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, 1999 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 (I.R.S. Employer
of incorporation of Identification No.)
organization)
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.
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, 1999 is 20,064,043 shares, all of one class of $.001 par
value Common Stock.
EGLOBE, INC.
FORM 10-Q
QUARTER ENDED JUNE 30, 1999
TABLE OF CONTENTS
PAGE
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PART I Item 1 Consolidated Financial Statements
Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998 3 - 4
Consolidated Statements of Operations for the three months ended June 30, 1999
and 1998 5
Consolidated Statements of Comprehensive Income (Loss) for the three months
ended June 30, 1999 and 1998 6
Consolidated Statements of Operations for the six months ended June 30, 1999 and 1998 7
Consolidated Statement of Comprehensive Income (Loss) for the six months
ended June 30, 1999 and 1998 8
Consolidated Statements of Cash Flows for the six months
ended June 30, 1999 and 1998 9 - 10
Supplemental Disclosures of Cash Flow Information 11 - 12
Notes to Consolidated Financial Statements 13 - 38
Item 7 Management's Discussion and Analysis of Financial Condition and Results of
Operations 39 - 46
Item 7A Quantitative and Qualitative Disclosure About Market Risk 47
PART II Item 1 Legal Proceedings 47
Item 2 Changes in Securities 47
Item 3 Defaults Upon Senior Securities 47
Item 4 Submission of Matters to a Vote of Security Holders 48 - 49
Item 5 Other Information 50
Item 6 Exhibits and Reports on Form 8-K 50 - 51
SIGNATURES 52
2
EGLOBE, INC.
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1999 AND DECEMBER 31, 1998
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PRO FORMA
JUNE 30, 1999
(UNAUDITED) JUNE 30, 1999
(NOTE 12) (UNAUDITED) DECEMBER 31, 1998
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ASSETS
CURRENT:
Cash and cash equivalents $5,699,870 $ 2,201,681 $1,407,131
Restricted cash 155,843 155,843 100,438
Accounts receivable, less 8,244,941 8,244,941 6,850,872
allowance of $1,438,057, $1,438,057
and $986,497 for doubtful accounts
Other current assets 1,383,648 1,383,648 494,186
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TOTAL CURRENT ASSETS 15,484,302 11,986,113 8,852,627
PROPERTY AND EQUIPMENT, 18,257,682 13,320,682 13,152,410
net of accumulated depreciation
and amortization of $15,901,656,
$15,407,956 and $13,648,667
GOODWILL, net of accumulated
amortization of $1,471,868, 16,844,152 16,844,152 11,865,142
$1,471,868, and $140,391
OTHER INTANGIBLE ASSETS, 10,632,035 10,632,035 241,461
net of accumulated amortization of
$1,043,552, $1,043,552 and $786,074
OTHER:
Advances to a non-affiliate (Note 4) - - 970,750
Deposits 677,502 677,502 518,992
Deferred financing and acquisition costs 393,620 483,620 736,071
Other assets 399,787 399,787 50,708
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TOTAL OTHER ASSETS 1,470,909 1,560,909 2,276,521
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TOTAL ASSETS $62,689,080 $ 54,343,891 $36,388,161
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See accompanying summary of accounting policies and notes to consolidated
financial statements.
3
EGLOBE, INC.
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1999 AND DECEMBER 31, 1998
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PRO FORMA
JUNE 30, 1999
(UNAUDITED) JUNE 30, 1999
(NOTE 12) (UNAUDITED) DECEMBER 31, 1998
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LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
CURRENT:
Accounts payable $ 7,979,873 $ 7,572,873 $ 5,798,055
Accrued expenses 7,710,682 8,777,399 6,203,177
Income taxes payable 1,319,410 1,319,410 1,914,655
Notes payable and line of credit principally 1,275,000 5,693,024 6,298,706
related to acquisitions (Notes 5, 6 and 12)
Notes payable and current maturities of 5,749,877 16,638,772 8,540,214
long-term debt (Notes 7 and 12)
Deferred revenue (Note 5) 994,977 994,977 485,804
Other liabilities 493,273 493,273 567,488
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TOTAL CURRENT LIABILITIES 25,523,092 41,489,728 29,808,099
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LONG-TERM DEBT, net of current maturities 9,895,622 4,198,311 1,237,344
(Notes 5, 7 and 12)
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TOTAL LIABILITIES 35,418,714 45,688,039 31,045,443
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COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK, 3,006,411 3,006,411 -
6% Series G Cumulative Convertible Redeemable
Preferred Stock, $.001 par value, 1 share
authorized and outstanding (Note 8)
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STOCKHOLDERS' EQUITY:
Preferred stock, all series, $.001 par value, 2,413 1,513 501
10,000,000, 10,000,000, and 5,000,000
shares authorized (Note 9)
Common stock, $.001 par value, 100,000,000 shares 20,063 19,923 16,362
authorized, 20,064,043, 19,923,444 and 16,362,966
shares outstanding (Note 9)
Additional paid-in capital 67,099,970 51,776,496 33,975,268
Stock to be issued (Note 9) 4,268,690 978,690 -
Accumulated deficit (47,315,780) (47,315,780) (28,566,346)
Accumulated other comprehensive income (loss) 188,599 188,599 (83,067)
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TOTAL STOCKHOLDERS' EQUITY 24,263,955 5,649,441 5,342,718
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TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK $ 62,689,080 $54,343,891 $ 36,388,161
AND STOCKHOLDERS' EQUITY
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See accompanying summary of accounting policies and notes to consolidated
financial statements.
4
EGLOBE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)
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THREE MONTHS THREE MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1999 1998
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REVENUE $9,115,824 $ 7,686,335
COST OF REVENUE 9,251,885 4,040,483
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GROSS PROFIT (LOSS) (136,061) 3,645,852
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COSTS AND EXPENSES:
Selling, general and administrative 5,947,134 3,625,522
Deferred compensation related to acquisitions 43,080 -
Depreciation and amortization 888,571 687,326
Amortization of goodwill and other intangible assets 1,044,048 -
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TOTAL COSTS AND EXPENSES 7,922,833 4,312,848
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LOSS FROM OPERATIONS (8,058,894) (666,996)
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OTHER INCOME (EXPENSE):
Interest expense related to acquisitions (180,819) -
Other interest expense (3,021,651) (290,848)
Other income (expense) 13,543 (50,256)
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TOTAL OTHER INCOME (EXPENSE) (3,188,927) (341,104)
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LOSS BEFORE INCOME TAXES (11,247,821) (1,008,100)
TAXES ON INCOME - -
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NET LOSS (11,247,821) (1,008,100)
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PREFERRED STOCK DIVIDENDS (Note 9) 616,594 -
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NET LOSS ATTRIBUTABLE TO COMMON STOCK $ (11,864,415) $ (1,008,100)
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NET LOSS PER SHARE (Note 10):
BASIC $ (0.60) $ (0.06)
DILUTED $ (0.60) $ (0.06)
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See accompanying summary of accounting policies and notes to consolidated
financial statements.
5
EGLOBE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
THREE MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)
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THREE MONTHS THREE MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1999 1998
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NET LOSS $(11,247,821) $(1,008,100)
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS 176,916 (12,277)
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COMPREHENSIVE NET LOSS $(11,070,905) $(1,020,377)
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See accompanying summary of accounting policies and notes to consolidated
financial statements
6
EGLOBE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)
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SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1999 1998
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REVENUE $17,500,874 $ 15,225,372
COST OF REVENUE 17,236,637 8,228,059
GROSS PROFIT 264,237 6,997,313
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COSTS AND EXPENSES:
Selling, general and administrative 10,607,955 7,172,599
Corporate realignment expense - 967,715
Deferred compensation related to acquisitions 962,400 -
Depreciation and amortization 1,782,465 1,501,198
Amortization of goodwill and other intangible assets 1,598,794 -
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TOTAL COSTS AND EXPENSES 14,951,614 9,641,512
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LOSS FROM OPERATIONS (14,687,377) (2,644,199)
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OTHER INCOME (EXPENSE):
Proxy related litigation expense - (3,526,874)
Interest expense related to acquisitions (418,744) -
Other interest expense (3,648,855) (1,008,680)
Other income (expense) 5,542 (282,565)
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TOTAL OTHER INCOME (EXPENSE) (4,062,057) (4,818,119)
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LOSS BEFORE INCOME TAXES (18,749,434) (7,462,318)
TAXES ON INCOME - 1,500,000
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NET LOSS (18,749,434) (8,962,318)
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PREFERRED STOCK DIVIDENDS (Note 9) 4,328,973 -
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NET LOSS ATTRIBUTABLE TO COMMON STOCK $ (23,078,407) $ (8,962,318)
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NET LOSS PER SHARE (Note 10):
BASIC $ (1.22) $ (0.52)
DILUTED $ (1.22) $ (0.52)
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See accompanying summary of accounting policies and notes to consolidated
financial statements.
7
EGLOBE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)
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SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998
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NET LOSS $(18,749,434) $(8,962,318)
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS 271,666 (12,277)
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COMPREHENSIVE NET LOSS $(18,477,768) $(8,974,595)
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See accompanying summary of accounting policies and notes to consolidated
financial statements
8
EGLOBE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)
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SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1999 1998
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
OPERATING ACTIVITIES:
Net loss $ (18,749,434) $ (8,962,318)
Adjustments to reconcile net loss to net cash flows
used in operating activities:
Depreciation and amortization 3,381,259 1,501,198
Provision for bad debts 371,618 838,910
Deferred compensation 962,400 -
Non-cash interest expense 201,956 -
Issuance of options and warrants for services 18,849 220,000
Amortization of debt discount 3,019,993 478,580
Proxy related litigation expense - 3,500,000
Other, net - 189,032
Changes in operating assets and liabilities:
Accounts receivable (1,699,235) (114,895)
Other current assets (758,873) 196,634
Other assets (542,213) -
Accounts payable 1,301,544 1,818,775
Income taxes payable (595,245) -
Accrued expenses (255,016) (39,786)
Deferred revenue (100,227) -
Other liabilities (93,254) (134,442)
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CASH USED IN OPERATING ACTIVITIES (13,535,878) (508,312)
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INVESTING ACTIVITIES:
Advances to non-affiliates subsequently acquired - (950,000)
Purchase of Telekey, net of cash acquired (95,287) -
Purchase of ConnectSoft, net of cash acquired (1,546,140) -
Purchases of property and equipment (240,681) (779,269)
Restricted cash (2,004) (300,000)
Other assets (158,510) (515,669)
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CASH USED IN INVESTING ACTIVITIES (2,042,622) (2,544,938)
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9
EGLOBE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)
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SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1999 1998
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FINANCING ACTIVITIES:
Proceeds from notes payable 7,769,925 7,997,787
Proceeds from issuance of preferred stock 10,000,000 -
Stock issuance costs (703,769) -
Deferred acquisition and financing costs (87,133) -
Principal payments on notes payable (329,850) (7,196,098)
Payments on capital leases (276,123) -
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NET CASH PROVIDED BY FINANCING ACTIVITIES 16,373,050 801,689
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NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 794,550 (2,251,561)
CASH AND CASH EQUIVALENTS, beginning of period 1,407,131 3,787,881
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CASH AND CASH EQUIVALENTS, end of period $2,201,681 $ 1,536,320
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See accompanying summary of accounting policies and notes to consolidated
financial statements.
10
EGLOBE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
SIX MONTHS ENDED
JUNE 30,
1999 1998
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Cash paid during the period for:
Interest $ 321,115 -
Income taxes $ 264,977 $129,010
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Non-cash investing and financing activities:
Equipment acquired under capital lease obligations $ 440,270 -
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Unamortized debt discount related to warrants $ 428,138 -
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Common stock issued in payment of debt $ 1,223,198 -
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Preferred stock dividends $ 4,328,973 -
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Value of warrants issued and reflected as debt discount $ 2,870,782 -
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Increase in value of preferred stock as a result of changes in $ 1,485,000 -
conversion feature
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11
EGLOBE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION (CONTINUED)
CONNECTSOFT ACQUISITION, NET OF CASH ACQUIRED (Note 11)
FOR THE SIX MONTHS ENDED JUNE 30,
1999 1998
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Working capital deficit, other than cash acquired $ (2,118,111) $ -
Property and equipment 513,437 -
Intangible assets 9,120,000 -
Purchase price in excess of the net assets acquired 993,440 -
Acquired debt (2,991,876) -
Advances to ConnectSoft prior to beginning of the
period (970,750) -
Issuance of Series G Cumulative
Convertible Redeemable Preferred stock (3,000,000) -
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Net cash used to acquire ConnectSoft $ 1,546,140 $ -
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION (CONTINUED)
TELEKEY ACQUISITION, NET OF CASH ACQUIRED (Note 11)
FOR THE SIX MONTHS ENDED JUNE 30,
1999 1998
-------------------------------------------------------------
Working capital deficit, other than cash acquired $ (1,284,060) $ -
Property and equipment 481,289 -
Intangible assets 1,500,000 -
Purchase price in excess of the net assets acquired 3,500,436 -
Acquired debt (1,017,065) -
Notes payable issued in acquisition (150,000) -
Issuance of Series F Convertible Preferred Stock (1,010) -
Additional paid-in capital (1,955,613) -
Stock to be issued (978,690) -
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Net cash used to acquire Telekey $ 95,287 $ -
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See accompanying summary of accounting policies and notes to consolidated
financial statements.
12
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE 1 - BASIS OF PRESENTATION
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The accompanying consolidated financial statements have been prepared
in accordance with United States generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they 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. Operating results for the three
and six month periods ended June 30, 1999 are not necessarily
indicative of the results that may be expected for the year ended
December 31, 1999. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's
Form 10-K for the nine months ended December 31, 1998.
The accompanying financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All material intercompany
transactions and balances have been eliminated in consolidation.
Certain consolidated financial amounts have been reclassified for
consistent presentation. In December 1998, the Company acquired IDX
International, Inc. ("IDX"), a supplier of Internet Protocol ("IP")
transmission services, principally to telecommunications carriers, in
14 countries. Also, in December 1998, the Company acquired UCI Tele
Networks, LTD. ("UCI"), a development stage calling card business with
contracts to provide calling card services in Cyprus and Greece. In
February 1999, the Company completed the acquisition of Telekey, Inc.
("Telekey"), a provider of card-based telecommunications services (see
Notes 9 and 11). In June 1999, the Company, through its newly formed
subsidiary Vogo Networks, LLC ("Vogo"), purchased substantially all of
the assets of ConnectSoft Communications Corporation ("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). (See Notes 4, 6, 8
and 11 for further discussion).
Recent Accounting Pronouncements - The Financial Accounting Standards
Board ("FASB") has issued Statement of Financial Accounting Standards
("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 requires companies to record derivatives on
the balance sheet as assets or liabilities, measured at fair market
value. Gains or losses resulting from changes in the values of those
derivatives are accounted for depending on the use of the derivative
and whether it qualifies for hedge accounting. The key criterion for
hedge accounting is that the hedging relationship must be highly
effective in achieving offsetting changes in fair value or cash flows.
SFAS No. 133 is effective for fiscal years beginning after June 15,
2000. Management believes that the adoption of SFAS No. 133 will have
no material effect on its financial statements.
13
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE 2 - CHANGE OF COMPANY NAME
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At the annual meeting of the stockholders of the Company on June 16,
1999, the stockholders approved and adopted a proposal for amending the
Certificate of Incorporation to change the name of the Company from
Executive TeleCard, Ltd. to eGlobe, Inc.
NOTE 3 - MANAGEMENT'S PLAN
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As of June 30, 1999, the Company had a net working capital deficiency
of $29.5 million. This net working capital deficiency resulted
principally from a loss from operations of $14.6 million (including
depreciation, amortization and other non-cash charges) for the six
months ended June 30, 1999. Also contributing to the working capital
deficiency was $16.6 million in current maturities on long-term debt,
short term indebtedness for $5.7 million related to acquisitions, and
$16.4 million in accounts payable and accrued expenses. The $16.6
million of long term debt currently due consisted primarily of $7.5
million of debt which was paid in July 1999 and $7.0 million which was
a bridge loan subsequently incorporated into a larger financing
completed in July 1999 with the Company's largest stockholder. The
indebtedness related to acquisitions includes $0.4 million related to
the Telekey acquisition in February 1999 and $4.9 million related to
IDX and UCI, two acquisitions completed in December 1998. Of this
latter amount, up to $4.4 million (plus accrued interest) was eligible
to be paid, at the Company's sole discretion, by the issuance of
common stock. In July 1999, the Company restructured the IDX purchase
agreement and in so doing converted $4.0 million of the debt to
preferred stock and $.4 million to common stock. See Note 12 for
further discussion.
On April 9, 1999, the Company entered into a financing commitment
totaling $20.0 million with the Company's largest stockholder in the
form of long-term debt. This commitment was approved by the Company's
stockholders at its annual meeting in June 1999. (See Note 12 for
additional information on this financing.) Under the terms of the
financing commitment, the lender provided the Company with a short term
$7.0 million unsecured loan, which was repaid out of the larger, long
term $20.0 million financing received after stockholder approval.
On the operating level, the Company is renegotiating its relationship
with an entity that was formerly one of its largest customers. At June
30, 1999, 22% of the Company's net accounts receivable of $8.2 million
was due from this entity for which extended credit terms have been
granted. The new arrangement will assure more effective and timely
collection of receivables from that customer to permit renewed growth
in that customer's business. This arrangement will also assist in the
collection of certain amounts impacted by the extended credit terms --
the anticipated arrangements will include the Company managing the cash
collections from the ultimate users of the services supplied to the
customer.
14
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
This series of transactions provides net working capital of $21.0
million, extends payment periods of certain indebtedness and improves
the balance sheet of the Company. Combined, these transactions would
help fund existing operating losses and would provide a modest base for
growth; but they do not represent sufficient capital to meet the plan
established by management.
The estimated capital requirement through mid 2000, needed to continue
to fund certain anticipated operating losses, to meet the pre-existing
1999 cash obligations of approximately $6.0 million and finance the
growth plan, is approximately $20.0 million. Add to that the
anticipated requirements of a more active acquisition program of
approximately $20.0 million. The resulting capital needs to achieve the
full growth targeted in the Company's business plan over the next
twelve months reach approximately $40.0 million.
The Company anticipates seeking to meet these cash needs in the latter
part of the year from (1) a private placement of equity in the third
quarter of $10.0 million and (2) a capital market financing of debt or
equity in the fourth quarter of up to $30.0 million, with the
possibility that some of this total will be diminished by secured,
equipment-based financing. There can be no assurance that the Company
will raise additional capital or generate funds from operations
sufficient to meet its obligations and planned requirements. Should the
Company be unable to raise additional funds from these or other
sources, then its plans would need to be sharply curtailed and its
business adversely affected.
NOTE 4 - ADVANCES TO A NON-AFFILIATE SUBSEQUENTLY ACQUIRED
- --------------------------------------------------------------------------------
In June 1999, the Company through its subsidiary Vogo purchased
substantially all the assets of ConnectSoft, including $500,000 in cash
and promissory notes from the seller (paid in June and July 1999), for
which the Company issued one share of its 6% Series G Cumulative
Convertible Redeemable Preferred Stock valued at $3.0 million, assumed
liabilities of approximately $5.0 million, consisting primarily of
long-term lease obligations, and issued a $0.5 million promissory note.
Additionally, advances to ConnectSoft totaling $1.8 million made by the
Company prior to the acquisition were converted into part of the
purchase price.
The note to the seller bears interest at a variable rate (8.0% at June
30, 1999). Principal and interest payments are due in twelve (12) equal
monthly payments commencing on September 1, 1999. The remaining
principal and accrued interest also become due on the first date on
which (i) the Company receives in any transaction or series of
transactions any equity or debt financing of at least $50.0 million or
(ii) Vogo receives in any transaction or series of transactions any
equity or debt financing of at least $5.0 million. (See Note 7, 8 and
11 for further discussion).
15
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE 5 - DEFERRED REVENUE
- --------------------------------------------------------------------------------
Some revenues from the Company's card services business come from
supplying underlying services to issuers of prepaid cards. Those
issuers prepay some or all of the services provided. Payments received
in advance for such services are recorded in the accompanying balance
sheets as deferred revenue. Consequently, revenues from such services
are recognized as the cards are used and service provided. When a card
for which service has been contracted expires without being fully used
(cards have effective lives of up to one year), then the unused value
is referred to as breakage and recorded as revenue at the date of
expiration.
16
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
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NOTE 6 - NOTES PAYABLE AND LINE OF CREDIT PRINCIPALLY RELATED TO ACQUISITIONS
- -------------------------------------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
1999 1998
- -------------------------------------------------------------------------------------------------------------
12 % unsecured term note payable to an investor, net of $250,000 $ 223,649
unamortized discount of $0 and $26,351, interest and principal
payable in September 1999. (1)
Convertible subordinated promissory note for acquisition of - 1,000,000
IDX, interest and principal repaid March 1999 through issuance
of common stock. (2)
Convertible subordinated promissory note for acquisition of 418,024 418,024
IDX, interest and principal payable July 1999. (2)
Convertible subordinated promissory note for acquisition of 1,500,000 1,500,000
IDX. (2)
Convertible subordinated promissory note for acquisition of 2,500,000 2,500,000
IDX. (2)
8% promissory note for acquisition of UCI, interest and 500,000 457,033
principal payable June 1999, net of unamortized discount of $0
and $42,967. (3)
Short-term loan from two officers. - 100,000
Short-term note payable to an investor. 100,000
Line of credit of Telekey, principal due on demand, interest 425,000 -
payable quarterly at a variable rate (8.25% at June 30, 1999),
expires in October 1999. (4)
Non-interest bearing note for acquisition of Telekey, payable 100,000 -
in equal monthly principal payments over one year. (4)
- -------------------------------------------------------------------------------------------------------------
Total notes payable and line of credit $ 5,693,024 $6,298,706
- -------------------------------------------------------------------------------------------------------------
(1) In September 1998, a subsidiary of the Company entered into a
bridge loan agreement with an investor for $250,000. The proceeds
were advanced to ConnectSoft, a company acquired in June 1999 as
discussed in Note 4. In connection with this transaction, the
lender was granted warrants to purchase 25,000 shares of the
Company's common stock at a price of $2.00 per share. The value
assigned to the warrants of $26,351 was recorded as a discount to
the note and has been fully amortized as of June 30, 1999 as
additional interest expense. The warrants expire on September 1,
2003, and as of June 30, 1999 these warrants have not been
exercised.
17
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
As part of the acquisition of ConnectSoft, the Company
renegotiated the terms of this note with the investor in July
1999. Pursuant to the renegotiations, the original note has been
replaced with a new note dated July 14, 1999 with a face value of
$276,408 representing principal plus accrued interest due on the
original note. The new note has a maturity date of September 12,
1999. In connection with this new note, the lender was granted
warrants to purchase 25,000 shares of the Company's common stock
at a price of $2.82 per share. The value of $33,979 assigned to
the warrants will be recorded as a discount to the note and will
be amortized over the term of the loan. The warrants expire on
July 14, 2004.
(2) In December 1998, the Company acquired IDX. In connection with
this transaction, convertible subordinated promissory notes were
issued in the amount of $5.0 million. An additional note of $0.4
million for accrued but unpaid dividends owed by IDX was also
issued by the Company, due May 31, 1999. The notes bear interest
at LIBOR plus 2.5% (7.75% as defined). Each of the notes, plus
accrued interest, could be paid in cash or shares of the Company's
common stock, at the sole discretion of the Company. If the
Company elected to pay the notes with common stock, the price of
the common stock on the due date of the notes would determine the
number of shares to be issued. In March 1999, the Company elected
to pay the first note, which had a face value of $1.0 million,
plus accrued interest, in shares of common stock and issued
431,728 shares of common stock to discharge this indebtedness. In
connection with the discharge of this indebtedness, IDX
stockholders were granted warrants expiring March 23, 2002 to
purchase 43,173 shares of the Company's common stock at a price of
$2.37 per share. The value assigned to the warrants of $62,341 was
recorded as interest expense in March 1999. At June 30, 1999 these
warrants have not been exercised. (See Note 11 for further
discussion of the acquisition.)
In July 1999, the Company renegotiated the terms of the purchase
agreement with IDX stockholders as discussed further in Note 12.
As a result of the renegotiations, the parties agreed to convert
the notes payable of $1.5 million and $2.5 million (previously due
in June 1999 and October 1999, respectively) into 400,000 shares
of Series I Convertible Optional Redemption Preferred Stock
("Series I Preferred Stock"), with a par value of $.001 per share.
In addition, the maturity date of the $418,024 note was extended
to July 15, 1999 from May 31, 1999, and subsequently paid by
issuance of 140,599 shares of Common Stock.
(3) On December 31, 1998, the Company acquired UCI. In connection with
this transaction, the Company issued a promissory note for $0.5
million bearing interest at 8% due June 27, 1999. In connection
with the note, UCI was granted warrants to purchase 50,000 shares
of the Company's common stock at a price of $1.63 per share. The
warrants expire on December 31, 2003. The value assigned to the
warrants of $42,967 was recorded as a discount to the note and was
amortized through June 1999 as additional interest expense. At
June 30, 1999, these warrants have not been
18
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
exercised. In August, the Company completed renegotiation of the
terms of this loan with the new terms providing that 50% of the
principal will be paid in August and 50% plus accrued interest on
December 21, 1999.
(4) On February 12, 1999, the Company acquired Telekey. In connection
with this transaction, the Company issued a non-interest bearing
note for $0.15 million. (See Notes 9 and 11). Telekey also has a
$1.0 million line of credit expiring October 29, 1999 to
facilitate operational financing needs. The line of credit is
personally guaranteed by previous members of Telekey and is due on
demand. Interest is at a variable rate (8.25% at June 30, 1999).
19
NOTE 7 - NOTES PAYABLE AND LONG-TERM DEBT
- --------------------------------------------------------------------------------
At June 30, 1999 and December 31, 1998, notes payable and long-term
debt consisted of the following:
JUNE 30, DECEMBER 31,
1999 1998
8.875% unsecured term note payable to a telecommunications company, $ 7,389,333 $ 7,294,068
interest and principal payable August 1999, net of unamortized discount
of $110,667 and $205,932. (1)
8.875% unsecured term note payable to a stockholder, interest and 966,452 954,156
principal payable December 1999, net of unamortized discount of
$33,548 and $45,844. (2)
8% promissory note for acquisition of UCI, interest and principal 500,000 500,000
payable June 2000. (3)
8% mortgage note, payable monthly, including interest through March 300,285 305,135
2010, with an April 2010 balloon payment; secured by deed of trust on
the related land and building.
10% promissory note of Telekey payable to a telecommunication company, 453,817 -
interest payable quarterly, principal due December 2000. (4)
Promissory note with interest at a variable rate (8.0% at June 30, 300,000
1999), principal and interest payable in twelve (12) equal monthly
installments commencing September 1999. (5)
8% unsecured term note payable to a stockholder, interest payable 6,716,077 -
monthly, and principal payable April 2000, net of unamortized discount
of $283,923 and $0. (6)
Capitalized lease obligations (7) 4,211,119 724,199
- ----------------------------------------------------------------------------------------------------------------------
Total 20,837,083 9,777,558
Less current maturities, net of unamortized 16,638,772 8,540,214
discount of $428,138 and $251,776
- --------------------------------------------------------------------------------------------------------------------
Total long-term debt $4,198,311 $1,237,344
- --------------------------------------------------------------------------------------------------------------------
EGLOBE, INC.
(1) In February 1998, the Company borrowed $7.5 million from a
telecommunications company. In connection with this transaction,
the lender was granted warrants to purchase 500,000 shares of the
Company's common stock at a price of $3.03 per share. The warrants
expire on February 23, 2001. The value assigned to such warrants
when granted in connection with the above note agreement was
approximately $0.5 million and was recorded as a discount to
long-term debt. The discount is being amortized over the term of
the note as interest expense. In January 1999, pursuant to the
anti-dilution provisions of the loan agreement, the exercise price
of the warrants was adjusted to $1.5125 per share, resulting in
additional debt discount of $0.2 million. This amount is being
amortized over the remaining term of the note. At June 30, 1999,
these warrants have not been exercised. In July 1999, this note
plus accrued interest was repaid and the remaining unamortized
discount was recorded as interest expense.
20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(2) In June 1998, the Company borrowed $1.0 million from an existing
stockholder. In connection with this transaction, the lender was
granted warrants expiring June 2001 to purchase 67,000 shares of
the Company's common stock at a price of $3.03 per share. The
stockholder also received as consideration for the loan, the
repricing and extension of a warrant for 55,000 shares to be
exercisable before February 2001 at a price of $3.75 per share.
The value assigned to such warrants, including the revision of
terms, of approximately $68,846, was recorded as a discount to the
note payable and is being amortized over the term of the note as
interest expense. In January 1999, the exercise price of the
122,000 warrants was lowered to $1.5125 per share and the
expiration dates were extended through January 31, 2002. The value
of $19,480 assigned to the revision in terms has been recorded as
additional debt discount and is being amortized to interest
expense through December 31, 1999. At June 30, 1999, these
warrants have not been exercised.
(3) On December 31, 1998, the Company acquired UCI. In connection with
this transaction, the Company issued a $0.5 million note with 8%
interest payable monthly due no later than June 30, 2000.
(4) On February 12, 1999, the Company acquired Telekey. Telekey has an
outstanding promissory note for $0.454 million bearing interest
payable quarterly at 10% due on December 31, 2000.
(5) On June 17, 1999, the Company through its subsidiary Vogo
purchased substantially all the assets of ConnectSoft. In
connection with this purchase, the Company issue a $0.5 million
note to the seller ($300,000 received as of June 30, 1999 and
$200,000 received in July 1999). The note bears interest at a
variable rate ( 8.0% at June 30, 1999) and principal and interest
payments are due in twelve (12) equal monthly payments commencing
on September 1, 1999. The remaining principal and accrued
interest also become due on the first date on which (i) the
Company receives in any transaction or series of transactions any
equity or debt financing of at least $50.0 million or (ii) Vogo,
a subsidiary of the Company, receives in any transaction or
series of transactions any equity or debt financing of at least
$5.0 million. See Notes 4, 8 and 11 for further discussion.
(6) In April 1999, the Company received a financing commitment of
$20.0 million in the form of long-term debt from its largest
stockholder ("Lender"). Under the terms of the Loan and Note
Purchase Agreement ("Agreement"), the Company initially received
an unsecured loan ("Loan") of $7.0 million bearing interest at 8%
payable monthly with principal and remaining interest due on the
earlier of (i) April 2000, (ii) the date of closing of an offering
by the Company from which the Company receives net proceeds of
$30.0 million or more, and (iii) the closing of the $20.0 million
purchase of the Company's 5% Secured Notes. As additional
consideration, the Lender received warrants to purchase 1,500,000
shares of the Company's common stock at an exercise price of $0.01
per share, of which 500,000 warrants were immediately exercisable
and 1,000,000 warrants were exercisable only in the event that the
stockholders did not approve a $20.0 million credit facility
committed by the lender or the Company elected not to draw it
down. The 1,000,000 warrants did not become exercisable because
both stockholder approval occurred and the Company elected to draw
down the funds as discussed below.
21
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
The value of approximately $2.9 million assigned to the 500,000
warrants was recorded as a discount to the note payable. The
discount is being amortized through July 1999 and approximately
$2.6 million was amortized through June 1999 as additional
interest expense. At June 30, 1999, these warrants have not been
exercised.
Under the Agreement, the Lender purchased $20.0 million of 5%
Secured Notes ("Notes") at the Company's request in July 1999,
which was approved by the Company's stockholders at the annual
stockholders meeting. The initial $7.0 million Loan was repaid
from the proceeds of the Notes. See Note 12 for further
discussion.
(7) The Company is committed under capital leases for certain property
and equipment. These leases are for terms of 36 months and bear
interest ranging from 8.49% to 9.07%.
In June 1999, the Company acquired certain capital lease
obligations related to the ConnectSoft acquisition. These leases
were then refinanced for a total of $2,992,000
22
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
with a term of 36 months and bear interest at rates ranging from
10.24% to 11.40% and contain certain buyout options at the end of
the lease terms.
NOTE 8- SERIES G CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED STOCK
- --------------------------------------------------------------------------------
In connection with the purchase of substantially all of the assets of
ConnectSoft in June 1999, the Company issued 1 share of 6% Series G
Cumulative Convertible Redeemable Preferred Stock ("Series G
Preferred") valued at $3.0 million. (See Note 11 for further
information regarding the purchase). The Series G Preferred carries an
annual dividend of 6%, payable annually beginning June 30, 2000.
The one share of Series G Preferred is convertible, at the holder's
option, into shares of the Company's common stock any time after
October 1, 1999 at a conversion price equal to the greater of (i) 75%
of the market price of the common stock on the date the conversion
notification is received by the Company and (ii) a minimum purchase
price of $3.00. The Company shall redeem the Series G Preferred Stock
upon the first to occur of the following dates (a) on the first day on
which the Company receives in any transaction or series of transactions
any equity financing of at least $25.0 million or (b) on June 14, 2004.
NOTE 9- STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
PREFERRED STOCK AND REDEEMABLE PREFERRED STOCK
At the June 16, 1999 annual stockholder meeting, a proposal to amend
the Company's Certificate of Incorporation to increase the Company's
authorized preferred stock to 10,000,000 was approved and adopted. Par
value for all preferred stock remained at $.001 per share. In addition,
the stockholders also approved and adopted a prohibition on
stockholders increasing their percentage of ownership of the Company
above 30% of the outstanding stock or 40% on a fully diluted basis
other than by a tender offer resulting in the stockholder owning 85% or
more of the outstanding common stock. The following is a summary of the
Company's series of preferred stock and the amounts authorized and
outstanding at June 30, 1999 and December 31, 1998:
Series B Convertible Preferred Stock, 500,000 shares
authorized and issued and outstanding at both June 30, 1999
and December 31, 1998. (0 shares outstanding as of August 1999
-- these shares were reacquired by the Company in exchange for
Series H Convertible Preferred Stock as described in Note 12)
8% Series C Cumulative Convertible Preferred Stock, 275
shares authorized, 0 and 75 shares, respectively, issued and
outstanding
8% Series D Cumulative Convertible Preferred Stock, 125 shares
authorized, 50 and 0 shares, respectively, issued and
outstanding ($5.0 million aggregate liquidation preference)
8% Series E Cumulative Convertible Preferred Stock, 125 shares
authorized, 50 and 0 shares, respectively, issued and
outstanding
23
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
Series F Convertible Preferred Stock, 2,020,000 authorized,
1,010,000 and 0 shares, respectively, issued and outstanding
6% Series G Cumulative Convertible Redeemable Preferred Stock,
1 share authorized, 1 and 0 share, respectively, issued and
outstanding
Two additional series of preferred stock, issued subsequent to June 30,
1999, are described in Note 12.
Following is a detailed discussion of each series of preferred stock
outstanding at June 30, 1999:
SERIES B CONVERTIBLE PREFERRED STOCK
------------------------------------
On December 2, 1998, the Company acquired all of the common and
preferred stock of IDX, a privately-held IP based fax and telephone
company, for (a) 500,000 shares of the Company's Series B Convertible
Preferred Stock ("Series B Preferred") originally valued at $3.5
million which are convertible into 2,500,000 shares (2,000,000 shares
until stockholder approval was obtained on June 16, 1999 and subject to
adjustment as described below) of common stock; (b) warrants ("IDX
Warrants") to purchase up to an additional 2,500,000 shares of common
stock (subject to stockholder approval which was obtained on June 16,
1999 and an adjustment as described below); (c) $5.0 million in 7.75%
convertible subordinated promissory notes ("IDX Notes") (subject to
adjustment as described below); (d) $1.5 million in bridge loan
advances to IDX made by the Company prior to the acquisition which were
converted into part of the purchase price plus associated accrued
interest of $0.04 million; (e) $0.4 million for IDX dividends accrued
and unpaid on IDX's Preferred Stock under a convertible subordinated
promissory note and (f) direct costs associated with the acquisition of
$0.6 million. The Company also advanced approximately $0.4 million to
IDX prior to acquisition under an agreement to provide IDX up to $2.3
million for working capital purposes over the next twelve months. These
pre-acquisition advances were not considered part of the purchase
price. At the Company's annual meeting in June 1999, the stockholders
approved the increase of the convertibility of the Series B Preferred
and IDX Warrants as discussed in (a) and (b) above, respectively. As a
result, the acquired goodwill associated with the IDX purchase was
increased by approximately $1.5 million to reflect the higher
conversion feature approved in June 1999.
24
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
This acquisition has been accounted for under the purchase method of
accounting. The financial statements of the Company reflect the
preliminary allocation of the purchase price. The preliminary
allocation has resulted in acquired goodwill of $12.6 million that is
being amortized on a straight-line basis over seven years. The Company
has not completed the review of the purchase price allocation and will
determine the final allocation based on appraisals and other
information. To the extent that the estimated useful lives of other
identified intangibles are less than seven years, the related
amortization expense could be greater. In addition, the purchase price
allocation has not been finalized as of June 30, 1999 pending
resolution of several purchase price elements, which are contingent
upon the following:
(a) IDX's ability to achieve certain revenue and EBITDA (EBITDA
represents operating income before interest expense, income
taxes, depreciation and amortization) objectives during the
twelve months after the acquisition date may limit the amount
of warrants to be granted as well as eliminate the Company's
price guarantee as discussed in (d) below.
(b) The shares of Series B Preferred stock are convertible at the
holders' option at any time at the then current conversion
rate. The shares of Series B Preferred stock will
automatically convert into shares of common stock on the
earlier to occur of (a) the first date that the 15 day average
closing sales price of common stock is equal to or greater
than $8.00 or (b) 30 days after December 2, 1999. The Company
has guaranteed a price of $8.00 per share on December 2, 1999,
subject to IDX's achievement of certain revenue and EBITDA
objectives. If the market price of the common stock is less
than $8.00 on December 2, 1999, and IDX has met its
performance objectives, the Company will issue additional
shares of common stock upon conversion of the Series B
Preferred stock based on the ratio of $8.00 to the market
price (as defined, but not less than $3.3333 per share), but
not more than 3.5 million additional shares of common stock
will be issued.
(c) The Company has guaranteed a price of $8.00 per common stock
share relative to the warrants issuable as of December 2,
1999, subject to IDX's achievement of certain revenue and
EBITDA objectives. If these objectives are achieved and the
market price of the common stock is less than $8.00 on
December 2, 1999, the Company will issue additional shares of
common stock upon exercise of the IDX Warrants based on the
ratio of $8.00 to the market price (as defined, but not less
than $3.3333 per share), up to a maximum of 3.5 million
additional shares of common stock. However, if the average
closing sales price of the common stock for any 15 consecutive
days equals or is greater than $8.00 per share prior to
December 2, 1999 there is no price guarantee upon exercise of
the warrants.
(d) IDX must meet certain working capital levels at the date of
acquisition. To the extent that IDX has a working capital
deficiency, as defined, as of the date of
25
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
acquisition, the Company may reduce the number of shares of
the Series B Preferred Stock currently held by the
stockholders and may in some circumstances reduce the amount
outstanding on the principal balance of the third IDX note
referred to below.
(e) The Company is obligated to pay accrued but unpaid dividends
("Accrued Dividends") on IDX's previously outstanding
preferred stock under an interest bearing convertible
subordinated promissory note in the principal amount of
approximately $0.4 million originally due May 31, 1999. The
Company, however, is entitled to reduce the $2.5 million
principal balance of the third IDX Note as discussed below and
in Note 6 by the amount of the Accrued Dividends and certain
defined amounts unless offset by proceeds from the sale of an
IDX subsidiary and a note issued to IDX by an option holder.
The Company may also elect to pay this obligation in cash or
in shares of common stock.
(f) The IDX Notes consisted of four separate notes payable in cash
or common stock at the Company's sole discretion. The notes
have varying maturity dates through October 31, 1999. See Note
6 for the terms and conditions of the IDX Notes and discussion
of the payment of the $1.0 million promissory note and accrued
interest with common stock and warrants in March 1999. Payment
of the IDX Notes is subject to adjustment upon the resolution
of certain contingencies as discussed above.
Based on the contingent purchase price elements as listed above,
goodwill associated with the acquisition may materially increase when
these contingencies are resolved.
The holders of the Series B Preferred Stock are not entitled to
dividends unless declared by the Board of Directors. The shares of
Series B Preferred Stock are not redeemable. Further, the Company has
agreed to register for resale the shares of common stock underlying the
conversion rights of the holders of the Series B Preferred Stock, the
IDX warrants and the IDX Notes.
At the acquisition date, the stockholders of IDX received Series B
Preferred Stock and warrants as discussed above, which are ultimately
convertible into common stock subject to IDX meeting its performance
objectives. These stockholders in turn granted preferred stock and
warrants, each of which is convertible into a maximum of 300,000 shares
(240,000 shares until stockholder approval was obtained on June 16,
1999) of the Company's common stock, to IDX employees. The increase in
the market price during the first half of 1999 of the underlying common
stock granted by the IDX stockholders to certain employees has resulted
in a charge to income of $0.4 million. The actual number of common
shares issued upon conversion of the preferred stock and warrants will
ultimately be determined by the achievement, by IDX, of certain
performance goals and the market price of the Company's stock over the
contingency period of up to twelve
26
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
months from the date of acquisition. The stock grants are performance
based and will be adjusted each reporting period (but not below zero)
for the changes in stock price until the shares and/or warrants (if and
when) issued are converted to common stock.
In July 1999 the Company renegotiated the terms of the IDX purchase
price with the IDX stockholders. See Note 12 for a discussion of the
exchange agreement, under which the Company reacquired the Series B
Preferred Stock, the warrants and the promissory notes discussed above
for shares of two new series of preferred stock and warrants with
different performance objectives to purchase a lesser number of shares.
SERIES C CUMULATIVE CONVERTIBLE PREFERRED STOCK
-----------------------------------------------
In February 1999, the Company issued 3,000,000 shares of common stock
in exchange for the 75 shares of outstanding Series C Cumulative
Convertible Preferred (convertible into 1,875,000 shares of common
stock on the exchange date) to Mr. Ronald Jensen, the Company's largest
stockholder. The market value of the 1,125,000 incremental shares of
common stock issued was recorded as a preferred stock dividend of
approximately $2.2 million with a corresponding credit to paid-in
capital. This transaction was contemporaneous with the Company's
issuance of Series E Preferred stock to an affiliate of Mr. Jensen,
which is discussed below.
SERIES D CUMULATIVE CONVERTIBLE PREFERRED STOCK
-----------------------------------------------
In January 1999, the Company issued 30 shares of Series D Cumulative
Convertible Preferred Stock ("Series D Preferred") to a private
investment firm for $3.0 million. The holder agreed to purchase 20
additional shares of Series D Preferred stock for $2.0 million upon
registration of the common stock issuable upon conversion of this
preferred stock. In connection with this transaction, the Company
issued warrants to purchase 112,500 shares of common stock with an
exercise price of $0.01 per share and warrants to purchase 60,000
shares of common stock with an exercise price of $1.60 per share. The
value assigned to such warrants when granted was approximately $0.3
million and was originally recorded as a discount to the Series D
Preferred.
Upon the Company's registration in May 1999 of the common stock
issuable upon the conversion of the Series D Preferred, the investor
purchased 20 additional shares of Series D Preferred plus warrants for
$2.0 million. The Company issued warrants to purchase 75,000 shares of
common stock with an exercise price of $.01 per share and warrants to
purchase 40,000 shares of common stock with an exercise price of $1.60.
The value assigned to these warrants when granted was approximately
$0.3 million and was originally recorded as a discount to the Series D
Preferred.
The discounts associated with the value of the warrants are being
amortized as deemed preferred dividends over the periods from the dates
of the grants to the dates that the
27
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
Series D Preferred can first be converted into common stock defined as
90 days from issuance.
The Series D Preferred stock carries an annual dividend of 8%, payable
quarterly beginning December 31, 1999. The Company has accrued
approximately $126,000 in cumulative Series D Preferred dividends as of
June 30, 1999. The shares of Series D Preferred stock are convertible,
at the holder's option, into shares of the Company's common stock any
time after 90 days from issuance at a conversion price equal to the
lesser of $1.60 or, in the case of the Company's failure to achieve
positive EBITDA or to close a $20 million public offering by the third
fiscal quarter of 1999, the market price just prior to the conversion
date. The shares of Series D Preferred stock will automatically convert
into common stock upon the earliest of (i) the first date on which the
market price of the common stock is $5.00 or more per share for any 20
consecutive trading days, (ii) the date on which 80% or more of the
Series D Preferred stock has been converted into common stock, or (iii)
the date the Company closes a public offering of equity securities at a
price of at least $3.00 per share with gross proceeds of at least $20
million.
As additional consideration, the Company agreed to issue to the
investor for no additional consideration, additional warrants to
purchase the number of shares of common stock equal to $0.3 million
(based on the market price of the common stock on the last trading day
prior to July 1, 2000, as the case may be), or pay $0.3 million in
cash, if the Company does not achieve, in the fiscal quarter commencing
July 1, 2000, an aggregate amount of gross revenues equal to or in
excess of 200% of the aggregate amount of gross revenues achieved by
the Company in the fiscal quarter ended December 31, 1998.
The shares of Series D Preferred stock must be redeemed if it ceases to
be convertible (which would happen if the number of shares of common
stock issuable upon conversion of the Series D Preferred stock exceeded
19.9% of the number of shares of common stock outstanding when the
Series D Preferred stock was issued, less shares reserved for issuance
under warrants). Redemption is in cash at a price equal to the
liquidation preference of the Series D Preferred stock at the holder's
option or the Company's option 45 days after the Series D Preferred
stock ceases to be convertible. The Company received stockholder
approval to increase the number of shares issuable and will issue the
full amount of common stock upon conversion of the Series D Preferred
stock even if the number of shares exceeds the 19.9% maximum number.
Due to the Company's failure to consummate a specific merger
transaction by May 30, 1999, the Company issued to the investor a
warrant exercisable August 1, 1999 to purchase 76,923 shares of common
stock with an exercise price of $.01 per share. The value assigned to
the warrant when granted was approximately $0.3 million and was
recorded as a preferred stock dividend. The warrant is exercisable for
three years.
28
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
SERIES E CUMULATIVE CONVERTIBLE PREFERRED STOCK
-----------------------------------------------
In February 1999, the Company issued 50 shares of Series E Cumulative
Convertible Redeemable Preferred stock ("Series E Preferred") to the
Company's largest stockholder, for $5.0 million. The Series E Preferred
carries an annual dividend of 8%, payable quarterly beginning December
31, 2000. As additional consideration, the Company agreed to issue to
the holder three year warrants to purchase 723,000 shares of common
stock at $2.125 per share and 277,000 shares of common stock at $0.01
per share. The value assigned to such warrants when granted was
approximately $1.1 million and was recorded as a deemed dividend
because the Series E Preferred stock was convertible at the election of
the holder at the issuance date.
The Series E Preferred holder had the option to elect to make the
shares of Series E Preferred stock convertible into shares of common
stock (rather than redeemable) at any time after issuance. The Company
could have elected to make the shares of Series E Preferred stock
convertible, but only if (i) it had positive EBITDA for at least one of
the first three fiscal quarters of 1999 or (ii) completed a public
offering of equity securities for a price of at least $3.00 per share
and with gross proceeds to the Company of at least $20 million on or
before the end of the third fiscal quarter of 1999. In connection with
a debt placement concluded in April 1999, the Series E Preferred holder
elected to make such shares convertible; accordingly, such shares are
no longer redeemable. As a result, the carrying value of the Series E
Preferred stock was reclassified from Redeemable Preferred Stock to
Stockholders' Equity as permanent equity in April 1999.
The shares of Series E Preferred stock will automatically be converted
into shares of the Company's common stock, on the earliest to occur of
(x) the first date as of which the last reported sales price of the
Company's common stock on Nasdaq is $5.00 or more for any 20
consecutive trading days during any period in which the Series E
Preferred stock is outstanding, (y) the date that 80% or more of the
Series E Preferred stock has been converted into common stock, or (z)
the Company completes a public offering of equity securities at a price
of at least $3.00 per share and with gross proceeds to the Company of
at least $20 million. The initial conversion price for the Series E
Preferred stock is $2.125, subject to adjustment if the Company issues
common stock for less than the conversion price.
SERIES F CONVERTIBLE PREFERRED STOCK
------------------------------------
On February 12, 1999, the Company completed the acquisition of Telekey
for which it paid: (i) $0.1 million at closing; (ii) issued a
promissory note for $0.2 million payable in equal monthly installments
over one year; (iii) issued 1,010,000 shares of Series F Convertible
Preferred Stock ("Series F Preferred"); and (iv) agreed to issue at
least 505,000 and up to an additional 1,010,000 shares of Series F
Preferred two years from the date of closing (or upon a change of
control or certain events of default if they occur
29
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
before the end of two years), subject to Telekey meeting certain
revenue and EBITDA objectives.
The shares of Series F Preferred initially issued will automatically
convert into shares of common stock on the earlier to occur of (a) the
first date as of which the market price is $4.00 or more for any 15
consecutive trading days during any period that the Series F Preferred
stock is outstanding, or (b) July 1, 2001. The Company has guaranteed a
price of $4.00 per share at December 31, 1999 to recipients of the
common stock issuable upon the conversion of the Series F Preferred,
subject to Telekey's achievement of certain defined revenue and EBITDA
objectives. If the market price is less that $4.00 on December 31,
1999, the Company will issue additional shares of common stock upon
conversion of the Series F Preferred based on the ratio of $4.00 to the
market price, but not more than an aggregate of 600,000 additional
shares of common stock.
This acquisition has been accounted for using the purchase method of
accounting. The financial statements of the Company reflect the
preliminary allocation of the purchase price. The preliminary
allocation based on management's review and preliminary appraisals has
resulted in acquired goodwill of $3.6 million and an acquired
intangible of approximately $1.5 million related to the value of
certain distribution networks. These acquired intangibles are being
amortized on a straight-line basis over their estimated useful lives of
seven years. The Company has not completed the review of the purchase
price allocation and will determine the final allocation based on final
appraisals and other information. To the extent that the estimated
useful lives of the other identified intangibles are less than seven
years, the related amortization expense could be greater. In addition,
the purchase price allocation has not been finalized pending resolution
of several purchase price elements, which are contingent upon the
following:
(a) Telekey's ability to achieve certain revenue and EBITDA
objectives two years from the date of closing (or upon a change
of control or certain events of default if they occur before the
end of two years) may limit the amount of additional shares to be
issued (with at least 505,000 being issued and up to a maximum of
1,010,000 shares of Series F Preferred being issued) as well as
eliminate the Company's price guarantee as discussed in (b)
below.
(b) The Company has guaranteed a price of $4.00 per common stock
share at December 31, 1999 to recipients of the common stock
issuable upon the conversion of the Series F Preferred Stock,
subject to Telekey's achievement of certain defined revenue and
EBITDA objectives. If the market price is less than $4.00 on
December 31, 1999, the Company will issue additional shares of
common stock upon the conversion of the Series F Preferred Stock
based on the ratio of $4.00 to the market price, but not more
than an aggregate of 600,000 additional shares of common stock.
30
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
Based on the contingent purchase price elements as listed above,
goodwill associated with the acquisition may materially increase when
these contingencies are resolved.
The holders of the Series F Preferred Stock are not entitled to
dividends unless declared by the Board of Directors. The shares of
Series F Preferred Stock are not redeemable. Further, the Company has
registered for resale the shares of common stock, underlying the
conversion rights of the holders of the Series F Preferred Stock.
At the acquisition date, the stockholders of Telekey received Series F
Preferred Stock, which are ultimately convertible into common stock. In
addition, the stockholders may receive additional shares of Series F
Preferred Stock subject to Telekey meeting its performance objectives.
These stockholders in turn granted a total of 240,000 shares of eGlobe
common stock to certain Telekey employees. Of this total, 60,000 shares
will be issued only if Telekey meets certain performance objectives. As
of June 30, 1999, the value of the underlying non-contingent 180,000
shares of common stock granted by the Telekey stockholders to certain
employees has resulted in a charge to income of $0.5 million. The stock
grants are performance based and will be adjusted each reporting period
(but not less than zero) for the changes in the stock price until the
shares are issued to the employees.
SERIES G CONVERTIBLE PREFERRED STOCK
------------------------------------
Described in Note 8.
COMMON STOCK
As discussed earlier, in February 1999, the Company issued 3,000,000
shares of common stock in exchange for the 75 outstanding shares of
Series C Preferred stock.
In March 1999, the Company elected to pay the IDX $1.0 million
promissory note and accrued interest with shares of common stock. The
Company issued 431,728 shares of common stock and warrants to purchase
43,173 shares of common stock to discharge this indebtedness. In
addition, the Company agreed to repay a $200,000 note payable and
related accrued interest with 125,000 shares of common stock to be
issued subsequent to quarter end. In connection with this transaction,
the Company also issued 80,000 five-year warrants to purchase common
shares at an exercise price of $1.60.
See Note 12 for a discussion of transactions occurring subsequent to
June 30, 1999 that will result in the issuance of shares of common
stock.
EMPLOYEE AND DIRECTOR STOCK OPTION PLANS
On June 16, 1999, the Company's stockholders adopted an amendment to
increase the number of shares of the Company's common stock that may be
issued to employees by
31
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
1.5 million shares. This increase includes the reduction of the number
of shares available for issuance under the Company's 1995 Director
Stock Option and Appreciation Rights Plan by 0.4 million shares.
NOTE 10 - BASIC NET LOSS PER SHARE OF COMMON STOCK
- --------------------------------------------------------------------------------
Earnings (loss) per share are calculated in accordance with SFAS No.
128, "Earnings Per Share". The net loss of $11.9 million and $23.1
million attributable to common stock for the three and six months ended
June 30, 1999 includes preferred stock dividends of $0.6 million and
$4.3 million, respectively. For the three and six month periods ended
June 30, 1998, the Company had no preferred stock dividends. The
weighted average shares outstanding for calculating basic earnings
(loss) per share were 19,913,449 and 17,346,766 for the three months
ended June 30, 1999 and 1998, respectively. The weighted average shares
outstanding for the six month periods ended June 30, 1999 and 1998,
respectively, were 18,904,001 and 17,520,879. Common stock options and
warrants of 1,518,982 and 203,782 for the three months and 1,066,457
and 222,961 for the six months ended June 30, 1999 and 1998 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.
Options and warrants to purchase 675,955 and 1,535,897 shares of common
stock at exercise prices from $3.50 to $6.61 and $2.88 to $6.61 per
share were outstanding at June 30, 1999 but were not included in the
computation of diluted earnings (loss) per share for the three and six
months ended June 30, 1999 because the exercise prices were greater
than the average market price of the common shares during that period.
Options and warrants to purchase 1,534,814 shares of common stock at
exercise prices from $3.19 to $6.94 per share were outstanding at June
30, 1998 but were not included in the computation of diluted (loss) per
share for the three and six months ended June 30, 1998 because the
exercise prices were greater than the average market price of the
common shares during that period.
In addition, convertible preferred stock and convertible subordinated
promissory notes convertible into 12.0 million shares of common stock
were not included in diluted earnings (loss) per share for the three
and six months ended June 30, 1999 due to the losses for the respective
periods. See Note 12 for discussion of transactions subsequent to June
30, 1999 that will affect diluted earnings (loss) per share.
NOTE 11 - ACQUISITIONS
- --------------------------------------------------------------------------------
On February 12, 1999, the Company completed the acquisition of Telekey
for which it paid: (i) $0.1 million at closing; (ii) issued a
promissory note for $0.2 million payable in equal monthly installments
over one year; (iii) issued 1,010,000 shares of Series F Convertible
Preferred Stock ("Series F Preferred"); and (iv) agreed to issue at
least
32
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
505,000 and up to an additional 1,010,000 shares of Series F Preferred
two years from the date of closing (or upon a change of control or
certain events of default if they occur before the end of two years),
subject to Telekey meeting certain revenue and EBITDA objectives. See
Notes 6 and 9 for further discussion.
In June 1999, the Company through its subsidiary Vogo purchased
substantially all the assets of ConnectSoft, including (a) one share of
the Company's 6% Series G Cumulative Convertible Redeemable Preferred
Stock valued at $3.0 million; (b) assumed liabilities of approximately
$5.0 million, consisting primarily of long-term lease obligations; (c)
$1.8 million in advances to ConnectSoft made by the Company prior to
the acquisition which were converted into part of the purchase price
and (d) direct costs associated with the acquisition of $0.4 million.
This acquisition has been accounted for under the purchase method of
accounting. The financial statements of the Company reflect the
preliminary allocation of the purchase price. The preliminary
allocation has resulted in acquired intangibles of $10.1 million that
are being amortized on a straight-line basis over their estimated
useful lives. The acquired intangibles consist of goodwill of $1.0
million to be amortized over seven years, existing technology of $8.4
million to be amortized over five years and other identified
intangibles of $0.7 million to be amortized over seven years. The
preliminary allocation of the purchase price was based on appraisals
performed by a third party.
The Company also borrowed $0.5 million from the seller which bears
interest at a variable rate (8.0% at June 30, 1999). Principal and
interest payments are due in twelve (12) equal monthly payments
commencing on September 1, 1999. The remaining principal and accrued
interest also become due on the first date on which (i) the Company
receives in any transaction or series of transactions any equity or
debt financing of at least $50.0 million or (ii) Vogo receives in any
transaction or series of transactions any equity or debt financing of
at least $5.0 million. (See Notes 4, 7 and 8 for further discussion).
As discussed in Notes 6 and 9, the Company acquired IDX on December 2,
1998 and UCI on December 31, 1998. The results of operations for these
two acquisitions are included in the consolidated results of operations
for the three and six months ended June 30, 1999.
The following unaudited pro forma consolidated results of operations
are presented as if the IDX, UCI, Telekey and the ConnectSoft
acquisitions had been made at the beginning of the periods presented.
Since Telekey was acquired in February 1999, the Company has included
Telekey's January 1999 results in its pro forma results of operations
for the six months ended June 30, 1999 for comparative purposes. Since
ConnectSoft was acquired in June 1999, the Company has included
ConnectSoft's April and May 1999 results and January through May 1999
results in its pro forma results of operations for the three months and
six months ended June 30, 1999, respectively, for comparative purposes.
33
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
PRO FORMA RESULTS FOR THE
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1999 1998 1999 1998
NET REVENUE $ 9,144,824 $ 9,007,411 $ 17,763,996 $ 18,474,070
NET LOSS $ (12,329,808) $ (4,267,327) $ (21,556,356) $ (16,217,787)
NET LOSS ATTRIBUTABLE TO $ (12,946,402) $ (4,267,327) $ (25,885,329) $ (16,217,787)
COMMON STOCK
NET LOSS PER SHARE $ (0.52) $ (0.19) $ (1.08) $ (0.71)
- --------------------------------------------------------------------------------
NOTE 12 - PRO FORMA BALANCE SHEET AND SUBSEQUENT EVENTS
Subsequent to the close of the quarter ended June 30, 1999, the Company
completed its financing with its largest stockholder for $20.0 million
and paid off $7.5 million of unsecured debt payable to a
telecommunications company plus related interest of approximately $0.9
million. The Company also restructured its purchase agreement with IDX
and completed the acquisition of Swiftcall Equipment and Services (USA)
("Swiftcall"), a telecommunications company, and certain network
operating equipment held by an affiliate of Swiftcall.
FINANCING COMMITMENT
In April 1999, the Company received a financing commitment of $20.0
million in the form of long-term debt from its largest stockholder
("Lender"). This financing was approved by the stockholders at the
annual meeting in June 1999. Under the terms of the Loan and Note
Purchase Agreement ("Agreement"), the Company initially received an
unsecured loan ("Loan") of $7.0 million bearing interest at 8% payable
monthly as discussed in Note 7.
Under the Agreement, in July 1999, the Lender purchased $20.0 million
of 5% Secured Notes ("Notes") at the Company's request. Issuance of the
Notes was approved by the Company's stockholders at the annual
stockholders meeting in June 1999. The initial $7.0 million Loan was
repaid from the proceeds of the Notes. Additionally, proceeds from the
Notes were used to repay a short-term note and accrued interest
totaling $8.4 million.
Principal and interest on the Notes are payable over three years in
monthly installments of $377,000 with a balloon payment for the
remaining balance due on the third anniversary date. Alternatively, the
Company may elect to pay up to 50% of the original principal
34
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
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 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. These Notes are secured by substantially
all of the Company's existing operating assets, although the Company
can pursue certain additional financing, including secured debt or
lease financing, for certain capital expenditures. The agreement
contains certain debt covenants and restrictions by and on the Company,
as defined.
As additional consideration for the Notes, the Lender was granted
warrants to purchase 5,000,000 shares of the Company's common stock at
an exercise price of $1.00 per share. The warrants expire in three
years. The value assigned the warrants of $10.7 million will be
recorded as a discount to the Notes and will be amortized during the
term of the Notes as additional interest expense.
RENEGOTIATION OF THE TERMS TO THE IDX PURCHASE AGREEMENT
In July 1999 the Company renegotiated the terms of the IDX purchase
agreement with the IDX stockholders as follows:
(a) The 500,000 shares of Series B Convertible Preferred Stock have
been reacquired by the Company in exchange for 500,000 shares of
Series H Convertible Preferred Stock ("Series H Preferred"), with
a par value of $.001 per share. (See Notes 6, 9 and 11 for
further discussion).
(b) The Company has reacquired the original warrants in exchange for
new warrants to acquire up to 1,250,000 shares of the Company's
common stock, subject to IDX meeting certain revenue, traffic and
EBITDA levels at September 30, 2000 or December 31, 2000.
(c) The Company has reacquired the notes payable of $1.5 million and
$2.5 million (previously due in June 1999 and October 1999
respectively) in exchange for 400,000 shares of Series I
Convertible Optional Redemption Preferred Stock ("Series I
Preferred") with a par value of $.001 per share. (See Notes 6, 9
and 11 for further discussion).
(d) The maturity date of the convertible subordinated promissory
note, face value of $418,024, was extended to July 15, 1999 from
May 31, 1999, and subsequently paid by issuance of 140,599 shares
of common stock.
(e) The Company waived its right to reduce the principal balance of
the $2.5 million note payable by certain claims as provided for
under the terms of the original IDX purchase agreement.
35
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
The shares of Series H Preferred Stock convert automatically into up to
3,750,000 shares of common stock, subject to adjustment as described
below, on January 31, 2000 or earlier if the 15 day average closing
sales price of the common stock is equal to or greater than $6.00. The
Company has guaranteed a price of $6.00 per share on January 31, 2000.
If the market price of the common stock is less than $6.00 per share on
January 31, 2000, the Company will issue additional shares of common
stock upon conversion of the Series H Preferred Stock based on the
ratio of $6.00 to the market price (as defined, but not less than
$3.3333 per share), but not more than 3.0 million additional shares of
common stock.
The Company may redeem 150,000 shares of its Series I Preferred Stock
prior to February 14, 2000 and the remainder prior to July 17, 2000 at
a price of $10 per share plus 8% of the value of the Series I Preferred
Stock per annum from December 2, 1998 through the date of redemption.
The redemption may be made in cash, common stock or a combination of
the two. Any Series I Preferred Stock not redeemed by the applicable
date will be converted automatically into common stock based on a
conversion price of $10 per share plus 8% of the value of the Series I
Preferred Stock per annum from December 2, 1998 through the date of
conversion up to a maximum of 3.9 million shares of common stock.
As a result of the exchange agreement, the Company will record the
excess of the fair value of the new preferred stock issuances and the
warrants over the carrying value of the reacquired preferred stock,
warrants and notes payable as a dividend to the Series B Preferred
stockholders. The estimated dividend of approximately $6.4 million will
be recorded in July 1999. In addition, upon the conversion of the
Series H Preferred Stock, an additional dividend of up to $9.0 million
may be recorded if more than 3,750,000 shares of common stock are
issued.
ACQUISITION
In August 1999, the Company acquired all the common stock of Swiftcall,
a privately-held telecommunications company, and certain network
operating equipment held by an affiliate of Swiftcall. The aggregate
purchase price equaled $3.3 million, due in two equal payments on
December 3, 1999 and June 2, 2000. The payments may be made at the
option of the Company, in whole or in part, (i) in cash or (ii) in
stock, by issuing to the stockholder of Swiftcall the number of shares
of common stock of the Company equal to the first payment amount or the
second payment amount, as the case may be, divided by the Market Price.
On August 12, 1999 the Company elected to make payment on both notes by
issuing common stock.
As part of the transaction, the former stockholder of Swiftcall, which
also owns VIP Communications, Inc., a calling card company in Reston,
Virginia, has agreed to cause VIP to purchase services from the
Company, of the type presently being purchased by
36
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
VIP from the Company's IDX subsidiary, which result in revenue to the
Company of at least $500,000 during the 12 months ending August 3,
2000. Any revenue shortfall must be paid in cash by the former
stockholder of Swiftcall. The Company may offset any shortfall
outstanding on June 1, 2000 by depositing the applicable portion of the
second payment into escrow.
37
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
The following unaudited pro forma condensed consolidated balance sheet assumes
the following transactions were completed as of June 30, 1999 ($ in thousands):
(a) receipt of $20.0 million financing, of which $3.6 million represents the
current portion, net of the value of the associated warrants of $10.7
million. These proceeds were used to repay the related $7.0 million
short-term note and other short-term debt of $7.5 million plus accrued
interest of $0.9 million;
(b) renegotiation of the IDX purchase agreement, whereby (i) notes for $4.0
million and accrued interest of $0.2 million were exchanged for Series I
Preferred Stock; (ii) a note for $0.4 million and accrued interest of $0.02
million were exchanged for common stock; and (iii) shares of Series B
Preferred Stock were exchanged for Series H Preferred Stock; and,
(c) the acquisition of Swiftcall, consisting of property and equipment valued
at $4.9 million, for (i) future issuances of common stock valued at $3.3
million; (ii) potential payment of up to $0.4 million, if assumed
liabilities are less than agreed upon amounts, (iii) direct costs of $0.09
million, including $0.05 million of accrued costs; and (iv) payment of an
obligation for $1.1 million.
Unaudited
June 30, 1999 Pro forma Pro forma
(Unaudited) Adjustments June 30, 1999
----------- ----------- -------------
Current assets $ 11,986 $ 3,498 $ 15,484
Property and equipment, net 13,320 4,938 18,258
Goodwill, net 16,844 -- 16,844
Intangible assets and other, net 12,193 (90) 12,103
----------- ----------- -----------
Total assets $ 54,343 $ 8,346 $ 62,689
---------- ---------- ----------
Current liabilities $ 41,490 $ (15,967) $ 25,523
Long-term debt 4,198 5,698 9,896
----------- ----------- -----------
Total liabilities 45,688 (10,269) 35,419
----------- ----------- -----------
Redeemable preferred stock 3,006 -- 3,006
Stockholders' equity 5,649 18,615 24,264
----------- ----------- -----------
Total liabilities, redeemable
preferred stock and stockholders' equity $ 54,343 $ 8,346 $ 62,689
----------- ----------- -----------
38
EGLOBE, INC.
JUNE 30, 1999
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, 1998.
RESULTS OF OPERATIONS
Overview
The Company continued growing in the second quarter, with revenue
reaching more than $9.1 million as compared to $8.4 million in the
previous quarter and $7.7 million in the same quarter last year.
Revenues for the Company's new IP Voice Services (the "Network
Services") grew while revenue for Card Services declined. Global Office
Services (the unified messaging and telephone access to Internet
Services of newly acquired Vogo Networks) did not contribute materially
to revenue during the quarter - the first service was launched in late
July. The progress of Network Services continued with the expansion of
the direct network to 16 countries by the end of the second quarter and
an increase in minutes from the first to the second quarter of more
than 131%, from 7,314,918 to 16,926,401 minutes. The Card Services
revenue decline resulted primarily from the tightening of contracts and
procedures related to providing underlying services to issuers of
prepaid cards in the United States; the legacy business of providing
services to issuers of post paid cards around the world remained
constant.
Analyzing Network Services on a route-by-route basis, operating margins
for the provision of service improved when adjusted for the up-front
costs of implementing new direct routes for IP Voice, although that
investment in new routes did result in overall
39
EGLOBE, INC.
JUNE 30, 1999
negative gross margins for Network Services. The Company showed
substantial improvement in margins for Card Services. Global Office
Services contributed expenses without revenues in June. In addition,
the Company incurred significant non-cash charges to income related
primarily to goodwill and warrant amortization associated with various
acquisitions and financings completed since December 1998. Overall,
gross margin was consistent with the previous quarter.
The Company experienced an anticipated increase in cost of revenue
related to leases of capacity and other up-front costs necessary to
implement new routes and support new business arrangements and
contracts, as well as an anticipated increase in expenses related to
the operational needs of new contracts that are expected to be
concluded later in 1999. The gross margin loss for the period included
not only the up-front costs to increase transmission routes but a
margin loss of approximately $0.7 million related to up-front pricing
inducements on new contracts designed to build toward a profitable
long-term revenue stream. Management views these costs and expenses as
an investment in the future of the Company.
Primarily as a result of the increased costs and expenses and non-cash
charges, the Company incurred net losses of $11.2 million and $18.7
million for the three and six months ended June 30, 1999 compared to a
net loss of $1.0 million and $9.0 million for same periods last year.
The table below shows a comparative summary of certain significant
charges to income in the periods, which affected the reported loss:
(IN MILLIONS)
QUARTER ENDED SIX MONTHS
JUNE 30, ENDED JUNE 30,
1999 1998 1999 1998
Acquisition - related:
Goodwill amortization $ 0.9 $ -- $ 1.6 $ --
Deferred compensation, to 0.1 -- 1.0 --
employees of acquired companies
Warrant issuances associated with 2.7 -- 3.2 --
acquisitions and financings
Proxy-related litigation settlement -- -- -- 3.5
costs
Additional income tax provision -- -- -- 1.5
Corporate realignment costs -- -- -- 1.0
------ ------- ------- --------
$ 3.7 $ -- $ 5.8 $ 6.0
====== ======= ======= ========
40
EGLOBE, INC.
JUNE 30, 1999
After deducting these items, the loss for the second quarter of 1999
was $7.5 million (1998 - $1.0 million), which included charges for
depreciation and amortization of property and equipment of $0.9 million
(1998 - $0.7 million). For the six months ended June 30, 1999 and 1998
depreciation and amortization for property and equipment was $1.8
million and $1.5 million respectively. Included in the three and six
months ended June 30, 1999 loss are operating losses, excluding
depreciation and amortization, of its newly acquired subsidiaries, IDX,
UCI, Telekey and ConnectSoft, totaling approximately $2.6 million for
the three months and $3.9 million for the six months, respectively.
Contemporaneous with a first quarter issuance of convertible preferred
stock to the Company's largest stockholder (see Note 7 to the
Consolidated Financial Statements), the Company issued warrants which
were fully amortized as deemed preferred stock dividends ($2.2 million)
in that quarter. Additionally, values of the warrants issued with both
first and second quarter preferred stock financings described below are
being amortized as deemed preferred stock dividends which for the three
and six months ended June 30, 1999 amounted to $0.4 million and $1.8
million. For the three and six months ended June 30, 1999, preferred
stock dividends of $ 0.1 million and $0.2 million were recorded
comprising both deemed and accrued dividends. After giving effect to
these dividends of $ 0.6 million and $4.3 million, the net loss
attributable to the holders of common stock was $11.9 million and $23.1
million for the three and six months ended June 30, 1999.
Revenue
Revenue increased to $9.1 million in the second quarter as compared to
$7.7 million for the same quarter last year. For the six months ended
June 30, 1999 and 1998 revenue increased to $17.5 million from $15.2
million. Of this amount, approximately $2.9 million and $5.6 million,
respectively, for the three and six month periods ended June 30, 1999
was derived from Card Services provided globally to post paid card
issuers - that is, to customers who were in place by the second quarter
of 1998. Contracts and business arrangements entered into in the last
twelve months accounted for approximately $6.2 and $11.9 million of the
revenue for the three and six month periods ended June 30, 1999 and
included $3.8 million and $1.8 million, respectively, in revenue from
Network Services. Network Services is expected to generate additional
revenue growth in future reporting periods. The services of Vogo
Networks (unified messaging and telephone access to Internet content
and services) have just been launched with its first customer and
probably will not contribute materially to revenues this year, although
it is anticipated that there will be recognizable growth this year and
a measurable revenue stream in 2000.
Gross Profit
Gross profit (loss) was ($0.1 million) and $3.6 million for the three
months ended June 30, 1999 and 1998. For the six months ended June 30,
1999 and 1998, gross profit was
41
$0.3 million and $7.0 million respectively. An anticipated increase in
the cost of revenue related to leases of capacity and other up-front
costs necessary to implement new routes and services in Network
Services was the key element of this margin difference - as long as the
IP voice network is growing with new routes and services, such up-front
costs will be incurred. The total for the three months ending June 30,
1999 also includes approximately $0.2 million of costs attributable to
the first quarter. Also reflected in the difference for the six month
period ending June 30, 1999 with the prior year period are costs
incurred in the first quarter of 1999 (and in the first month of the
second quarter) due to pricing decisions which led to large negative
margins in some card service contracts those costs are no longer being
incurred.
Selling, General and Administrative Expenses ("SG&A")
These expenses totaled $5.9 million and $3.6 million, respectively, for
the second quarter of 1999 and 1998, and $10.6 million and $7.2 million
for the six months ended June 30, 1999 and 1998. Included in these
amounts is a provision for doubtful accounts of $0.2 million and $ 0.1
million for the three months ended June 30, 1999 and 1998. The
provision for doubtful accounts was $0.4 million and $0.7 million for
the six-month period ended June 30, 1999 and 1998, respectively.
Excluding these charges, SG&A was $5.7 million and $10.2 million for
the three and six months ended June 30, 1999 as compared to $3.5
million and $6.5 million for the same periods in 1998. The increase is
mainly due to the inclusion in the first and second quarters of 1999 of
the operating results of the newly acquired subsidiaries for which SG&A
expenses, principally employee compensation, totaled $ 2.7 million.
Deferred Compensation
These non-cash credits/charges totaled a charge of $0.04 million and
$1.0 million for the three and six month period ended June 30, 1999 and
relate to the stock allocated to employees of acquired companies by
their former owners out of the 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.
Accordingly, deferred compensation in future reporting periods will be
reported based on changes in the market price of the Company's common
stock.
Depreciation and Amortization Expense
These expenses increased from $0.7 million and $1.5 million to $1.9
million and $3.4 million for the three and six month periods ended June
30, 1999 and 1998, principally due to charges for goodwill amortization
of $1.0 million and $1.6 million in the three and six months ended June
30, 1999 related to acquisitions concluded since December 1998.
42
EGLOBE, INC.
JUNE 30, 1999
Proxy Related Litigation Expense
In the quarter ended March 31, 1998, the Company recorded a $3.5
million charge for the value of stock issued in connection with the
settlement of stockholder class action litigation.
Interest Expense
Interest expense totaled $3.2 million and $4.1 million compared to $0.3
million and $1.0 million for the three and six-month periods ended June
30, 1999 and 1998, respectively. This increase was primarily due to
interest expense related to acquisitions and financings.
Taxes on Income
In the quarter ended March 31, 1998, the Company recorded a $1.5
million provision for income taxes based on the initial results of a
restructuring study which identified potential international tax
issues. No provision was required for the first and second quarters of
1999.
LIQUIDITY, CAPITAL RESOURCES AND OTHER FINANCIAL DATA
Management is continuing its aggressive growth plan for 1999 and
intends to pursue that plan into the foreseeable future. Implementing
that plan will continue the large cash demands by the Company and the
need for aggressive cash management. To accomplish all of the
Company's objectives, management raised significant financing in the
first half of 1999 and is focused on raising additional capital
through the end of the fiscal year.
Cash and cash equivalents were $2.2 million at June 30, 1999 compared
to $1.4 million at December 31, 1998. Accounts receivable, net,
increased $1.4 million to $8.2 million at June 30, 1999 from $6.8
million at December 31, 1998, mainly due to higher revenues. Accounts
payable and accrued expenses totaled $16.4 million at June 30, 1999
($12.0 million at December 31, 1998) resulting principally from
deferrals of payments to certain vendors, accruals for interest costs
on debt payable only at maturity and the assumption of approximately
$2.2 million of such liabilities in the ConnectSoft acquisition. Cash
outflows from operating activities for the six-month period ended June
30, 1999 totaled $13.5 million, compared to cash inflows of $3.6
million for the nine-month period ended December 31, 1998.
On the operating level, the Company is renegotiating its relationship
with an entity that was formerly one of its largest customers. At June
30, 1999, 22% of the Company's net accounts receivable of $8.2 million
was due from this entity for which extended credit terms have been
granted. The new arrangement will assure more effective and timely
collection of receivables from that customer to permit renewed growth
in that customer's business. This arrangement will also assist in the
collection of certain amounts impacted by the extended credit terms -
the anticipated arrangements will include the Company
43
EGLOBE, INC.
JUNE 30, 1999
managing the cash collections from the ultimate users of the services
supplied to the customer.
There was a net working capital deficiency of $29.5 million at June 30,
1999 compared to a deficiency of $21.0 million at December 31, 1998.
Cash outflows from investing activities for the six-month period ended
June 30, 1999 totaled $2.0 million, compared to $5.3 million for the
nine-month period ended December 31, 1998. In the six-month period
ended June 30, 1999, the Company made other investments, principally
the purchase of ConnectSoft with net cash outflows of $1.5 million,
which the Company acquired in June (see Note 11 to the Consolidated
Financial Statements).
Cash generated from financing activities totaled $16.4 million during
the six-month period ended June 30, 1999 compared to $0.7 million
during the nine-month period ended December 31, 1998. In April 1999,
the Company entered into a financing transaction which included
convertible debt and warrants for a commitment totaling $20.0 million,
and provided an immediate unsecured loan of $7.0 million (see Notes 7
and 12 to the Consolidated Financial Statements). Proceeds from this
financing through June 30, 1999 were $7.0 million, with the remaining
$13.0 million received in early July after stockholder approval of the
transaction. An additional $2.0 million was received in June 1999
representing proceeds from the second tranche of Series D Convertible
shares which were issued upon registering the underlying common stock
issuable on conversion (see Note 9 to the Consolidated Financial
Statements).
CURRENT FUNDING REQUIREMENTS
The Company has the following estimated firm cash obligations and
requirements during the remainder of calendar 1999:
(in millions)
Capital lease payments 0.6
Payment of promissory notes issued in
connection with acquisitions 1.3
Repayment of subsidiary's Line of Credit 0.4
Repayment of term loan principal 1.0
Current payments on notes 1.1
Y2K compliance program (see below) 0.8
Other obligations 0.8
------
$ 6.0
44
EGLOBE, INC.
JUNE 30, 1999
Through June 30, 1999 the Company has acquired new funding and
commitments in excess of $32.0 million: $10.0 million from the sale of
convertible stock; $20.0 million in long-term debt; and more than $2.0
million in vendor financing for network equipment purchases. These
funds alone will not permit the Company to achieve the growth, both
short and long-term, that management is targeting. That growth will
require additional capital. The plan under which the Company is
currently operating requires cash in the second half of 1999 through
mid 2000. The Company anticipates that this capital will come from (1)
a private placement of equity in the third quarter of up to $10
million, (2) an additional financing of debt or equity in the second
half of the year of up to $30.0 million with the possibility that this
total will be diminished by secured equipment-based financings.
These funds will be used for operations as required, for network
expansion and upgrade, for acquisitions and investments and, in
particular, for the launch of new services such as the Global Office
Services. If significantly less capital is available, it would force
the Company to curtail its existing and planned levels of operations
and would therefore have a material adverse effect on the Company's
business, results of operations and financial condition.
ACCOUNTING PRONOUNCEMENTS AND YEAR 2000 ISSUES
Recent Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") has issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 133 requires companies to record derivatives on the balance
sheet as assets or liabilities, measured at fair market value. Gains or
losses resulting from changes in the values of those derivatives are
accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. The key criterion for hedge accounting
is that the hedging relationship must be highly effective in achieving
offsetting changes in fair value or cash flows. SFAS No. 133 is
effective for fiscal years beginning after June 15, 2000 and is
currently not applicable to the Company because the Company does not
enter into hedging or derivative transactions.
Year 2000 Issues
The Company is aware of the issues associated with the programming code
in existing computer systems as the year 2000 approaches. The "Year
2000 Issue" or "Y2K Issue" arises because many computer and hardware
systems use only two digits to represent the year. As a result, these
systems and programs may not process dates beyond the year 1999, which
may cause errors in information or system failures. Assessments of the
potential effects of the Y2K issue vary markedly among different
companies, governments, consultants, economists and commentators, and
it is not possible to predict what the actual impact may be. Because
the Company uses Unix-based systems for its platforms and operating
systems to deliver service to customers, the Company has
45
EGLOBE, INC.
JUNE 30, 1999
asserted that material operating systems modifications may not be
required to ensure Y2K compliance. This assertion was validated by
testing the operating software resident on the Unix-based system which
was completed in June 1999. The Company has completed its internal
analysis, assessment and planning for critical systems requirements.
The Company is using internal resources to identify, correct or
reprogram, and test its computer systems for Y2K compliance.
Reprogramming and testing of the Company's core application software is
in progress. It is anticipated that all reprogramming efforts,
including testing, will be completed by October 1999. Deployment of Y2K
compliant hardware and software is expected to be complete by November.
Management is currently evaluating the financial impact for Y2K
compliance and expects that total remaining costs for the Company will
not exceed $0.8 million. Material costs have been incurred during the
six months ended June 30, 1999 totaling $338,000. The Company believes
that it will be able to correct any potential "Year 2000" problems in
its critical systems. Nevertheless, the Company is preparing a
contingency plan, which is in the process of being finalized and should
be complete by September 1999. The Company is also in the process of
assessing Year 2000 readiness of its key suppliers and customers. This
project has been undertaken with a view toward assuring that the
Company has adequate resources to cover its various telecommunications
requirements. A failure of the Company's suppliers or customers to
address adequately their Year 2000 readiness could affect the Company's
business adversely. The Company's worst-case Year 2000 scenarios would
include: (i) undetected errors or uncorrected defects in its current
product offerings; (ii) corruption of data contained in its internal
information systems; and (iii) the failure of infrastructure services
provided by external providers. The Company is in the process of
reviewing its contingency planning in all of these areas and expects
the plans to include, among other things, the availability of support
personnel to assist with customer support issues, manual "work arounds"
for internal software failure, and substitution of systems, if needed.
The Company anticipates that it will have a contingency plan in place
by September 1999. In addition, the Company is aware of the potential
for claims against it for damages arising from products and services
that are not Year 2000 ready. The Company believes that such claims
against it would be without merit. Finally, the Year 2000 presents a
number of risks and uncertainties that could affect the Company,
including utilities failures, competition for personnel skilled in the
resolution of Year 2000 issues and the nature of government responses
to the issues among others. The Company's expectations as to the extent
and timeliness of modifications required in order to achieve Year 2000
compliance is a forward-looking statement subject to risks and
uncertainties. Actual results may vary materially as a result of a
number of factors, including, among others, those described in this
paragraph. There can be no assurance however, that the Company will be
able to successfully modify on a timely basis such products, services
and systems to comply with Year 2000 requirements, which failure could
have a material adverse effect on the Company's business, results of
operations and financial condition.
46
EGLOBE, INC.
JUNE 30, 1999
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
- --------------------------------------------------------------------------------
The Company measures its exposure to market risk at any point in time
by comparing the open positions to a market risk of fair value. The
market prices the Company uses 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, 1999, the Company was exposed to some market risk
through interest rates on its long-term debt and preferred stock and
foreign currency. At June 30, 1999, the Company's exposure to market
risk was not material. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
ITEM 1 - LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
The following information sets forth information relating to material
legal proceedings involving the Company and certain of its executive
officers and directors. From time to time, the Company and its
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 the Company or its executive officers and directors.
A former officer of the Company who was terminated in the fall of 1997
filed suit against the Company in July 1998. The executive entered
into a termination agreement. The Company made the determination that
there were items which the executive failed to disclose to the Company
and, therefore, the Company ceased making payments to the executive
pending further investigation. The executive sued claiming employment
benefits including expenses, vacation pay and rights to options. The
parties agreed, in principle, to a settlement which the parties were
not able to conclude. The Company is defending its position vigorously
and believes that, ultimately, it will prevail.
The Company is in arbitration with a distributor of prepaid cards which
claims that the Company violated a nondisclosure agreement. The Company
contends that the card distributor owes approximately $390,000 for
goods and services provided. The parties have agreed, in principle, to
a settlement.
ITEM 2 - CHANGES IN SECURITIES
- --------------------------------------------------------------------------------
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
- --------------------------------------------------------------------------------
None
47
EGLOBE, INC.
JUNE 30, 1999
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- --------------------------------------------------------------------------------
On June 16, 1999, the Company held its 1999 annual meeting of
stockholders ("Annual Meeting"). At the Annual Meeting, the Company's
stockholders took the following actions:
1. ELECTED DIRECTORS. The Company's stockholders elected seven directors
of the Company's Board of Directors. The names of the elected directors
are Christopher J. Vizas, David W. Warnes, Richard A. Krinsley, Donald
H. Sledge, James O. Howard, and Richard Chiang (each whom had served
prior to the Annual Meeting) and John Wall.
ELECTION OF DIRECTORS
Name of Nominee For Withheld
--------------- --- --------
Vizas 13,356,837 507,235
Warnes 13,349,453 514,619
Krinsley 13,357,272 506,800
Sledge 13,357,272 506,800
Howard 13,349,018 515,054
Chiang 13,357,272 506,800
Wall 13,357,272 506,800
2. AMENDED THE COMPANY'S CERTIFICATE OF INCORPORATION. The Company's
stockholders adopted the following amendments to the Company's
certificate of incorporation:
(a)CHANGE THE COMPANY'S NAME TO EGLOBE, INC.
For Against Abstain
--- ------- -------
18,794,597 567,432 12,914
(b)INCREASE THE AUTHORIZED PREFERRED STOCK AVAILABLE FOR ISSUANCE FROM
5,000,000 TO 10,000,000
For Against Abstain
--- ------- -------
10,604,045 1,055,689 34,488
(c)PROVIDE FOR CLASSIFICATION OF THE COMPANY'S BOARD OF DIRECTORS INTO
THREE CLASS OF DIRECTORS SERVING STAGGERED TERMS OF OFFICE.
48
EGLOBE, INC.
JUNE 30, 1999
For Against Abstain
--- ------- -------
11,623,197 1,288,535 69,044
(d)PROHIBIT STOCKHOLDERS FROM INCREASING THEIR PERCENTAGE OF OWNERSHIP OF
THE COMPANY ABOVE 30% OF THE OUTSTANDING STOCK OR 40% ON A FULLY
DILUTED BASIS OTHER THAN BY A TENDER OFFER RESULTING IN THE STOCKHOLDER
OWNING 85% OR MORE OF THE OUTSTANDING COMMON STOCK.
For Against Abstain
--- ------- -------
10,776,724 1,079,977 832,002
3. APPROVAL OF THE RESTATEMENT OF THE COMPANY'S CERTIFICATE OF
INCORPORATION.
For Against Abstain
--- ------- -------
12,097,882 749,383 131,279
4. AMENDED THE COMPANY'S 1995 EMPLOYEE STOCK OPTION AND APPRECIATION
RIGHTS PLAN. The Company's stockholders adopted an amendment to
increase the number of shares of the Company's Common Stock that may be
issued under the Company's employee stock option plan by 1,500,000,
which increase includes the reduction of the number of shares available
for issuance under the Company's director stock option plan by 437,000
shares, and effect various changes to the Company's employee stock
option plan.
For Against Abstain
--- ------- -------
10,349,577 1,200,814 139,991
5. APPROVAL OF THE ISSUANCE OF COMMON STOCK UPON THE CONVERSION AND
EXERCISE OF THE SERIES B PREFERRED STOCK, CERTAIN WARRANTS, AND
CONVERTIBLE PROMISSORY NOTES. The Company's stockholders approved the
possible issuance of shares of the Company's Common Stock upon the
conversion and exercise of shares of the Company's Series B Convertible
Preferred Stock, warrants and promissory notes issued in connection
with the Series B Convertible Preferred Stock, where the number of
shares issuable may equal or exceed 20% of the Company's Common Stock
outstanding at the time these securities were issued.
For Against Abstain
--- ------- -------
10,360,705 762,867 84,720
49
EGLOBE, INC.
JUNE 30, 1999
6. APPROVAL OF THE ISSUANCE OF COMMON STOCK UPON THE EXERCISE OF CERTAIN
WARRANTS AND IN POSSIBLE PAYMENT OF UP TO 50% OF $20.0 MILLION OF
SECURED FINANCING. The Company's stockholders approved the possible
issuance of the Company's Common Stock upon the exercise of warrants
granted to EXTL Investors when the Company borrowed up to $20 million
from EXTL Investors and the possible repayment of up to 50% of the
amount borrowed using shares of the Company's Common Stock, where the
number of shares issuable may equal or exceed 20% of the Company's
Common Stock outstanding.
For Against Abstain
--- ------- -------
10,542,090 764,540 390,531
7. APPROVAL OF EXTL INVESTORS OWNING IN EXCESS OF 19.9% OF THE COMPANY'S
COMMON STOCK NOW OR IN THE FUTURE. The Company's stockholders approved
allowing EXTL Investors LLC, the Company's largest stockholder, to own
20% or more of the Company's Common Stock outstanding now or in the
future.
For Against Abstain
--- ------- -------
10,525,890 797,187 374,084
8. APPROVAL OF THE ISSUANCE OF SHARES OF THE COMPANY'S COMMON STOCK UPON
THE CONVERSION AND EXERCISE OF SERIES D PREFERRED STOCK AND CERTAIN
WARRANTS. The Company's stockholders approved the possible issuance of
shares of the Company's Common Stock upon the conversion and exercise
of shares of the Company's Series D Cumulative Convertible Preferred
Stock and warrants issued in connection with the 8% Series D Cumulative
Convertible Preferred Stock exceeding 20% of the Company's Common Stock
outstanding at the time these securities were issued.
For Against Abstain
--- ------- -------
10,771,289 786,965 181,952
ITEM 5 - OTHER INFORMATION
- --------------------------------------------------------------------------------
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------------
(a) Exhibits
3.1 Restated Certificate of Incorporation, dated June 16, 1999.
50
3.2 Certificate of Amendment to Restated Certificate of
Incorporati on, dated July 7, 1999.
4.1 Certificate of Designations, Rights and Preferences of 6%
Series G Cumulative Convertible Redeemable Preferred Stock
of the Company. (Incorporated by reference to Exhibit 4.1 in
Current Report on Form 8-K of the Company, dated July 2,
1999).
4.2 Certificate of Designations, Rights and Preferences of
Series H Convertible Preferred Stock.
4.3 Certificate of Designations, Rights and Preferences of
Series I Convertible Optional Redemption Preferred Stock.
4.4 Certificate of Elimination of Series A Participation
Preferred Stock.
10. Agreement and Plan of Merger dated July 12, 1999 for the
acquisition of Swiftcall.
27. Financial Data Schedule
(b) Reports on Form 8-K and 8-K/A
(i) A report on Form 8-K/A, amending a report on Form 8-K dated
December 2, 1998 reporting the acquisition of IDX
International, Inc. and Telekey, Inc. under Item 2, was
filed with the Commission on April 30, 1999 including
required financial statements and pro formas.
(ii) A report on Form 8-K was filed with the Commission on May
19, 1999 to report repeal of the Company's "poison pill"
shareholder rights plan.
(iii) A report on Form 8-K was filed with the Commission on July
2, 1999 to report completion of the acquisition of
ConnectSoft Communications.
(iv) A report on Form 8-K was filed with the Commission on July
19, 1999 to report completion of a $20 million secured
notes financing by EXTL Investors.
51
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 16, 1999 By /S/ Anne Haas
----------------------------------------------
Anne Haas
Controller, Treasurer
(Principal Accounting Officer)
Date: August 16, 1999 By /S/ Christopher J. Vizas
-------------------------------------------------
Christopher J. Vizas
Chairman of the Board of Directors, and
Chief Executive Officer
(Principal Executive Officer)
52