SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Commission File
earliest event reported): Number:
JUNE 17, 1999 1-10210
EGLOBE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3486421
(State or other jurisdiction of (IRS Employer Identification
incorporation) Number)
1250 24th Street, NW, Suite 725
Washington, D.C. 20037
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(202) 822-8981
(Former name or former address, if changed since last report)
NA
1
EGLOBE, INC.
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EXPLANATORY NOTE
Pursuant to Items 7(a)(4) and 7(b)(2) of the Securities and Exchange
Commission's (the "Commission") General Instructions for Form 8-K, eGlobe, Inc.
(the "Company") formerly Executive TeleCard, Ltd., hereby amends Items 7(a) and
7(b) of its Current Report on Form 8-K, filed with the Commission on July 2,
1999 to file combined financial statements of Connectsoft Communications
Corporation, substantially all the assets of which were acquired by the Company
through its new subsidiary Vogo Networks, LLC on June 17, 1999 and to file pro
forma financial information for the Company reflecting such acquisition.
The Company has included a brief description of Vogo's acquisition of
substantially all of the assets of Connectsoft Communications Corporation and
Connectsoft Holding Corp. ("Connectsoft") by its new subsidiary Vogo Networks,
LLC ("Vogo") along with the pro forma information for the Company. Telekey, Inc
and Subsidiary and Travelers Services, Inc. ("Telekey") were acquired on
February 12, 1999. UCI Tele Networks, Ltd. ("UCI") was acquired on December 31,
1998 and IDX International Inc. and Subsidiaries ("IDX") was acquired on
December 2, 1998. The Telekey, UCI and IDX acquisitions were previously reported
on Form 8-K/A filed on April 30, 1999. In June 1999, the stockholders of the
Company approved the increase in the convertibility of the preferred stock
issued to the IDX stockholders and in July 1999 the terms of the IDX purchase
agreement were renegotiated, both of which are further described in this Form
8-K/A. Item 7c of the July 2, 1999 Current Report is also hereby amended to add
the Exchange Agreement, the Certificate of Designations for the Series H
Convertible Preferred Stock, the Certificate of Designations for the Series I
Convertible Optional Redemption Preferred Stock and the form of Warrant relating
to the renegotiated IDX deal.
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EGLOBE, INC.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
ITEM 7(A). FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
Filed herewith as a part of this report are the following
financial statements: Connectsoft Communications Corporation, (i)
Report of Independent Certified Public Accountants, (ii) Combined
Statements of Net Liabilities as of July 31, 1998 (audited) and
May 31, 1999 (unaudited), (iii) Combined Statements of Revenues
and Expenses for the year ended July 31, 1998 (audited) and for
the ten months ended May 31, 1999 and 1998 (unaudited), (iv)
Notes to Combined Financial Statements for the twelve months
ended July 31, 1998 (audited) and for the ten months ended May
30, 1999 and 1998. (unaudited).
ITEM 7(B). PRO FORMA FINANCIAL INFORMATION
Filed herewith as a part of this report are the Company's
Unaudited Pro Forma Condensed Consolidated Statements of
Operations for the twelve months ended December 31, 1998 and for
the six months ended June 30, 1999 (unaudited) and the notes
thereto. A pro forma condensed consolidated balance sheet is not
included in this report as the acquisition of Connectsoft
occurred in June 1999 and is included in the June 30, 1999
historical unaudited balance sheet of the Company as reported on
Form 10-Q filed on August 16, 1999. The effect of the Company's
stockholder approval of the increase in the IDX preferred stock
conversion terms is also included in the June 30, 1999 historical
unaudited balance sheet.
ITEM 7(C). EXHIBITS
2.6 Exchange Agreement dated July 26, 1999, by and between the
former stockholders of IDX International, Inc. and eGlobe, Inc.
4.5 Certificate of Designations, Rights and Preferences of Series
H Convertible Preferred Stock of eGlobe, Inc.
4.6 Certificate of Designations, Rights and Preferences of Series
I Convertible Optional Redemption Preferred Stock of eGlobe, Inc.
4.7 Form of Warrants to purchase up to 1,250,000 shares of common
stock of eGlobe, Inc.
3
INDEX TO FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants 5
Combined Statements of Net Liabilities as of July 31, 1998
and May 31, 1999 (unaudited) 6
Combined Statements of Revenues and Expenses for
the year ended July 31, 1998 and for the ten months ended
May 31, 1999 and 1998 (unaudited) 7
Notes to Combined Financial Statements 8 - 16
4
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Connectsoft Communications Corporation
Bellevue, Washington
We have audited the accompanying combined statement of net liabilities of
Connectsoft Communications Corporation (the "Company") and the related combined
statement of revenues and expenses for the year ended July 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined net liabilities of Connectsoft
Communications Corporation as of July 31, 1998 and the results of their
operations for the year ended July 31, 1998, in conformity with generally
accepted accounting principles.
The accompanying combined financial statements have been prepared assuming that
Connectsoft Communications Corporation will continue as a going concern. As
discussed in Note 1 to the combined financial statements, Connectsoft
Communications Corporation has suffered from recurring net losses and negative
cash flow from operations that raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The combined financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ BDO Seidman, LLP
Denver, Colorado
July 21, 1999
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CONNECTSOFT COMMUNICATIONS CORPORATION
COMBINED STATEMENTS OF NET LIABILITIES
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JULY 31, 1998 MAY 31, 1999
(UNAUDITED)
------------- ------------
ASSETS
Current assets
Cash $ 116,000 $ 35,000
Trade accounts receivable 28,000 --
Other assets 16,000 20,000
---------------- ---------------
Total current assets 160,000 55,000
Property and equipment, net (Note 4) 865,000 513,000
---------------- ---------------
1,025,000 568,000
---------------- ---------------
LIABILITIES
Current liabilities
Accounts payable 312,000 292,000
Accrued liabilities 629,000 1,322,000
Advances from eGlobe (Note 3) 550,000 1,867,000
Capital lease obligations (Note 5) 2,808,000 2,943,000
---------------- ---------------
Total liabilities 4,299,000 6,424,000
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Commitments and contingencies (Notes 3, 5, 6, 7 and 8)
Net liabilities (Note 3) $ (3,274,000) $ (5,856,000)
================ ===============
SEE ACCOMPANYING NOTES TO COMBINED FINANCIAL STATEMENTS.
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CONNECTSOFT COMMUNICATIONS CORPORATION
COMBINED STATEMENTS OF REVENUES AND EXPENSES
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TEN MONTHS ENDED MAY 31,
------------------------------
YEAR ENDED 1999 1998
JULY 31, 1998 (UNAUDITED) (UNAUDITED)
------------- ----------- -----------
Revenues $373,000 $ 176,000 $ 311,000
Cost of revenues 287,000 157,000 239,000
-------------- --------------- -------------
Gross profit 86,000 19,000 72,000
-------------- --------------- -------------
Research and development expenses 2,771,000 2,622,000 2,309,000
Selling, general and
administrative expenses 1,774,000 1,189,000 1,478,000
-------------- --------------- -------------
Total expenses 4,545,000 3,811,000 3,787,000
-------------- --------------- -------------
Operating loss (4,459,000) (3,792,000) (3,715,000)
Interest expense 464,000 387,000 387,000
-------------- --------------- -------------
Excess of expenses over revenues $ (4,923,000) $ (4,179,000) $ (4,102,000)
============== ================ =============
SEE ACCOMPANYING NOTES TO COMBINED FINANCIAL STATEMENTS.
7
CONNECTSOFT COMMUNICATIONS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
INFORMATION WITH RESPECT TO MAY 31, 1999 AND 1998 IS UNAUDITED
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1. Description of business and basis of presentation
The accompanying statements of net liabilities and revenues and
expenses relate to the assets and operations of Connectsoft
Communications Corporation ("CCC") and the network operations center of
Connectsoft Holding Corp. ("NOC") (collectively, "Connectsoft" or "the
Company"). Both entities are wholly owned subsidiaries of American
United Global, Inc. ("AUGI"). The combined statements of net
liabilities include those assets to be acquired and liabilities to be
assumed under an Asset Purchase Agreement by eGlobe, Inc., formerly
known as Executive TeleCard, Ltd., ("eGlobe"), a public company with
complimentary technologies and customers, through its newly formed
subsidiary, Vogo Networks, LLC (see Note 3). The combined statements of
net liabilities do not include assets and liabilities of the business
that are not intended to be transferred to or assumed by eGlobe under
the terms of the Asset Purchase Agreement. Accordingly, the statement
of cash flows is not included or applicable to the business being sold.
Connectsoft has developed, and continues to enhance a server based
integrated communication system which it is marketing as Vogo. Vogo is
a phone portal that integrates messaging, internet applications,
content and personal services. The software is presently being marketed
as a service in the United States, with the introduction scheduled for
August 1999. The NOC provides internet connectivity and co-location
services to corporate customers in the northwestern United States.
During the periods reflected in the financial statements, the
operations of CCC were maintained as a separate entity. The operations
of the NOC were incorporated into the financial statements of AUGI and
Connectsoft Holding Corp. and include allocations of expenses which
management believes represents a reasonable allocation of such costs to
present the net liabilities and revenues and expenses of Connectsoft on
a standalone basis. These allocations consist of salary and benefit
expenses for operations personnel related to the NOC, depreciation
expense, communications expenses and interest expense on liabilities
assumed in the purchase. All material intercompany accounts and
transactions have been eliminated.
The financial statements have been prepared to substantially
comply with the rules and regulations of the Securities and Exchange
Commission for businesses acquired. The financial information presented
does not necessarily reflect what the financial position and results of
operations of Connectsoft would have been had it operated as a
standalone entity during the periods presented and may not be
indicative of future results.
Liquidity and Capital Resources
Per the requirements of the Securities and Exchange Commission for
businesses acquired, although Connectsoft has been funded to date by
its former parent company and by eGlobe, Connectsoft's combined
financial statements are presented on a standalone, going concern
basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.
Connectsoft's ability to generate sufficient revenues and ultimately
achieve profitable operations as a standalone entity is uncertain,
since the financial statements assume no funding by the former parent
company or by eGlobe. Ultimately, Connectsoft's ability to continue as
a going concern is dependent upon its ability to demonstrate sustained
commercial viability of its service and to obtain sufficient working
capital, both of which are uncertain at this time.
8
CONNECTSOFT COMMUNICATIONS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
INFORMATION WITH RESPECT TO MAY 31, 1999 AND 1998 IS UNAUDITED
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During the twelve-month period ended July 31, 1998, Connectsoft
incurred a net loss of $4.9 million and had negative working capital of
$4.1 million. At July 31, 1998 and May 31, 1999, Connectsoft's total
liabilities exceeded its total assets by $3.3 million and $5.9 million.
Connectsoft plans to operate in a fashion to generate both increased
revenues and cash flows through the introduction of its phone portal
technology scheduled for August 1999. However, no assurance can be
given that Connectsoft will, in fact, be able to improve operating
results.
As discussed in Notes 3 and 5, in connection with the purchase
transaction, eGlobe has advanced Connectsoft through May 31, 1999,
$1,867,000, and has successfully refinanced Connectsoft's equipment
leases. Connectsoft's management believes that eGlobe will provide
Connectsoft with financial and operational support which, together with
existing cash and anticipated cash flows from operations, should enable
Connectsoft to continue operations. However, the financial statements
assume no additional funding by eGlobe. In the absence of such
financing, since Connectsoft does not have significant cash resources,
there is substantial doubt about Connectsoft's ability to continue as a
going concern on a standalone basis. The combined financial statements
do not include any adjustments to reflect the possible future effects
on May 31, 1999 related to the recoverability and classification of
assets or the amounts and classification of liabilities that may result
from the possible inability of Connectsoft to continue as a going
concern.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. The Company
assesses the recoverability of its property and equipment at each
fiscal year end to determine if an asset impairment has occurred using
a cash flow model. No impairments have been recorded to date.
Depreciation is computed using the straight-line method over the
estimated useful lives of the assets as follows:
Furniture and fixtures 5 years
Computer equipment 3 years
SOFTWARE DEVELOPMENT COSTS
Software development costs incurred in connection with product
development are charged to research and development expense until
technological feasibility is established. Thereafter, through general
release of the product, all software development costs are capitalized
and reported at the lower of unamortized cost or net realizable value.
The establishment of technological feasibility and the ongoing
assessment of the recoverability of costs require considerable judgment
by the Company with respect to certain external factors, including, but
not limited to, anticipated future gross product sales, estimated
economic life, and changes in
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CONNECTSOFT COMMUNICATIONS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
INFORMATION WITH RESPECT TO MAY 31, 1999 AND 1998 IS UNAUDITED
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software and hardware technology. Through May 31, 1999 the Company has
not developed software to be sold or leased for which technological
feasibility has been established and accordingly all software costs
have been expensed.
10
CONNECTSOFT COMMUNICATIONS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
INFORMATION WITH RESPECT TO MAY 31, 1999 AND 1998 IS UNAUDITED
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INCOME TAXES
The Company accounts for income taxes using an asset and
liability approach which requires the recognition of deferred tax
assets and liabilities for the expected future consequences of
temporary differences between the carrying amounts for financial
reporting purposes and the tax bases of assets and liabilities.
The Company has incurred net losses for financial reporting
and tax purposes since inception. As a result of the sale of assets of
the Company, net operating losses generated through June 17, 1999, the
date of acquisition by eGlobe will remain with AUGI.
REVENUE RECOGNITION
The Company recognizes revenue from the license of its
proprietary software in accordance with the provisions of Statement of
Position ("SOP") 97-2 "Software Revenue Recognition." SOP 97-2 provides
guidelines concerning the recognition of revenue of software products.
This statement requires, among other things, the individual elements of
a contract for the sale of software products to be identified and
accounted for separately.
Service revenues for the use of the Company's Vogo service
and the NOC are recognized when the service is provided.
RESEARCH AND DEVELOPMENT
Expenditures relating to the development of new products and
processes, including significant improvements and refinements of
existing products, are expensed as incurred.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the periods presented. Actual results
could differ from those estimates.
INTERIM FINANCIAL INFORMATION
The financial information as of May 31, 1999 and for the ten
month periods ended May 31, 1999 and 1998 is unaudited but includes all
adjustments (consisting only of normal recurring accruals) that
management considers necessary for a fair presentation of the financial
position at such date and the results of operations for those periods.
Operating results for the ten months
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CONNECTSOFT COMMUNICATIONS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
INFORMATION WITH RESPECT TO MAY 31, 1999 AND 1998 IS UNAUDITED
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ended May 31, 1999 and 1998 are not necessarily indicative of the
results that may be expected for the entire fiscal year.
3. ACQUISITION OF NET LIABILITIES
On June 17, 1999 (the "Closing Date"), eGlobe, Inc., through
its new subsidiary Vogo Networks, LLC ("Vogo"), acquired substantially
all of the assets of CCC and NOC. In the transaction, eGlobe acquired
software and related technology and intellectual property, as well as a
talented and dedicated development team and a half million dollars in
cash. The purchase price consisted of preferred stock of eGlobe and the
assumption of debt by eGlobe and Vogo totaling approximately $8
million: (1)Vogo has assumed approximately $5 million in liabilities of
CCC and NOC, consisting primarily of refinanced long-term lease
obligations (Note 5) and non-interest bearing advances from eGlobe
totaling $550,000 and $1,867,000 at July 31, 1998 and May 31, 1999; (2)
eGlobe has issued to AUGI its 6% Series G Cumulative Convertible
Redeemable Preferred Stock (the "Series G Preferred Stock"), having a
liquidation value of $3 million (the "Liquidation Preference"); and (3)
eGlobe has issued a note (the "eGlobe Note") to AUGI in the amount of
$500,000.
The Series G Preferred Stock shall be redeemed by eGlobe for
cash in an amount equal to the Liquidation Preference on the earlier to
occur of five years from the Closing Date or the first date that eGlobe
receives in any transaction or series of transactions any equity
financing of at least $25 million. The Series G Preferred Stock is
convertible from and after October 1, 1999 at the option of the holder,
with a conversion price equal to 75% of the market price of eGlobe
stock at the time of conversion (but not less than $3.00 per share).
The holders of the Series G Preferred Stock are entitled to receive
cumulative annual dividends of 6.0% of the Liquidation Preference
payable, at the option of eGlobe, in cash, in shares of eGlobe common
stock, or a combination of cash and eGlobe common stock.
The acquisition was effected under an Asset Purchase
Agreement, dated as of July 10, 1998, as amended, most recently by an
amendment dated June 17, 1999 (the "Purchase Agreement") and related
documents.
12
CONNECTSOFT COMMUNICATIONS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
INFORMATION WITH RESPECT TO MAY 31, 1999 AND 1998 IS UNAUDITED
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4. PROPERTY AND EQUIPMENT
Property and equipment are comprised of the following:
JULY 31, MAY 31,
1998 1999
---- ----
Furniture $ 112,000 $ 25,000
Computer equipment 1,130,000 961,000
-------------- ---------------
1,242,000 986,000
Accumulated depreciation (377,000) (473,000)
-------------- ---------------
Property and equipment, net $ 865,000 $ 513,000
============== ===============
Total depreciation expense was $377,000 for the year ended
July 31, 1998, and $310,000 and $314,000 for the ten months ended May
31, 1999 and 1998, respectively. Substantially all of the fixed assets
have been pledged as collateral under capital lease obligations (Note
5).
5. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company has facilities in Bellevue and Seattle, Washington
under operating leases for office space. Future minimum lease payments
under non-cancellable leases as of the statement of net liabilities
dates are as follows:
Years ending July 31,
---------------------
1999 $20,000 (two months)
2000 88,000
2001 4,000
In addition to the above, the leases generally contain
requirements for the payment of property taxes, maintenance and
insurance expenses. Total rent expense was $209,000 for the year ended
July 31, 1999, and $170,000 and $174,000 for the 10 months ended May
31, 1999 and 1998, respectively.
13
CONNECTSOFT COMMUNICATIONS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
INFORMATION WITH RESPECT TO MAY 31, 1999 AND 1998 IS UNAUDITED
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In August 1998, the Company sublet a portion of its office
space to an unrelated third party on terms similar to its own lease. In
February 1999 the Company terminated its lease with its landlord and,
in a concurrent transaction, sublet a smaller space from the incoming
tenant.
CAPITAL LEASE OBLIGATIONS
The Company is committed under capital leases for furniture
and computer equipment. These leases are for 3 years, bear interest at
the rates ranging from 10.48% to 16.5%, are collateralized by furniture
and computer equipment and contain buyout clauses at the end of the
lease term. Certain of these leases are guaranteed by AUGI. Subsequent
to year end, the Company defaulted on these lease payments and thus has
recorded the obligations as current. Future minimum lease payments as
of the statement of net liabilities date are as follows:
JULY 31, 1998 MAY 31, 1999
------------- ------------
Total lease payments $3,329,000 $ 3,481,000
Less amount representing interest 521,000 538,000
---------- -------------
Present value of future minimum
lease payments $2,808,000 $ 2,943,000
========== =============
In July 1999, as a part of the purchase transaction, eGlobe
successfully refinanced leases. The total amount refinanced was
$2,992,000. The new leases are for a term of 36 months, bear interest
at rates ranging from 10.24% to 11.40% and contain buyout options at
the end of the lease terms. The revised payment schedule as of July 31,
1999 is as follows:
1999 $ 52,000 (one month)
2000 1,169,000
2001 1,169,000
2002 1,072,000
--------------
Total annual lease payments 3,462,000
Less amounts representing interest 470,000
--------------
Present value of future minimum
lease payments $ 2,992,000
==============
14
CONNECTSOFT COMMUNICATIONS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
INFORMATION WITH RESPECT TO MAY 31, 1999 AND 1998 IS UNAUDITED
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TELECOMMUNICATIONS LINES
In the normal course of business, the Company enters into agreements
for the use of telecommunications lines for network and internet
connectivity for its customers. Future minimum payments under such
agreements are as follows:
Years ending July 31,
---------------------
1999 $18,000 (two months)
2000 54,000
LEGAL PROCEEDINGS
The Company is involved in certain legal proceedings that have
arisen in the normal course of business. Based on the advice of legal
counsel, management does not anticipate that these matters will have a
material effect on the Company's combined statements of net liabilities
or statements of revenues and expenses.
EMPLOYEE SAVINGS PLAN
The Company has a voluntary savings plan pursuant to Section
401(k) of the Internal Revenue Code, whereby eligible participants may
contribute a percentage of compensation subject to certain limitations.
The Company has the option to make discretionary qualified
contributions to the plan, however, no Company contributions were made
for the year ended July 31, 1998 and the ten months ended May 31, 1999
and 1998.
6. THIRD PARTY LICENSE AGREEMENTS
In July 1997 the Company entered into a software license
agreement with Data Connection Limited ("DCL") to incorporate DCL's
proprietary technology into the Vogo service. The obligations under
this agreement, as amended, are comprised of initial development and
minimum royalty fees totaling $1,300,000. The agreement calls for
additional royalty payments of 5.0% of revenues as defined in the
agreement. The term of the agreement is perpetual, but may be
terminated by either party upon the other party's material breach,
bankruptcy or insolvency. Development and royalty Ffees incurred under
this agreement totaled $875,000 for the year ended July 31, 1998 and
$606,000 and $275,000 for the ten months ended May 31, 1999 and 1998,
respectively. Such costs are included in research and development
expenses in the accompanying combined statement of revenues and
expenses.
15
CONNECTSOFT COMMUNICATIONS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
INFORMATION WITH RESPECT TO MAY 31, 1999 AND 1998 IS UNAUDITED
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7. JOINT MARKETING AND REVENUE SHARING AGREEMENT
On May 7, 1999, the Company entered into a non-exclusive Joint
Marketing and Revenue Sharing Agreement with a company that provides
complimentary services. The two companies will jointly market and share
the subscription and net usage revenues from a joint service offering.
Costs incurred by each of the respective companies are their own to
bear. The agreement expires in two years with a possible one-year
extension.
8. YEAR 2000 ISSUE (UNAUDITED)
The Company could be adversely affected if its computer
systems, the software it has developed or the computer systems its
suppliers or customers use do not properly process and calculate date
related information and data from the period surrounding and including
January 1, 2000. Additionally, this issue could impact non-computer
system devices. The Company believes that its internal systems and its
software are Year 2000 compliant. However, it cannot provide assurances
as to the readiness of its suppliers or customers computer systems. At
this time, because of the complexities involved in the issue,
management cannot provide assurances that the Year 2000 issue will not
have an impact on the Company's operations.
16
EGLOBE, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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The following unaudited pro forma condensed consolidated statements of
operations give effect to the acquisitions by the Company for the entities
previously described and reported on Form 8-K/A filed on April 30, 1999, the
June 1999 stockholder approval of the increase of the number of shares of common
stock issuable upon conversion of the preferred stock issued to the IDX
stockholders, the terms of the IDX purchase agreement as renegotiated in July
1999 and the Connectsoft acquisition and are based on the estimates and
assumptions set forth herein and in the notes to such financial statements.
These transactions have been detailed below. This pro forma presentation has
been prepared utilizing historical financial statements and notes thereto,
certain of which are included herein as well as pro forma adjustments as
described in the Notes to Pro Forma Condensed Consolidated Financial Statements.
The pro forma financial data does not purport to be indicative of the results
which actually would have been obtained had the acquisitions been effected on
the dates indicated or the results which may be obtained in the future.
The Unaudited Pro Forma Condensed Consolidated Statement of Operations for the
year ended December 31, 1998 includes the operating results of the Company, IDX,
Telekey, and Connectsoft, assuming the acquisitions occurred January 1, 1998.
Also, the subsequent increase in the preferred conversion factor for preferred
shares originally issued to IDX stockholders and the renegotiation of the terms
of the IDX purchase agreement were assumed to have occurred on January 1, 1998.
The historical results of the Company include the results of IDX for the period
from December 2, 1998, the effective date of the acquisition, to December 31,
1998. UCI was acquired on December 31, 1998 and had minimal operations which
have not been reflected in the Unaudited Pro Forma Condensed Consolidated
Statement of Operations for the year ended December 31, 1998. However, the
recurring effect of the goodwill amortization related to the UCI acquisition has
been included in the Unaudited Pro Forma Condensed Consolidated Statement of
Operations.
The Unaudited Pro Forma Condensed Consolidated Statement of Operations for the
six months ended June 30, 1999 assumes that the Telekey and Connectsoft
acquisitions and the subsequent increase in the IDX purchase price related to
the increase in the convertibility of the preferred stock originally issued to
the IDX stockholders and renegotiation of the IDX purchase agreement occurred at
the beginning of the periods presented. The historical results of operations of
the Company for the six months ended June 30, 1999 include the results of
Telekey from February 1, 1999, the effective date of the acquisition, to June
30, 1999, and the results of Connectsoft from June 1, 1999, the effective date
of the acquisition, to June 30, 1999.
The unaudited pro forma condensed consolidated statements of operations are
presented for illustrative purposes only and do not purport to represent what
the Company's results of operations would have been had the acquisitions
described herein occurred on the dates indicated for any future period or at any
future date, and are therefore qualified in their entirety by reference to and
should be read in conjunction with the historical consolidated financial
statements of the Company and the historical financial statements of
Connectsoft, contained elsewhere herein. Historical financial statements of IDX
and Telekey were previously filed in Form 8-K/A on April 30, 1999.
17
EGLOBE, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
ACQUISITION OF CONNECTSOFT COMMUNICATIONS CORPORATION
In June 1999, the Company through its new subsidiary, Vogo Networks,
LLC ("Vogo"), purchased substantially all the assets of Connectsoft, in exchange
for (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 approximately $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 issued one share of Series G Preferred valued at $3.0
million. 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 notice of conversion is received by the Company and
(ii) minimum purchase price of $3.00. The Company shall automatically redeem the
Series G Preferred at a price equal to the fair value plus accrued and unpaid
dividends in cash, 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 17,
2004. The Series G Preferred carries an annual dividend of 6%, payable annually
beginning June 30, 2000. If the Board of Directors of the Company does not
declare dividends, they accrue and remain payable.
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.
18
EGLOBE, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The acquisition has been recorded using the purchase method of accounting and
the components of the purchase price and its preliminary allocation to the
assets and liabilities acquired are as follows:
Components of Purchase Price:
Company's Series G Preferred Stock $3,000,000
Company's advances converted to investment
in Connectsoft 1,851,000
Direct acquisition costs 450,000
-----------
Total purchase price 5,301,000
===========
Allocation of purchase price:
Cash (35,000)
Other current assets (20,000)
Property and equipment (513,000)
Intangibles (9,120,000)
Goodwill (993,000)
Current liabilities 3,516,000
Long-term liabilities 1,864,000
-----------
Total $ --
===========
19
EGLOBE, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STOCKHOLDERS APPROVAL
IDX INTERNATIONAL, INC. AND SUBSIDIARIES PURCHASE
At the Company's annual meeting in June 1999, the stockholders
approved the increase of the convertibility of the 500,000 shares of
Series B Convertible Preferred Stock used in acquiring IDX from
2,000,000 shares of common stock to 2,500,000 shares of common stock
and warrants to purchase up to an additional 2,500,000 shares of
common stock if IDX meets certain performance objectives. 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. The effect of this increase in goodwill has
been included in the Unaudited Pro Forma Condensed Consolidated
Statement of Operations.
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
("Series B Preferred") 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.
(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.
(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 140,579
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.
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. 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.
20
EGLOBE, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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. The redemption may be made in cash, common
stock or a combination of the two. If the Company redeems the shares,
8% of the value of the Series I Preferred Stock per annum from
December 2, 1998 through the date of redemption will be paid in common
stock. Any Series I Preferred Stock not redeemed by the applicable
date will be converted automatically into common stock based on a
conversion price equal to $10 divided by the greater of the current
market price of the common stock or $2 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 has recorded 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 has
been reflected in the unaudited pro forma condensed consolidated
statement of operations for the year ended December 31, 1998. 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.
At the acquisition date, the stockholders of IDX received Series B
Preferred Stock and warrants as discussed above, which were ultimately
convertible into common stock subject to IDX meeting its performance
objectives. These stockholders in turn granted preferred stock and
warrants, each of which was convertible into a maximum of 240,000
shares of the Company's common stock, to IDX employees. The stock
grants are performance based and 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. The
company is currently renegotiating these agreements. As a result, the
Unaudited Pro Forma Condensed Consolidated Statements of Operations do
not reflect adjustments to reflect the effect of the renegotiated IDX
purchases agreement on these employee agreements.
21
EGLOBE, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
EGLOBE
TWELVE MONTHS IDX TELEKEY CONNECTSOFT
ENDED 12/31/98 ELEVEN MONTHS TWELVE MONTHS TWELVE MONTHS ADJUSTMENTS
(NOTE A) (1) ENDED 11/30/98 ENDED 12/31/98 ENDED 12/31/98 (NOTE A) PRO FORMA
------------- ------------- ----------- ------------- ------------- -------------
REVENUE $ 30,030,000 $ 2,795,000 $ 4,705,000 $ 288,000 $(121,000)(2) $37,697,000
COST OF REVENUE 16,806,000 3,176,000 1,294,000 248,000 (65,000)(3) 21,459,000
------------- ------------- ----------- ------------- ------------- -------------
GROSS PROFIT (LOSS) 13,224,000 (381,000) 3,411,000 40,000 (56,000) 16,238,000
------------- ------------- ----------- ------------- ------------- -------------
COSTS AND EXPENSES:
Selling, general and
administrative 18,070,000 3,011,000 2,811,000 2,473,000 165,000(4) 26,530,000
Research and
development -- -- -- 2,057,000 -- 2,057,000
Depreciation and
amortization 3,070,000 510,000 192,000 231,000 4,533,000(5) 8,536,000
------------- ------------- ----------- ------------- ------------- -----------
TOTAL COSTS AND
EXPENSES 21,140,000 3,521,000 3,003,000 4,761,000 4,698,000 37,123,000
------------- ------------- ----------- ------------- ------------- -------------
INCOME (LOSS) FROM
OPERATIONS (7,916,000) (3,902,000) 408,000 (4,721,000) (4,754,000) (20,885,000)
------------- ------------- ----------- ------------- ------------- -------------
OTHER INCOME
(EXPENSE):
Other income
(expense) (1,981,000) 358,000 (61,000) (377,000) (205,000)(6) (2,266,000)
Proxy related
litigation expense (3,647,000) -- -- -- -- (3,647,000)
------------- ------------- ----------- ------------- ------------- -------------
TOTAL OTHER INCOME
(EXPENSE) (5,628,000) 358,000 (61,000) (377,000) (205,000) (5,913,000)
------------- ------------- ----------- ------------- ------------- -------------
INCOME (LOSS) BEFORE
TAXES ON INCOME (13,544,000) (3,544,000) 347,000 (5,098,000) (4,959,000) (26,798,000)
MINORITY INTEREST IN
INCOME OF SUBSIDIARY -- -- (59,000) -- 59,000(7) --
INCOME TAXES 1,500,000 -- -- -- 21,000(8) 1,521,000
------------- ------------- ----------- ------------- ------------- -------------
NET INCOME (LOSS) (15,044,000) (3,544,000) 288,000 (5,098,000) $ (4,921,000) $(28,319,000)
------------- ------------- ----------- ------------- ------------- -------------
PREFERRED STOCK
DIVIDENDS 6,900,000(9) 6,900,000
NET LOSS ATTRIBUTABLE
TO COMMON STOCK $(15,044,000) $ (3,544,000) $ 288,000 $ (5,098,000) $(11,821,000) $(35,219,000)
------------- ------------- ----------- ------------- ------------- -------------
NET LOSS PER SHARE (NOTES
10 AND 11)
Basic and diluted $ (0.85) -- -- -- -- $ (1.96)
============= ============= =========== ============= ============= =============
See notes to the pro forma condensed consolidated financial statements
22
EGLOBE, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
- --------------------------------------------------------------------------------
EGLOBE TELEKEY CONNECTSOFT
SIX MONTHS ENDED ONE MONTH ENDED FIVE MONTHS ENDED ADJUSTMENTS
6/30/99 1/31/99 5/31/99 (NOTE B) PRO FORMA
---------------- --------------- ----------------- ----------- ----------
REVENUE $17,501,000 $ 190,000 $73,000 $ -- $17,764,000
COST OF REVENUE 17,237,000 59,000 65,000 -- 17,361,000
----------- --------- --------- ----------- -----------
GROSS PROFIT 264,000 131,000 8,000 -- 403,000
----------- --------- --------- ----------- -----------
COSTS AND EXPENSES:
Selling, general and
administrative 11,570,000 141,000 436,000 72,000(12) 12,219,000
Research and development -- -- 1,092,000 -- 1,092,000
Depreciation and
amortization 3,381,000 16,000 129,000 898,000(13) 4,424,000
----------- --------- --------- ----------- -----------
TOTAL COSTS AND EXPENSES 14,951,000 157,000 1,657,000 970,000 17,735,000
----------- --------- --------- ----------- -----------
LOSS FROM OPERATIONS (14,687,000) (26,000) (1,649,000) (970,000) (17,332,000)
----------- --------- --------- ----------- -----------
OTHER INCOME (EXPENSE) (4,062,000) (6,000) (162,000) 182,000(14) (4,048,000)
----------- --------- --------- ----------- -----------
NET LOSS (18,749,000) (32,000) (1,811,000) (788,000) (21,380,000)
----------- --------- --------- ----------- -----------
PREFERRED STOCK DIVIDENDS 4,329,000 -- -- 235,000(15) (4,564,000)
----------- --------- --------- ----------- -----------
NET LOSS ATTRIBUTABLE TO
COMMON STOCK $(23,078,000) $(32,000) $(1,811,000) $(1,023,000) $(25,944,000)
----------- --------- --------- ----------- -----------
NET LOSS PER SHARE (NOTES 16
AND 17)
Basic and diluted $(1.22) -- -- -- $(1.36)
=========== ========= ========= =========== ===========
See notes to the pro forma condensed consolidated financial statements
23
EGLOBE, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE A. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR
THE TWELVE MONTHS ENDED DECEMBER 31, 1998
(1) Effective with the period ended December 31, 1998, the Company changed from
a March 31 to a December 31 fiscal year end. As a result, the
following table is required to reflect twelve months of operations.
NINE MONTHS THREE MONTHS TWELVE MONTHS
ENDED 12/31/98 ENDED 3/31/98 ENDED 12/31/98
-------------- ------------- --------------
Revenue $ 22,491,000 $ 7,539,000 $ 30,030,000
Cost of revenue 12,619,000 4,187,000 16,806,000
------------- ------------- -------------
Gross profit 9,872,000 3,352,000 13,224,000
Costs and expenses:
Selling, general and administrative 13,555,000 4,515,000 18,070,000
Depreciation and amortization 2,256,000 814,000 3,070,000
------------- ------------- -------------
Total costs and expenses 15,811,000 5,329,000 21,140,000
------------- ------------- -------------
Loss from operations (5,939,000) (1,977,000) (7,916,000)
------------- ------------- -------------
Other income (expenses):
Other expense (1,031,000) (950,000) (1,981,000)
Proxy related litigation expense (120,000) (3,527,000) (3,647,000)
------------- ------------- -------------
Total other expenses (1,151,000) (4,477,000) (5,628,000)
------------- ------------- -------------
Loss before taxes on income (7,090,000) (6,454,000) (13,544,000)
Income taxes -- 1,500,000 1,500,000
------------- ------------- -------------
Net loss $ (7,090,000) $ (7,954,000) $(15,044,000)
------------- ------------- -------------
UCI was acquired on December 31, 1998 and had minimal operations which have not
been reflected in the Pro Forma Condensed Consolidated Statement of Operations
for the year ended December 31, 1998. However, the recurring effect of the
goodwill amortization related to the UCI acquisition has been included in the
Unaudited Pro Forma Condensed Consolidated Statement of Operations.
24
EGLOBE, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE A. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR
THE TWELVE MONTHS ENDED DECEMBER 31, 1998 (CONT)
The following pro forma adjustments to the condensed consolidated statement of
operations are as if the acquisitions had been completed at the beginning of the
period presented and are not indicative of what would have occurred had the
acquisitions actually been made as of such date. IDX was acquired on December 2,
1998; therefore, the results of operations of IDX for the month of December 1998
are included in the historical results of the Company for the twelve months
ended December 31, 1998.
(2) Adjustments to revenue:
Elimination of IDX billings to the Company $ (41,000)
Adjustment to revenue to give effect to IDX's purchase of a subsidiary in April, 1998
and its sale of another subsidiary in November, 1998 as if the purchase and sale had
been completed at the beginning of the period presented (80,000)
--------------
$ (121,000)
==============
(3) Adjustments to cost of revenue:
Elimination of IDX billings to the Company $ (41,000)
Adjustment to cost of revenue to give effect to IDX's purchase of a subsidiary in April,
1998 and its sale of another subsidiary in November, 1998 as if the purchase and sale
had been completed at the beginning of the period presented (24,000)
--------------
$ (65,000)
==============
(4) Adjustments to selling, general and administrative expenses:
Adjustment for the incremental increase in IDX and Telekey management compensation $ 78,000
Adjustment for incremental increase in Connectsoft management compensation 173,000
Adjustment for deferred compensation related to Telekey purchase 232,000
Adjustment for deferred compensation related to IDX purchase (stockholder approval
in June 1999 for increase in conversion feature) 105,000
Adjustment to give effect to IDX's purchase of a subsidiary in April, 1998 and its sale of
another subsidiary in November, 1998 as if the purchase and sale had been
completed at the beginning of the period presented (423,000)
--------------
$ 165,000
==============
(5) Adjustments to depreciation and amortization expenses:
Amortization for eleven months of original cost in excess of net assets acquired for the IDX $ 1,425,000
purchase which was effective December 2, 1998 (7 year straight-line amortization)
Amortization of costs in excess of net assets acquired for UCI purchase which was effective
December 31, 1998 (7 year straight line amortization) 214,000
Amortization of costs in excess of net assets related to stockholder approval in June 1999
of increase in conversion feature for the IDX purchase (7 year straight-line
amortization) 165,000
Amortization of intangibles and cost in excess of net assets acquired for the Telekey
purchase (7 year straight-line amortization) 717,000
Amortization of intangibles acquired in the Connectsoft purchase (3-5 year
straight-line amortization) 1,870,000
Amortization of cost in excess of net assets acquired for the Connectsoft
purchase (7 year straight-line amortization) 142,000
--------------
$ 4,533,000
==============
25
EGLOBE, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE A. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(CON'T)
(6) Adjustment to other income (expenses) (note that interest on the two IDX notes that
were subsequently renegotiated and exchanged for shares of Series I Preferred
Stock is not included below):
Adjustment to give effect to IDX's purchase of a subsidiary in April,
1998 and its sale of another subsidiary in November, 1998 as if the
purchase and sale had been completed at the beginning of the period
presented $ (411,000)
Interest on $0.418 million IDX note @ 7.75% due 5/99 13,000
Interest on $0.5 million UCI note @8% due 6/99 20,000
Interest on $0.5 million UCI note @8% due 5/2000 40,000
Interest on $1.0 million IDX note @7.75% due 2/99 19,000
Additional interest recorded for value of 50,000 warrants issued in
connection with the UCI purchase 43,000
Interest on $0.5 million note payable to seller of Connectsoft 40,000
---------------
(236,000)
Less interest expense recorded by the Company in the historical
results of operations for the twelve months ended December 31, 1998 31,000
---------------
$ (205,000)
===============
(7) To eliminate the minority interest in income of a subsidiary. In connection with the
acquisition of Telekey by the Company, the 20% minority interest in Telekey,
L.L.C. was acquired by Telekey. $ 59,000
===============
(8) To reflect state income taxes (Telekey was previously an S-corporation) at 6% as
Georgia does not allow for a consolidated filing. The Telekey federal taxable
income can be offset with the Company's current period losses. $ 21,000
===============
26
EGLOBE, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(9) To reflect the preferred stock dividends associated with these transactions:
Annual dividend on Series G Preferred Stock $ 180,000
Annual dividend on Series I Preferred Stock 320,000
Dividend to IDX stockholders due to renegotiation of purchase agreement. 6,400,000
---------------
$ 6,900,000
===============
(10) Adjustment to the basic weighted average number of shares outstanding of
17,736,654 as if the acquisitions and IDX renegotiation had been completed
at the beginning of the period presented:
Issuance of common stock in payment of $0.4 million IDX note 141,000
Issuance of common stock in UCI purchase 63,000
---------------
204,000
===============
(11) Convertible preferred stock and convertible preferred notes were not included
in diluted earnings (loss) per share due to the Company recording a loss
for the period presented. The following table reflects the hares of common
stock that would have been issuable upon conversion:
Series H Preferred Stock 3,750,000
Series I Preferred Stock, including payment of accrued dividend 1,440,000
Convertible $1.0 million IDX note payable, including interest (converted in
1999) 474,000
Series F Preferred Stock 1,515,000
Series G Preferred Stock 1,000,000
---------------
8,179,000
===============
27
EGLOBE, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE B. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR
THE SIX MONTHS ENDED JUNE 30, 1999
The following pro forma adjustments to the condensed consolidated statement
of operations are as if the acquisitions had been completed at the beginning
of the fiscal period presented and are not indicative of what would have
occurred had the acquisitions actually been made as of such date.
Connectsoft was acquired in June 1999 and Telekey was acquired in February
1999; therefore, the results of operations of Connectsoft for the month of
June 1999 and the results of operations of Telekey for February through June
1999 are included in the historical results of the Company for the six
months ended June 30, 1999.
(12) Adjustment to selling, general and administrative expenses:
Adjustment for the incremental increase in Connectsoft management
compensation $72,000
=========
(13) Adjustments to depreciation and amortization expenses:
One month of amortization intangibles and of cost in excess of net
assets acquired for Telekey purchase (7 year straight-line
amortization) 60,000
Five months of amortization of intangibles acquired in the Connectsoft
purchase (3-5 year straight-line amortization) 779,000
Five months of amortization of cost in excess of net assets acquired for
Connectsoft purchase (7 year straight-line amortization) 59,000
---------
$898,000
=========
(14) Adjustment to other income (expenses):
Reverse interest recorded on $4.0 million IDX notes subsequently
exchanged for Series I Preferred Stock $(182,000)
=========
(15) Adjustment to preferred stock dividends:
Five months dividend on 6% Series G Preferred Stock $75,000
issued in Connectsoft acquisition
Dividend on Series I Preferred Stock 160,000
---------
$ 235,000
=========
28
EGLOBE, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(16) Adjustment to the basic weighted average number of shares outstanding
of 18,904,001 as if the acquisitions and IDX renegotiation had been
completed at the beginning of the fiscal period presented.
Issuance of common stock in payment of $0.4 million IDX note 141,000
Issuance of common stock in UCI purchase 63,000
----------
204,000
==========
(17) Convertible preferred stock and convertible preferred notes were not
included in diluted earnings (loss) per share due to the Company
recording a loss for the period presented. The following table reflects
the shares of common stock that would have been issuable upon
conversion:
Series H Preferred Stock 3,750,000
Series I Preferred Stock including payment of accrued dividend 1,493,000
Series F Preferred Stock 1,515,000
Series G Preferred Stock 1,000,000
----------
7,758,000
==========
29
EGLOBE, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE C. CONTINGENCIES
The following adjustments to the pro forma basic net loss per share are
to reflect the following: (1) the issuance of additional shares of
Series F Preferred Stock and warrants and the assumed conversion into
common stock which would have occurred if Telekey and IDX,
respectively, had met their earn-out formulas at the beginning of the
periods presented; (2) the additional shares of common stock to be
issued to UCI shareholders assuming UCI had met its earn-out provision;
(3) the estimated additional compensation expense related to the IDX
stockholders' grant of shares under the original agreement, including
shares issuable under the IDX warrant; and (4) the assumption that the
Company's common stock met the guaranteed trading price of $6.00 per
share for IDX related shares, $8.00 per share for UCI related shares
and $4.00 per share for the Telekey related shares. The increase in
goodwill amortization expense is the result of the additional goodwill
recorded as a result of the above issuances amortized over 7 years
using straight-line amortization.
In addition, if the Company's common stock does not trade at the
guaranteed trading prices for UCI related shares and Telekey related
shares and, subject to UCI and Telekey meeting their earn-out
objectives, the Company will be required to issue additional shares of
common stock and the estimated goodwill amortization reflected below
will change. If the Company's common stock does not trade at the
guaranteed trading price of $6.00 for IDX related shares and upon
conversion of Series H Preferred Stock, the Company may record an
additional dividend of up to $9.0 million if more than 3,750,000 shares
of common stock are issued.
The final purchase price allocations will be determined when certain
contingencies are resolved as discussed earlier and additional
information becomes available. This is not indicative of what would
have occurred had the acquisitions actually been made as of such date.
30
EGLOBE, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, 1999 DECEMBER 31, 1998
---------------- -------------------
PRO FORMA BASIC AND DILUTED LOSS PER SHARE:
NUMERATOR
Pro forma net loss attributable to common stock $(25,944,000) $(35,219,000)
Increase in goodwill amortization expense for
earn-out formulas (7
year straight-line amortization) (1,894,000) (3,788,000)
Additional estimated compensation related to
stock granted to IDX employees by IDX
stockholders after the Company's purchase of
IDX -- (3,420,000)
Additional estimated compensation related to
stock granted to Telekey employees by
Telekey stockholders after the Company's
purchase of Telekey -- (248,000)
---------------- --------------------
Adjusted pro forma net loss $(27,838,000) $(42,675,000)
---------------- --------------------
DENOMINATOR
Weighted average shares outstanding 19,108,001 18,003,154
Number of shares of common stock issuable
under earn-out formulas:
UCI (contingent earn-out stock) 62,500 62,500
---------------- --------------------
Adjusted pro forma basic weighted average shares
outstanding: 19,170,501 18,065,654
---------------- --------------------
PER SHARE AMOUNTS
Adjusted pro forma basic and diluted loss per share $(1.45) $(2.36)
- --------------------------------------------------------------------------------
The diluted loss per share in the above table does not
reflect the 1,755,000 shares of common stock that would be
issuable upon the conversion of the Series F Preferred Stock
and exercise of the IDX warrants under the respective
earn-out agreements. As the Company reported losses in both
periods, the effects of these transactions are
anti-dilutive.
31
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 27, 1999 By /S/ Anne Haas
-----------------------------------------
Anne Haas
Controller, Treasurer
(Principal Accounting Officer)
32