865
----------- -----------
Total assets $27,988,084 $28,087,499
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $23,692,325 $24,114,661
Accrued expenses and taxes 334,642 712,043
Notes payable 1,055,442 --
----------- -----------
Total current liabilities 25,082,409 24,826,704
Deferred tax liability 820,000 523,000
Notes payable--long-term 1,664,457 --
Accounts payable--long-term portion 1,000,000 --
----------- -----------
Total liabilities 28,566,866 25,349,704
Minority interest 52,000 --
Stockholders' equity (deficit):
Capital stock--no par; authorized, issued
and outstanding 200 shares 50,000 50,000
Additional paid-in capital 132,231 132,231
Other comprehensive income (loss) 8,919 (5,972)
Retained earnings (deficit) (821,932) 2,561,536
----------- -----------
Total stockholders' equity (deficit) (630,782) 2,737,795
----------- -----------
Total liabilities and stockholders' equity (deficit) $ 27,988,084 $28,087,499
============ ===========
</TABLE>
See accompanying notes.
2
<PAGE>
Trans Global Communications, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998 1997
------------- ------------ ------------
<S> <C> <C> <C>
Net revenues $ 100,445,073 $ 85,119,076 $ 46,473,342
Direct cost of revenue 95,528,758 76,240,079 39,885,533
------------- ------------ ------------
Gross margin 4,916,315 8,878,997 6,587,809
Other costs and expenses:
Selling, general and administrative 6,557,295 4,953,255 3,076,180
Depreciation 3,223,031 1,513,451 757,633
Bad debt expense 94,034 319,765 130,081
------------- ------------ ------------
Total other costs and expenses 9,874,360 6,786,471 3,963,894
------------- ------------ ------------
Operating (loss) income (4,958,045) 2,092,526 2,623,915
Other (expense) income:
Interest expense (172,148) (50,282) (167,431)
Interest income 634,037 474,078 201,160
Other income (expense) 1,688 25,071 (303,680)
------------- ------------ ------------
Total other income (expense) 463,577 448,867 (269,951)
------------- ------------ ------------
(Loss) income before (benefit) provision for
income taxes and minority interest (4,494,468) 2,541,393 2,353,964
(Benefit) provision for income taxes (1,215,000) 1,135,000 789,000
Minority interest (104,000) -- --
------------- ------------ ------------
Net (loss) income $ (3,383,468) $ 1,406,393 $ 1,564,964
============= ============ ============
</TABLE>
See accompanying notes.
3
<PAGE>
Trans Global Communications, Inc.
Consolidated Statements of Stockholders' Equity (Deficit)
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
RETAINED ACCUMULATED
COMMON STOCK ADDITIONAL EARNINGS OTHER TOTAL
------------------- PAID-IN (ACCUMULATED COMPREHENSIVE EQUITY
SHARES AMOUNT CAPITAL DEFICIT) LOSS (DEFICIT)
-------- -------- --------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 200 $ 50,000 $ 132,231 $ (409,821) $ -- $ (227,590)
Comprehensive income (loss):
Foreign currency translation adjustment -- -- -- -- (672) (672)
Net income for the year ended
December 31, 1997 -- -- -- 1,564,964 -- 1,564,964
-----------
Total -- -- -- -- -- 1,564,292
-------- -------- --------- ---------- ------- -----------
Balance at December 31, 1997 200 50,000 132,231 1,155,143 (672) 1,336,702
Comprehensive income (loss):
Foreign currency translation adjustment -- -- -- -- (5,300) (5,300)
Net income for the year ended
December 31, 1998 -- -- -- 1,406,393 -- 1,406,393
-----------
Total -- -- -- -- -- 1,401,093
-------- -------- --------- ---------- ------- -----------
Balance at December 31, 1998 200 50,000 132,231 2,561,536 (5,972) 2,737,795
Comprehensive income (loss):
Foreign currency translation adjustment -- -- -- -- 14,891 14,891
Net loss for the year ended
December 31, 1999 -- -- -- (3,383,468) -- (3,383,468)
-----------
Total -- -- -- -- -- (3,368,577)
-------- -------- --------- ---------- ------- -----------
Balance at December 31, 1999 200 $ 50,000 $ 132,231 $ (821,932) $ 8,919 $ (630,782)
======== ======== ========= ========== ======= ===========
</TABLE>
See accompanying notes.
4
<PAGE>
Trans Global Communications, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998 1997
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) income $ (3,383,468) $ 1,406,393 $ 1,564,964
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation 3,223,031 1,513,451 757,633
Provision for doubtful accounts 94,034 319,765 130,081
Deferred taxes (251,976) 141,976 422,704
Minority interest 104,000 -- --
Changes in assets and liabilities:
Accounts receivable (2,733,980) (2,466,483) (800,429)
Other receivables (754,132) (419,644) (158,113)
Prepaid expenses and taxes 1,151,411 (770,025) (609,462)
Other assets 299,312 441,490 34,645
Accounts payable 577,664 16,254,565 6,066,150
Accrued expenses and taxes (377,401) 98,427 220,864
Interest payable -- (35,033) (30,788)
------------- ----------- -----------
Net cash (used in) provided by operating activities (2,051,505) 16,484,882 7,598,249
------------- ----------- -----------
INVESTING ACTIVITIES
Net sales (purchases) of short-term investments 10,806,212 (10,023,255) (2,274,700)
Purchases of property, plant and equipment (12,336,822) (3,211,773) (3,981,303)
------------- ----------- -----------
Net cash used in investing activities (1,530,610) (13,235,028) (6,256,003)
------------- ----------- -----------
FINANCING ACTIVITIES
Proceeds from borrowings 4,318,177 -- --
Repayments of borrowings (1,598,278) (1,665,569) (866,292)
Distribution to minority interest holder (52,000) -- --
------------- ----------- -----------
Net cash provided by (used in)
financing activities 2,667,899 (1,665,569) (866,292)
------------- ----------- -----------
Effect of exchange rates on cash 14,891 (5,300) (672)
Net (decrease) increase in cash and
cash equivalents (899,325) 1,578,985 475,282
Cash and cash equivalents at beginning of period 2,623,772 1,044,787 569,505
------------- ----------- -----------
Cash and cash equivalents at end of period $ 1,724,447 $ 2,623,772 $ 1,044,787
============= =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments made for interest $ 164,000 $ 86,000 $ 198,000
============= =========== ===========
Cash payments made for income taxes $ 97,000 $ 569,000 $ 905,000
============= =========== ===========
</TABLE>
See accompanying notes
5
<PAGE>
Trans Global Communications, Inc.
Notes to Consolidated Financial Statements
December 31, 1999
1. ORGANIZATION AND MERGER
Trans Global Communications, Inc. (the "Company") was incorporated in the state
of New York on February 22, 1995 as a telecommunications company providing
international and domestic long distance telephone services, switching services
and co-location services. The Company's customers consist primarily of other
telecommunications organizations that resell the Company's services.
The consolidated financial statements include the accounts of the Company and
its majority owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
On December 16, 1999, the Company entered into a definitive agreement to merge
with eGlobe, Inc. whereby all of the Company's common stock will be exchanged
for 40,000,000 shares of eGlobe, Inc.'s common stock. The Company expects the
merger to be completed in the first quarter of 2000.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. In December 1999, the Company
agreed to merge with eGlobe, Inc. Should the merger with eGlobe, Inc. not be
consummated, the Company would require additional financing to continue as a
going concern.
Since December 31, 1999 the Company has borrowed $3.8 million from eGlobe under
a promissory note dated February 15, 2000 which bears interest at 8% and is
payable in full on December 31, 2000. The loan from eGlobe to Trans Global was
used for working capital purposes, primarily to pay trade payables.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results may differ from those estimates.
6
<PAGE>
Trans Global Communications, Inc.
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Telecommunications revenue is recognized at the time service is provided to the
customer. Sales to the top two customers amounted to approximately 32% and 28%
of net revenues for the year ended December 31, 1999.
Sales to the top three customers amounted to approximately 36%, 17% and 16% of
net revenues for the year ended December 31, 1998. For the year ended December
31, 1997, net sales to the top two customers amounted to approximately 43% and
16%.
DIRECT COST OF REVENUE
Direct cost of revenue consists primarily of network, switching and circuit
costs and are recognized as incurred in the providing of telecommunication
services. Direct cost of revenue excludes depreciation and amortization
expenses.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. Cash and cash equivalents
are carried at cost, which approximates market value.
SHORT-TERM INVESTMENTS
Short-term investments includes funds invested in a money market fund which
invests in a broad range of money market securities, including, but not limited
to, short-term U.S. government and agency securities, bank certificates of
deposit and corporate commercial paper. Short-term investments are carried at
amortized cost, which approximates fair value.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives of the assets, ranging from
three to five years. Leasehold improvements are amortized over the terms of the
respective leases or the service lives of the improvements, whichever is
shorter.
Expenditures for maintenance and repairs are expensed as incurred.
7
<PAGE>
Trans Global Communications, Inc.
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. If the
sum of the expected future undiscounted cash flows is less than the carrying
amount of the asset, a loss is recognized for the difference between the fair
value and carrying value of the asset.
ADVERTISING COSTS
Advertising costs, which are included in selling, general and administrative
expenses, are charged to expense as incurred. For the years ended December 31,
1999, 1998, and 1997, advertising expense totaled approximately $254,000,
$163,000 and $131,000, respectively.
INCOME TAXES
The Company accounts for income taxes in accordance with the asset and liability
method of accounting for income taxes, as prescribed by the Financial Accounting
Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS")
No. 109. Under this method, deferred tax assets and liabilities are determined
based on differences between the financial reporting carrying amounts and tax
bases of existing assets and liabilities, including the effect of operating
losses and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to the taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period of the enactment date.
CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash, cash equivalents and trade accounts
receivable. Concentrations of credit risk with respect to trade receivables are
limited due to the performance by the Company of ongoing customer credit
evaluations. Management regularly monitors the creditworthiness of its customers
and believes that it has adequately provided for any exposure to potential
credit losses.
The Company maintains cash balances in several bank accounts at institutions
insured by the Federal Deposit Insurance Corporation up to $100,000. Most of the
Company's accounts are in excess of $100,000.
8
<PAGE>
Trans Global Communications, Inc.
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments has been determined using
available market information or other appropriate valuation methodologies.
However, considerable judgment is required in interpreting market data to
develop estimates of fair value. Consequently, the estimates are not necessarily
indicative of the amounts that could be realized or would be paid in a current
market exchange.
For notes payable which are short term or have variable interest rates, fair
values are based on carrying values. The carrying value of such notes
approximated their fair value at December 31, 1999.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities ("SFAS No. 133").
This statement establishes accounting and reporting standards requiring that
every derivative instrument (including certain derivative instruments embedded
in other contracts) be recorded on the balance sheet as either an asset or
liability measured at its fair value. This statement requires that changes in
the derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows derivative's gains and losses to offset related results on the hedge item
in the income statement, and requires a company to formally document, designate
and assess the effectiveness of transactions that receive hedge accounting. This
statement, as amended by SFAS No. 137, Accounting for Derivative Instruments and
Hedging Activities--Deferral of the effective date of FASB Statement No. 133, is
effective for fiscal years beginning after June 15, 2000 and cannot be applied
retroactively. The Company believes that the adoption of this standard will not
have a material effect on the Company's consolidated results of operations or
financial position due to their limited use of derivatives.
9
<PAGE>
Trans Global Communications, Inc.
Notes to Consolidated Financial Statements (continued)
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
------------------------------------------
<S> <C> <C>
Switching equipment $ 11,485,109 $ 6,773,906
Telecom equipment 8,628,370 1,140,034
Computers and software 496,586 446,826
Building improvements 992,469 936,627
Furniture, fixtures and other 288,348 256,667
----------------------- -------------------
Total 21,890,882 9,554,060
Less accumulated depreciation (5,731,413) (2,508,382)
----------------------- -------------------
Net property, plant and equipment $ 16,159,469 $ 7,045,678
======================= ===================
</TABLE>
Effective December 10, 1999 the Company entered into a Security Agreement
(Security Agreement") with one of its vendors granting a security interest in
all unencumbered fixed assets owned, except as noted in footnote # 4, as of the
date of the Security Agreement to secure payment of outstanding obligations to
the vendor.
10
<PAGE>
Trans Global Communications, Inc.
Notes to Consolidated Financial Statements (continued)
4. NOTE PAYABLE
Effective June 11, 1999, the Company entered into a financing agreement
(Promissory Note) with General Electric Capital Corporation to fund the purchase
of switch hardware and software for a total of $3,318,177. The Promissory Note
is to be paid in 36 consecutive monthly installments of $104,558 (principal and
interest) at a fixed interest rate of 8.88%.
At December 31, 1999, $1,055,442 of principal was classified as current. The
note is collateralized by the equipment which had a net carrying value of
approximately $2,931,000 at December 31. 1999.
The following are the principal payments of the note payable for each of the
next five years as of December 31, 1999:
<TABLE>
<CAPTION>
<S> <C>
Year ending December 31:
2000 $1,055,442
2001 1,153,075
2002 511,382
2003 --
2004 --
-------------
Total principal payments $2,719,899
=============
</TABLE>
5. INCOME TAXES
Significant components of the Company's deferred tax assets and liabilities
consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
------------------------------
<S> <C> <C>
Deferred tax assets:
Bad debt reserve $31,000 $96,024
Net operating loss carryforwards 614,000 --
------------- ----------
645,000 96,024
Deferred tax liabilities:
Depreciation (820,000) (523,000)
------------- ----------
Net deferred tax liabilities $(175,000) $(426,976)
============= ==========
</TABLE>
11
<PAGE>
Trans Global Communications, Inc.
Notes to Consolidated Financial Statements (continued)
5. INCOME TAXES (CONTINUED)
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
1999 1998
------------------------------
<S> <C> <C>
Current--Federal $(962,000) $1,277,000
Deferred--Federal (253,000) (142,000)
------------- ----------
Provision (benefit) for income taxes $(1,215,000) $1,135,000
============= ==========
</TABLE>
The differences between income taxes expected at the U.S. federal statutory
income tax rate and income taxes provided are as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------------------------
<S> <C> <C>
Provision (benefit) at federal tax rate (34%) $ (1,528,000) $ 787,000
Foreign losses for which no benefit provided 201,000 295,000
Non-deductible expenses 112,000 53,000
--------------------- --------------
Provision (benefit) for income taxes $ (1,215,000) $ 1,135,000
===================== ==============
</TABLE>
At December 31, 1999, the Company had net operating losses carryforwards of $1.8
million expiring in 2019.
6. RELATED PARTY TRANSACTIONS
The Company has several leases through March 31, 2003 for the use of its offices
with a company that is owned by one of the Company's shareholders. The monthly
rent expense for these office leases is $47,400 through March 31, 2001. The
monthly rent for these office leases will be $48,750 for the twelve month period
beginning April 1, 2001 and ending March 31, 2002, and $50,000 for the twelve
month period beginning April 1, 2002 and ending March 31, 2003. Rent expense
paid to companies owned by a shareholder of the Company was approximately
$573,000, $263,000, and $209,000 for the years ended December 31, 1999, 1998,
and 1997, respectively.
12
<PAGE>
Trans Global Communications, Inc.
Notes to Consolidated Financial Statements (continued)
7. COMMITMENTS AND CONTINGENCIES
LEASES
The future minimum payments for all noncancelable operating leases as of
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
---------------
<S> <C>
Year ending December 31:
2000 $1,973,000
2001 710,000
2002 709,000
2003 239,000
---------------
Total minimum future rental payments $3,631,000
===============
</TABLE>
For the years ended December 31, 1999, 1998 and 1997 net rent expense totaled
approximately $796,000, $407,000 and $305,000, respectively.
LETTERS OF CREDIT
Outstanding letters of credit issued as security as required by certain
telecommunications vendors, amounted to approximately $1,464,000 and $1,100,000
at December 31, 1999 and 1998, respectively. Such amounts were secured by
restricted short-term investments.
8. YEAR 2000 (UNAUDITED)
The Company depends on several computer systems and other computer chip-based
devices for the operation of its business. The Company completed all Year 2000
readiness work and has not experienced any significant Year 2000 problems with
respect to technological operations under its sole control or of those
technological operations under control of third parties which the Company is
dependent upon.
The Company did not incur significant costs to address the Year 2000 issue nor
does it expect to have material expenditures in the future related to the Year
2000 issue as it does not foresee having any significant continued exposure
resulting from Year 2000 problems.
13
