-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R6dAwAUQimo2KjSviVXFqBonwyV4RZqRx1wSe5zjVomNVvtM7qGlAuTfbAagp0Kc Ry7RWQqH9b/FtyYzOC7FVQ== 0001035704-00-000036.txt : 20000204 0001035704-00-000036.hdr.sgml : 20000204 ACCESSION NUMBER: 0001035704-00-000036 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19991124 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20000203 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RMI NET INC CENTRAL INDEX KEY: 0001003282 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] IRS NUMBER: 841322326 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-28738 FILM NUMBER: 520894 BUSINESS ADDRESS: STREET 1: 999 18TH STREET STREET 2: STE 2201 CITY: DENVER STATE: CO ZIP: 80202 BUSINESS PHONE: 3036720700 MAIL ADDRESS: STREET 1: 999 18TH STREET STREET 2: STE 2201 CITY: DENVER STATE: CO ZIP: 80202 FORMER COMPANY: FORMER CONFORMED NAME: ROCKY MOUNTAIN INTERNET INC DATE OF NAME CHANGE: 19960508 8-K/A 1 AMENDMENT NO. 1 TO FORM 8-K DATED 11/24/99 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A AMENDMENT NO. 1 TO CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported) November 24, 1999 ------------------------------ RMI.NET, Inc. - -------------------------------------------------------------------------------- (Exact name of Registrant as specified in charter) Delaware - -------------------------------------------------------------------------------- (State or other jurisdiction of incorporation) 001-12063 84-1322326 - -------------------------------- ------------------------------------- (Commission File Number) (IRS Employee Identification No.) 999 Eighteenth Street, Suite 2201, Denver, Colorado 80202 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (303) 672-0700 ----------------------------- - -------------------------------------------------------------------------------- (Former name or former address, if changed since last report) 2 ITEM 5. OTHER EVENTS. On December 9, 1999, the Registrant filed a Current Report on Form 8-K (the "Western Regional Initial Report") describing the acquisition of the assets of Western Regional Networks, Inc. This Current Report on Form 8-K/A amends the Western Regional Initial Report by including with this Form 8-K/A the financial statements and pro forma financial information prescribed by Item 7 of Form 8-K. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (a) Western Regional Networks, Inc. - Financial Statements: Independent Auditor's Report - McGladrey & Pullen, LLP Balance Sheets as of June 30, 1999 and September 30, 1999 Statements of Income for the Year Ended June 30, 1999 and Three Months Ended September 30, 1998 and 1999 Statements of Stockholders' Deficit for the Year Ended June 30, 1999 and Three Months Ended September 30, 1999 Statements of Cash Flows for the Year Ended June 30, 1999 and Three Months Ended September 30, 1998 and 1999 Notes to Financial Statements (b) Pro Forma Financial Information: Pro Forma Condensed Combined Balance Sheet as of September 30, 1999 Pro Forma Condensed Combined Statement of Operations for the Year Ended December 31, 1998 Pro Forma Condensed Combined Statement of Operations for the Nine Months Ended September 30, 1999 (c) Exhibits:
Exhibit Number Description -------------- ----------- 10.1 Asset Purchase Agreement by and among RMI.NET, Inc., and Western Regional Networks, Inc. et al. * 20.1 News Release dated December 1, 1999 announcing the Western Regional Networks asset acquisition. *
- ---------- * Previously filed. 3 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. RMI.NET, Inc. --------------------------------------- (Registrant) Date: February 2, 2000 By: /s/ CHRISTOPHER J. MELCHER ----------------------------------- Christopher J. Melcher Vice President, General Counsel and Corporate Secretary 4 WESTERN REGIONAL NETWORKS, INC. FINANCIAL REPORT JUNE 30, 1999 5 CONTENTS
- -------------------------------------------------------------------------------- INDEPENDENT AUDITOR'S REPORT 1 - -------------------------------------------------------------------------------- FINANCIAL STATEMENTS Balance sheets 2 Statements of income 3 Statements of stockholders' deficit 4 Statements of cash flows 5 and 6 Notes to financial statements 7 - 11 - --------------------------------------------------------------------------------
6 [MCGLADREY & PULLEN, LLP LETTERHEAD] INDEPENDENT AUDITOR'S REPORT To the Board of Directors Western Regional Networks, Inc. La Junta, Colorado We have audited the accompanying balance sheet of Western Regional Networks, Inc. as of June 30, 1999, and the related statements of income, stockholders' deficit, and cash flows for the year then ended. 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 financial statements referred to above present fairly, in all material respects, the financial position of Western Regional Networks, Inc. as of June 30, 1999, and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. /s/ MCGLADREY & PULLEN, LLP Cheyenne, Wyoming January 7, 2000 1 7 WESTERN REGIONAL NETWORKS, INC. BALANCE SHEETS JUNE 30, 1999 AND SEPTEMBER 30, 1999 (UNAUDITED)
September 30, JUNE 30, 1999 ASSETS 1999 (Unaudited) - ------ ---------- ------------- Current Assets Cash $ 9,195 $ 5,993 Trade receivables, less allowance for doubtful accounts June 30 $20,000; September 30 $7,215 123,211 155,083 Inventory 15,768 11,353 ---------- ---------- TOTAL CURRENT ASSETS 148,174 172,429 Property and Equipment, net (Note 4) 264,640 248,975 Goodwill, net of accumulated amortization (Note 2) 252,000 236,250 ---------- ---------- TOTAL ASSETS $ 664,814 $ 657,654 ========== ========== LIABILITIES AND STOCKHOLDERS' DEFICIT Current Liabilities Note payable (Note 5) $ 23,452 $ 22,392 Notes payable, related parties (Note 5) 41,227 55,898 Current maturities of capital lease obligation (Note 5) 64,084 60,665 Accounts payable 207,303 253,296 Deferred revenue 206,601 219,792 Accrued expenses 55,689 81,464 Deferred wages 74,190 88,819 ---------- ---------- TOTAL CURRENT LIABILITIES 672,546 782,326 Liability under Capital Leases, net of current maturities (Note 5) 76,795 67,962 ---------- ---------- TOTAL LIABILITIES 749,341 850,288 ---------- ---------- Stockholders' Deficit Common stock, no par, authorized 1,000,000 shares, issued and outstanding 187,410 shares (Notes 2 and 7) 387,600 387,600 Retained deficit (472,127) (580,234) ---------- ---------- TOTAL STOCKHOLDERS' DEFICIT (84,527) (192,634) ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $664,814 $ 657,654 ========== ==========
See Notes to Financial Statements. 2 8 WESTERN REGIONAL NETWORKS, INC. STATEMENTS OF INCOME FOR THE YEAR ENDED JUNE 30, 1999 AND THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 (UNAUDITED)
September 30, JUNE 30, 1998 1999 1999 (Unaudited) (Unaudited) ------------ ------------ ------------ Revenue $ 1,373,459 $ 262,391 $ 433,966 Cost of revenue earned 984,118 215,586 353,488 ------------ ------------ ------------ GROSS PROFIT 389,341 46,805 80,478 General and administrative expenses 884,402 302,792 178,967 ------------ ------------ ------------ OPERATING (LOSS) (495,061) (255,987) (98,489) ------------ ------------ ------------ Financial income (expense): Interest income 1,257 746 16 Interest expense (29,690) (4,905) (9,634) ------------ ------------ ------------ (28,433) (4,159) (9,618) ------------ ------------ ------------ (LOSS) BEFORE INCOME TAXES (523,494) (260,146) (108,107) Income tax expense (Note 6) -- -- -- ------------ ------------ ------------ NET (LOSS) $ (523,494) $ (260,146) $ (108,107) ============ ============ ============ (Loss) per common share, basic and diluted $ (2.79) $ (1.39) $ (0.58) ============ ============ ============
See Notes to Financial Statements. 3 9 WESTERN REGIONAL NETWORKS, INC. STATEMENTS OF STOCKHOLDERS' DEFICIT FOR THE YEAR ENDED JUNE 30, 1999 AND THREE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
Retained Common Earnings Stock (Deficit) Total ---------- ---------- ---------- Balance, July 1, 1998 $ 14,800 $ 51,367 $ 66,167 51,725 shares of common stock issued to acquire INFO 2000, Inc. (Note 2) 289,000 -- 289,000 14,993 shares of common stock issued in exchange for services rendered (Note 7) 83,800 -- 83,800 Net (loss) -- (523,494) (523,494) ---------- ---------- ---------- Balance, June 30, 1999 387,600 (472,127) (84,527) Net (loss) (unaudited) -- (108,107) (108,107) ---------- ---------- ---------- Balance, September 30, 1999 (unaudited) $ 387,600 $ (580,234) $ (192,634) ========== ========== ==========
See Notes to Financial Statements. 4 10 WESTERN REGIONAL NETWORKS, INC. STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 1999 AND THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 (UNAUDITED)
September 30, JUNE 30, 1998 1999 1999 (Unaudited) (Unaudited) ------------ ------------ ------------ Cash Flows from Operating Activities Net (loss) $ (523,494) $ (260,146) $ (108,107) Adjustments to reconcile net (loss) to net cash (used in) operating activities: Depreciation 68,995 14,540 20,080 Amortization 63,000 15,750 15,750 Provision for doubtful accounts 20,000 5,000 5,000 Stock-based compensation 83,800 83,800 -- Change in working capital components, net of effects from acquisition of INFO 2000, Inc.: (Increase) decrease in: Trade receivables (16,228) 2,660 (36,872) Inventory (3,603) -- 4,415 Increase (decrease) in: Accounts payable 144,276 107,717 45,993 Accrued expenses 37,503 19,712 25,775 Deferred wages 74,190 25,093 14,629 Deferred revenue 14,947 (16,841) 13,191 ------------ ------------ ------------ NET CASH (USED IN) OPERATING ACTIVITIES (36,614) (2,715) (146) ------------ ------------ ------------ Cash Flows from Investing Activities Purchase of property and equipment -- -- (4,415) Acquisition of INFO 2000, Inc. net of cash acquired 2,723 2,723 -- ------------ ------------ ------------ NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 2,723 2,723 (4,415) ------------ ------------ ------------ Cash Flows from Financing Activities Net borrowings (payments) from notes payable 23,452 (958) (1,060) Net proceeds from notes payable, related parties 12,942 -- 14,671 Principal payments on capital lease obligations (40,111) (3,905) (12,252) ------------ ------------ ------------ NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (3,717) (4,863) 1,359 ------------ ------------ ------------ (DECREASE) IN CASH (37,608) (4,855) (3,202) Cash: Beginning 46,803 46,803 9,195 ------------ ------------ ------------ Ending $ 9,195 $ 41,948 $ 5,993 ============ ============ ============
Continued 5 11 WESTERN REGIONAL NETWORKS, INC. STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE YEAR ENDED JUNE 30, 1999 AND THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 (UNAUDITED)
September 30, JUNE 30, 1998 1999 1999 (Unaudited) (Unaudited) --------- ----------- ----------- Supplemental Schedule of Cash Flow Information Cash payments for interest $ 19,669 $ 3,659 $ 9,311 ========= ========= ========= Supplemental Schedule of Noncash Investing and Financing Activities Acquisition of INFO 2000, Inc.: Goodwill $ 315,000 $ 315,000 $ -- Working capital acquired, net of cash $2,733 (87,197) (87,197) -- Fair value of other assets acquired, principally property and equipment 77,576 77,576 -- Long-term debt assumed (19,102) (19,102) -- Fair value of stock issued (289,000) (289,000) -- --------- --------- --------- NET CASH RECEIVED $ (2,723) $ (2,723) $ -- ========= ========= ========= Stock issued as compensation $ 83,800 $ 83,800 $ -- ========= ========= ========= Capital lease obligations incurred for use of equipment $ 108,449 $ -- $ -- ========= ========= =========
See Notes to Financial Statements. 6 12 WESTERN REGIONAL NETWORKS, INC. NOTES TO FINANCIAL STATEMENTS INFORMATION AS OF AND FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 IS UNAUDITED - -------------------------------------------------------------------------------- NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Nature of business: Western Regional Networks, Inc.'s operations consist principally of providing comprehensive Internet services to residential and business customers in central and eastern Colorado. The Company provides Internet services through Internet points of presence (POPs) and third-party providers. A summary of the Company's significant accounting policies follows: 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 revenue and expenses during the reporting period. Actual results could differ from those estimates. Financial instruments: Financial instruments, which potentially subject the Company to concentrations of credit risk consist primarily of cash and trade accounts receivable. The carrying amounts of financial instruments including cash, accounts receivable, accounts payable, accrued expenses, notes payable, and capital lease obligations, approximated fair value because of the immediate or short-term maturity of these instruments. Revenue recognition: The Company charges customers (subscribers) monthly access fees to the Internet and recognizes the revenue over the period access is provided. For certain subscribers billed in advance, the Company recognizes the revenue over the period the billing covers. Revenue for other services provided, including setup fees charged to customers when their accounts are activated, or equipment sales, is recognized as the service is performed or the equipment is delivered to the customer. Inventories: Inventories consist of Internet access equipment and are valued at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. Property and equipment: Depreciation and amortization of property and equipment are computed using the straight-line method over the estimated useful lives of the assets, ranging from five to seven years. Certain equipment obtained through capital lease obligations are amortized over the life of the lease. Improvements to leased property are amortized over the lesser of the life of the lease or life of the improvements. Long-lived assets: Long-lived assets will be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Any impairment loss will be measured by the difference between the fair value of an asset and its carrying amount, and will be recognized in the period that the recognition criteria are first applied and met. 7 13 WESTERN REGIONAL NETWORKS, INC. NOTES TO FINANCIAL STATEMENTS INFORMATION AS OF AND FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 IS UNAUDITED - -------------------------------------------------------------------------------- Earnings per common share: Earnings per common share has been computed on the basis of the weighted-average number of common shares outstanding during the period presented. Income taxes: Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Unaudited financial information: The unaudited information reflects all adjustments, consisting of normal recurring accruals, which are, in the opinion of management, necessary to a fair presentation of the financial position as of September 30, 1999 and the results of operations and cash flows for the three months ended September 30, 1999 and 1998. The results of the three month periods are not necessarily indicative of the results which may be expected for the entire year. NOTE 2. BUSINESS COMBINATION Western Regional Networks, Inc. was formed on July 1, 1998 (merger date) to effect the business combination of Rural Internet Access, Inc. (Rural) of La Junta, Colorado, INFO 2000, Inc. (INFO 2000) of Ft. Collins, Colorado and Western Network Management, Inc. of Grand Junction, Colorado. On December 29, 1998, the merger with Western Network Management, Inc. was rescinded and the assets, liabilities and operations of the Grand Junction location were spun-out of the Company as if the merger never occurred and are not included in the accompanying financial statements. The merger of Rural and INFO 2000 has been accounted for as a purchase. The former shareholders of Rural received a larger portion of the voting stock of the Company and Rural has therefore been identified as the acquiring company in the business combination. Therefore, the assets and liabilities of Rural were recorded at their historical carrying value. INFO 2000 was accounted for as the acquired company and its assets and liabilities were recorded at the fair value at the merger date. The Company issued 51,725 shares of common stock valued at $289,000 to acquire INFO 2000. The excess of purchase price over the fair value of identifiable net assets acquired of $315,000 was allocated to goodwill and is being amortized on a straight-line basis over five years. Amortization expense for the periods ended June 30, 1999 and September 30, 1998 and 1999 was $63,000, $15,750 (unaudited) and $15,750 (unaudited), respectively. 8 14 WESTERN REGIONAL NETWORKS, INC. NOTES TO FINANCIAL STATEMENTS INFORMATION AS OF AND FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 IS UNAUDITED - -------------------------------------------------------------------------------- NOTE 3. RELATED-PARTY TRANSACTIONS During the year ended June 30, 1999 and three months ended September 30, 1998 and 1999, the Company purchased inventory and reimbursed expenses incurred on the Company's behalf with affiliated companies in the amount of $18,652, $1,380 (unaudited) and $1,525 (unaudited), respectively. At June 30, 1999 and September 30, 1999, the Company had accounts payable to affiliated companies in the amount of $6,352 and $7,877 (unaudited), respectively. The Company also had notes payable with shareholders and affiliated companies which are discussed in Note 5. NOTE 4. PROPERTY AND EQUIPMENT At June 30, 1999, property and equipment consisted of the following: Equipment, production infrastructure $ 345,603 Equipment, support 26,337 Computer software 1,744 ------------ 373,684 Less accumulated depreciation 109,044 ------------ $ 264,640 ============
Equipment being acquired under capital lease obligations had a cost of $194,165 and accumulated depreciation of $33,606 at June 30, 1999. NOTE 5. NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS Notes payable and capital lease obligations at June 30, 1999 and September 30, 1999, consisted of the following: Notes payable: The Company has a $25,000 unsecured line of credit with the bank, of which $23,452 and $22,392 (unaudited) were outstanding at June 30, 1999 and September 30, 1999, respectively. The line of credit bears interest at 11.4% and periodic payments vary according to the outstanding balance. The Company has three unsecured notes payable with shareholders or other related parties. Two of the notes require that the accrued interest is converted into principal at June 30 of each year. The third note requires that interest is accrued and paid quarterly. The notes bear interest at 8% to 9% and are due on April 1, 2000. The total outstanding balances on the notes were $41,227 and $55,898 (unaudited) at June 30, 1999 and September 30, 1999, respectively. 9 15 WESTERN REGIONAL NETWORKS, INC. NOTES TO FINANCIAL STATEMENTS INFORMATION AS OF AND FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 IS UNAUDITED - -------------------------------------------------------------------------------- Capital lease obligations: The Company has leased equipment under various noncancelable agreements, which expire between November, 1999 and January, 2002. These leases include interest ranging from 15% to 28% and require various minimum monthly payments. Certain shareholders of the Company have guaranteed certain of these leases. The total minimum commitment under capital leases at June 30, 1999 is due as follows:
Year ending June 30: 2000 $ 87,162 2001 62,823 2002 26,543 ----------- TOTAL MINIMUM LEASE PAYMENTS 176,528 Less the amount representing interest 35,649 ----------- PRESENT VALUE OF NET MINIMUM LEASE PAYMENTS $ 140,879 ===========
NOTE 6. INCOME TAXES Net deferred tax assets consist of the following components as of June 30, 1999: Deferred tax assets: Receivable allowances $ 7,800 Accrued expenses 37,000 Net operating loss carryforwards 115,000 Tax method revenue recognition 27,600 --------- 187,400 Less valuation allowance (166,600) --------- 20,800 Deferred tax liability, property and equipment (20,800) --------- $ -- =========
During the year ended June 30, 1999, the Company recorded a valuation allowance of $166,600 on the deferred tax assets to reduce the total to an amount that management believes will ultimately be realized. Realization of deferred tax assets is dependent upon sufficient future taxable income during the period that deductible temporary differences and carryforwards are expected to be available to reduce taxable income. There was no other activity in the valuation allowance during 1999. Loss carryforwards for tax purposes as of June 30, 1999 are approximately $295,000 and expire in years 2017 through 2019. 10 16 WESTERN REGIONAL NETWORKS, INC. NOTES TO FINANCIAL STATEMENTS INFORMATION AS OF AND FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 IS UNAUDITED - -------------------------------------------------------------------------------- The income tax provision differs from the amount of income tax determined by applying the U.S. Federal income tax rate to pretax (loss) for the year ended June 30, 1999 due to the following: Computed "expected" tax expense $ (183,200) Increase (decrease) in income taxes resulting from: Nondeductible amortization of goodwill 22,000 Stock based compensation valuation for income tax purposes 24,000 Valuation allowance 131,200 Taxable income of Western Network Management, Inc. (Note 2) 19,100 Effect of state income tax rate (13,100) --------- $ -- =========
NOTE 7. STOCK-BASED COMPENSATION The Company issued 14,993 shares of stock to the Company president as compensation during the year ended June 30, 1999. The Company accounted for the value of the shares issued under FASB Statement No. 123, Accounting for Stock-Based Compensation. The compensation cost charged to income was $83,800 for the year ended June 30, 1999. NOTE 8. SUBSEQUENT EVENT On November 24, 1999, the Company sold substantially all of its assets to RMI.NET, a publicly traded entity, in exchange for 324,324 shares of RMI.NET common stock. 45% of the shares received are subject to distribution restrictions of 6 to 18 months from the transaction date. 11 17 SELECTIVE UNAUDITED PRO FORMA COMBINED FINANCIAL DATA The following selected unaudited pro forma combined financial information presented below has been derived from the unaudited or audited historical financial statements of the Company, Western Regional Networks, Inc., Networld.com, Inc., AIS Network Corporation, Wolfe Internet Access L.L.C., ACES Research, Inc., Triad Resources L.L.C. (d/b/a WebZone), IdealDial Corporation and August 5th Corporation (d/b/a Dave's World) and reflects management's present estimate of pro forma adjustments, including a preliminary estimate of the purchase price allocations, which ultimately may be different. The acquisition is being accounted for using the purchase method of accounting. Accordingly, assets acquired and liabilities assumed are recorded at their estimated fair values, which are subject to further adjustment based upon appraisals or other analyses, with appropriate recognition given to the effect of the Company's borrowing rates and income tax rates. The unaudited pro forma combined statements of operations for the nine months ended September 30, 1999 and the year ended December 31, 1998 give effect to the acquisitions as if they had been consummated at the beginning of each period. These pro forma statements of operations combine the historical consolidated statements of operations for the periods reported for the Company, Western Regional Networks, Inc., Networld.com, Inc., AIS Network Corporation, Wolfe Internet Access L.L.C., ACES Research, Inc., Triad Resources L.L.C. (d/b/a WebZone), IdealDial Corporation and August 5th Corporation (d/b/a Dave's World). The unaudited pro forma condensed combined balance sheet as of September 30, 1999 gives effect to the acquisitions as if they had been consummated on that date. The pro forma balance sheet combines the historical consolidated balance sheet at that date for the Company, Western Regional Networks, Inc., Networld.com, Inc., and AIS Network Corporation. The unaudited pro forma condensed combined financial statements may not be indicative of the results that actually would have occurred if the transaction described above had been completed and in effect for the periods indicated or the results that may be obtained in the future. The unaudited pro forma condensed combined financial data presented below should be read in conjunction with the audited and unaudited historical financial statements and related notes thereto of the Company and the financial statements and notes of the acquired companies. 18 PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF SEPTEMBER 30, 1999 (UNAUDITED)
-------------------------------------------------------------------------------------- Previously Western Reported Regional Pro Forma Pro Forma Pro Forma RMI.NET, Inc. Acquisitions(A) Networks, Inc. Subtotal Adjustments(B) Combined ------------- --------------- -------------- --------- -------------- --------- (Dollars in Thousands) ASSETS CURRENT ASSETS Cash and cash equivalents $ 6,213 $ 285 $ 6 $ 6,504 $ -- $ 6,504 Trade receivables less allowance for doubtful accounts 4,681 134 155 4,970 -- 4,970 Inventories 223 -- 11 234 -- 234 Other 1,123 85 -- 1,208 -- 1,208 -------- -------- -------- -------- -------- -------- Total Current Assets 12,240 504 172 12,916 -- 12,916 -------- -------- -------- -------- -------- -------- PROPERTY AND EQUIPMENT, net 9,881 768 249 10,898 -- 10,898 Goodwill, net 35,451 357 237 36,045 8,638 (1) 44,683 Other 548 -- -- 548 -- 548 -------- -------- -------- -------- -------- -------- Total Assets $ 58,120 $ 1,629 $ 658 $ 60,407 $ 8,638 $ 69,045 ======== ======== ======== ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 3,480 $ 539 $ 253 $ 4,272 $ -- $ 4,272 Current maturities of long term debt and capital lease obligations 2,465 124 139 2,728 -- 2,728 Deferred revenue 2,184 51 220 2,455 -- 2,455 Accrued payroll & related taxes 657 20 89 766 -- 766 Accrued expenses & other 1,931 22 81 2,034 -- 2,034 -------- -------- -------- -------- -------- -------- Total Current Liabilities 10,717 756 782 12,255 -- 12,255 -------- -------- -------- -------- -------- -------- LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS 2,742 202 68 3,012 -- 3,012 -------- -------- -------- -------- -------- -------- Total liabilities 13,459 958 850 15,267 -- 15,267 REDEEMABLE CONVERTIBLE PREFERRED STOCK 1,928 -- -- 1,928 -- 1,928 STOCKHOLDERS' EQUITY Common Stock 18 1 388 407 (389)(2) 18 Additional paid in capital 73,048 36 -- 73,084 (36)(2) 73,048 9,117 (1) 9,117 Accumulated deficit (30,333) 634 (580) (30,279) (54)(2) (30,333) -------- -------- -------- -------- -------- -------- 42,733 671 (192) 43,212 8,638 51,850 -------- -------- -------- -------- -------- -------- Total Liabilities and Stockholders' Equity $ 58,120 $ 1,629 $ 658 $ 60,407 $ 8,638 $ 69,045 ======== ======== ======== ======== ======== ========
19 PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 (UNAUDITED)
Historical -------------------------------------------------------------------------------------- Previously Western Reported Regional Pro Forma Pro Forma Pro Forma RMI.NET, Inc. Acquisitions(A) Networks, Inc. Subtotal Adjustments(B) Combined ------------- --------------- -------------- --------- -------------- --------- (Amount in Thousands, Except Per Share Data) Revenue Communication Services $ 7,974 $ 19,913 $ 1,189 $ 29,076 $ -- $ 29,076 Web Solutions 2,113 -- -- 2,113 -- 2,113 -------- -------- -------- -------- -------- -------- 10,087 19,913 1,189 31,189 -- 31,189 -------- -------- -------- -------- -------- -------- Cost of revenue earned Communication Services 3,471 12,484 676 16,631 -- 16,631 Web Solutions 50 -- -- 50 -- 50 -------- -------- -------- -------- -------- -------- 3,521 12,484 676 16,681 -- 16,681 -------- -------- -------- -------- -------- -------- Gross profit 6,566 7,429 513 14,508 -- 14,508 -------- -------- -------- -------- -------- -------- General, selling and administrative expenses 9,184 8,152 744 18,170 -- 18,170 Cost related to unsuccessful merger attempt 6,071 -- -- 6,071 -- 6,071 Depreciation and amortization 1,789 3,242 90 5,031 5,430(3) 10,461 -------- -------- -------- -------- -------- -------- Operating income (loss) (10,478) (3,965) (321) (14,764) (5,430) (20,194) -------- -------- -------- -------- -------- -------- Other income (expense) Interest expense (320) (167) (18) (505) -- (505) Interest Income 51 7 1 59 -- 59 Other income (expense), net 78 212 -- 290 -- 290 -------- -------- -------- -------- -------- -------- (191) 52 (17) (156) -- (156) -------- -------- -------- -------- -------- -------- Net loss $(10,669) $ (3,913) $ (338) $(14,920) $ (5,430) $(20,350) ======== ======== ======== ======== ======== ======== Preferred stock dividends $ 33 $ 33 Net loss applicable to common Stockholders $(10,702) $(20,383) ======== ======== Basic and Diluted loss per share from continuing operations(4) $ (1.39) $ (1.92) ======== ======== Average number of common shares outstanding(4) 7,690 2,577 324 10,591 ======== ======== ======== ========
20 PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
Historical -------------------------------------------------------------------------------------- Previously Western Reported Regional Pro Forma Pro Forma Pro Forma RMI.NET, Inc. Acquisitions(A) Networks, Inc. Subtotal Adjustments(B) Combined ------------- --------------- -------------- --------- -------------- --------- (Amount in Thousands, Except Per Share Data) Revenue Communication Services $ 17,859 $ 9,264 $ 1,210 $ 28,333 $ -- $ 28,333 Web Solutions 2,924 -- -- 2,924 -- 2,924 -------- -------- -------- -------- -------- -------- 20,783 9,264 1,210 31,257 -- 31,257 -------- -------- -------- -------- -------- -------- Cost of revenue earned Communication Services 9,969 5,490 994 16,453 -- 16,453 Web Solutions 873 -- -- 873 -- 873 -------- -------- -------- -------- -------- -------- 10,842 5,490 994 17,326 -- 17,326 -------- -------- -------- -------- -------- -------- Gross profit 9,941 3,774 216 13,931 -- 13,931 -------- -------- -------- -------- -------- -------- General, selling and administrative expenses 17,497 4,404 390 22,398 -- 22,398 Depreciation and amortization 4,880 1,435 107 6,315 2,760 (3) 9,075 -------- -------- -------- -------- -------- -------- Operating income (loss) (12,436) (2,065) (281) (14,782) (2,760) (17,542) -------- -------- -------- -------- -------- -------- Other income (expense) Interest expense (369) (65) (28) (462) -- (462) Interest Income 121 13 -- 134 -- 134 Other income (expense), net -- 58 -- 58 -- 58 -------- -------- -------- -------- -------- -------- (248) 6 (28) (270) -- (270) -------- -------- -------- -------- -------- -------- Net loss $(12,684) $ (2,059) $ (309) $(15,052) $ (2,760) $(17,812) ======== ======== ======== ======== ======== ======== Preferred stock dividends $ 199 $ 199 ======== ======== Net loss applicable to common Stockholders $(12,883) $(18,011) ======== ======== Basic and Diluted loss per share from continuing operations(4) $ (1.09) $ (1.21) ======== ======== Average number of common shares outstanding(4) 11,806 2,577 324 14,707 ======== ======== ======== ========
21 NOTES TO THE PRO FORMA CONDENSED COMBINED FINANCIAL DATA (UNAUDITED) BASIS OF PRESENTATION The accompanying unaudited pro forma condensed combined balance sheet is presented as of September 30, 1999. The accompanying unaudited pro forma condensed combined statements of operations are presented for the nine months ended September 30, 1999 and the year ended December 31, 1998. (A) PREVIOUSLY REPORTED ACQUISITIONS: The accompanying unaudited pro forma condensed combined balance sheet presented as of September 30, 1999 includes the balance sheet as of September 30, 1999 of Networld.com, Inc. and AIS Network Corporation. The accompanying unaudited pro forma condensed combined statements of operations presented for the nine months ended September 30, 1999 and the year ended December 31, 1998 include the condensed statements of operations for the respective periods ended for the previously reported companies as follows: Networld.com, Inc., AIS Network Corporation, Wolfe Internet Access L.L.C., ACES Research, Inc., Triad Resources L.L.C. (d/b/a WebZone), IdealDial Corporation and August 5th Corporation (d/b/a Dave's World). (B) PRO FORMA ADJUSTMENTS: The following pro forma adjustments have been made to the unaudited condensed combined balance sheet as of September 30, 1999 and the unaudited condensed combined statements of operations for the nine months ended September 30, 1999 and the year ended December 31, 1998. (1) To reflect the issuance of 324,324 shares of RMI stock valued at $2.7 million, in connection with the acquisition of Western Regional Networks, Inc., the issuance of 353,519 shares of RMI stock valued at $2.8 million, in connection with the acquisition of Networld.com, Inc., and the issuance of 425,967 shares of RMI stock valued at $3.7 million, in connection with the acquisition of AIS Network Corporation. The $8.6 million excess of the purchase price over the fair value of the assets acquired has been allocated to goodwill. Shares of Common Stock issued in the acquisitions were recorded at fair market value as based on the current market price of RMI's publicly traded stock. The final allocation of the purchase price will be made after the appropriate appraisals or other analyses are performed. Upon completion of the appraisals or other analyses and in accordance with the terms thereof, the excess purchase price currently allocated to goodwill may be reallocated to the appropriate asset classifications, including customer list and goodwill. While goodwill will be amortized over a period of five years, customer list or other identified intangibles may be amortized over shorter periods, which would therefore increase amortization expense. (2) To eliminate the equity accounts of the acquired companies. (3) To adjust amortization expense for the increase in goodwill, using a life of five years, as if such acquisitions had been completed as of the beginning of such periods. (4) The Basic and Diluted loss per share from continuing operations and the average number of common shares outstanding for the pro forma combined amounts gives effect to the results as if Western Regional Networks, Inc., Networld.com, Inc., AIS Network Corporation, Wolfe Internet Access L.L.C., ACES Research, Inc., Triad Resources L.L.C. (d/b/a WebZone), IdealDial Corporation and August 5th Corporation (d/b/a Dave's World) had been completed at the beginning of such periods. -----END PRIVACY-ENHANCED MESSAGE-----