-----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, RyoxxMAjTVfcordNuwYha0WNuVM3erdIvlj8ds0MOECQYiOZsfNso8EP7esGW4rC iXEnNhi/F+V8roNvZl/1Tg== 0001047469-98-032462.txt : 19980825 0001047469-98-032462.hdr.sgml : 19980825 ACCESSION NUMBER: 0001047469-98-032462 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980605 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980824 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROCKY MOUNTAIN INTERNET 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: 98696136 BUSINESS ADDRESS: STREET 1: 1099 18TH STREET STREET 2: STE 3000 CITY: DENVER STATE: CO ZIP: 80202 BUSINESS PHONE: 3036720700 MAIL ADDRESS: STREET 1: 1099 18TH STREET STREET 2: STE 3000 CITY: DENVER STATE: CO ZIP: 80202 8-K/A 1 FORM 8-K/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A AMENDMENT NO. 2 TO CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (earliest event reported): June 5, 1998 Rocky Mountain Internet, Inc. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 001-12063 84-1322326 - ------------------------------------------------------------------------------- (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 1099 Eighteenth Street, 30th Floor, 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.) ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS. On August 19, 1998, Rocky Mountain Internet, Inc. (the "Registrant") filed an amendment ("Amendment No. 1") to its Current Report on Form 8-K dated June 5, 1998 and its Current Report on Form 8-K dated July 1, 1998 (the "Original Reports"). Amendment No. 1 was filed for the purpose of reporting certain financial statements and pro forma financial information not reported in the Original Reports. Notes (B)(7) and (C)(2) to the pro forma condensed combined financial data were inadvertently reversed in Amendment No. 1. This Amendment No. 2 to the Original Reports is being filed primarily to place notes (B)(7) and (C)(2) to the pro forma financial information in the correct order. The financial statements and the pro forma condensed combined financial data contained in Amendment No. 1 have not been changed in this Amendment No. 2. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (a) Financial statements of businesses acquired. The following financial statements are filed as a part of this Report: INFOHIWAY, INC--FINANCIAL STATEMENTS: AUDITED FINANCIAL STATEMENTS: Independent Auditors' Report--KPMG Peat Marwick LLP Balance Sheets as of December 31, 1997 and June 5, 1998 (unaudited) Statements of Operations for the Year Ended December 31, 1997 and for the Six Months Ended June 30, 1997 (unaudited) and the Period Ended June 5, 1998 (unaudited) Statements of Stockholders' Equity for the Year Ended December 31, 1997 Statements of Cash Flows for the Year Ended December 31, 1997 and for the Six Months Ended June 30, 1997 (unaudited) and the Period Ended June 5, 1998 (unaudited) Notes to Financial Statements APPLICATION METHODS, INCORPORATED/E-SELL COMMERCE SYSTEMS, INC.-- COMBINED AUDITED FINANCIAL STATEMENTS: Independent Auditors' Report--Peterson Sullivan PLLC Combined Balance Sheet as of December 31, 1997 Combined Statement of Operations and Retained Earnings for the Year Ended December 31, 1997 Combined Statement of Cash Flows for the Year Ended December 31, 1997 Notes to Combined Financial Statements UNAUDITED FINANCIAL STATEMENTS: Balance Sheets as of June 30, 1998 (combined) and June 30, 1997 Statements of Operations and Retained Earnings for the Six Months Ended June 30, 1998 (combined) and June 30, 1997 Statements of Cash Flows for the Six Months Ended June 30, 1998 (combined) and June 30, 1997 Notes to Combined Financial Statements (b) Pro forma financial information. The following pro forma financial information is filed as part of this Report: Pro Forma Condensed Combined Balance Sheet as of June 30, 1998 Pro Forma Condensed Combined Statement of Operations for the Six Months Ended June 30, 1998 Pro Forma Condensed Combined Statement of Operations for the Periods Ended December 31, 1997 (c) Exhibits. 2.1 Merger Agreement among Rocky Mountain Internet, Inc., RMI Subsidiary, Inc., Infohiway, Inc., and Jeremy J. Black, Kenneth Covell, and John-Michael Keyes (1). 2.2 Agreement and Plan of Merger among Rocky Mountain Internet, Inc., Internet Acquisition Corporation, and Internet Communications Corporation (1). 2.3 Merger Agreement among Rocky Mountain Internet, Inc., RMI Acquisition Subsidiary, Inc., Application Methods, Incorporated, and Ronald M. Stevenson, Gregory A. Brown, and Ronald Nicholl (2). 99.1 News Release dated June 5, 1998 announcing the acquisition of Infohiway, Inc. and Internet Communications Corporation (1). 99.2 News Release dated July 1, 1998 announcing the acquisition of Application Methods, Incorporated (2). -1- - ------------------ (1) Filed with the Registrant's Current Report on Form 8-K on June 11, 1998. (2) Filed with the Registrant's Current Report on Form 8-K on July 14, 1998. -2- Rocky Mountain Internet, Inc. and Subsidiaries Index to Financial Statements INDEX TO FINANCIAL STATEMENTS
PAGE --------- INFOHIWAY, INC--FINANCIAL STATEMENTS: AUDITED FINANCIAL STATEMENTS: Independent Auditors' Report--KPMG Peat Marwick LLP ..................................................... F-2 Balance Sheets as of December 31, 1997 and June 5, 1998 (unaudited)...................................... F-3 Statements of Operations for the Year Ended December 31, 1997 and for the Six Months ended June 30, 1997 (unaudited) and the Period Ended June 5, 1998 (unaudited)......................................... F-4 Statements of Stockholders' Equity for the Year Ended December 31, 1997.................................. F-5 Statements of Cash Flows for the Year Ended December 31, 1997 and for the Six Months Ended June 30, 1997 (unaudited) and the Period Ended June 5, 1998 (unaudited)......................................... F-6 Notes to Financial Statements............................................................................ F-7 APPLICATION METHODS, INCORPORATED/E-SELL COMMERCE SYSTEMS, INC.--COMBINED AUDITED FINANCIAL STATEMENTS: Independent Auditors' Report--Peterson Sullivan PLLC..................................................... F-9 Combined Balance Sheet as of December 31, 1997........................................................... F-10 Combined Statement of Operations and Retained Earnings for the Year Ended December 31, 1997................................................................... F-11 Combined Statement of Cash Flows for the Year Ended December 31, 1997.................................... F-12 Notes to Combined Financial Statements................................................................... F-13 UNAUDITED FINANCIAL STATEMENTS: Balance Sheets as of June 30, 1998 Combined and June 30, 1997............................................ F-15 Statements of Operations and Retained Earnings for the Six Months Ended June 30, 1998 Combined and June 30, 1997.......................................................................................... F-16 Statements of Cash Flows for the Six Months Ended June 30, 1998 Combined and June 30, 1997............... F-17 Notes to Financial Statements............................................................................ F-18
F-1 INDEPENDENT AUDITORS' REPORT STOCKHOLDERS INFOHIWAY, INC.: We have audited the accompanying balance sheet of Infohiway, Inc. as of December 31, 1997 and the related statements of operations, stockholders' equity and cash flows for the year then ended. These financial statements are the responsibility of Infohiway'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 Infohiway, Inc. as of December 31, 1997, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Denver, Colorado July 14, 1998 F-2 INFOHIWAY, INC. BALANCE SHEETS ASSETS
JUNE 5, DECEMBER 1998 31, 1997 ----------- ----------- (UNAUDITED) Current Assets: Cash................................................................. $ -- $ 742 Trade receivables.................................................... 477 206 ----------- ----------- Total current assets................................................. 477 948 Property and equipment: Equipment.......................................................... 5,465 5,465 Software........................................................... 13,555 13,555 ----------- ----------- 19,020 19,020 Less accumulated depreciation...................................... (10,466) (8,448) ----------- ----------- 8,554 10,572 ----------- ----------- Organization costs................................................... 1,048 1,048 Less accumulated amortization...................................... (436) (332) ----------- ----------- 612 716 ----------- ----------- $ 9,643 $ 12,236 ----------- ----------- ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities............................. $ 1,870 $ 1,359 Note payable to shareholder (note 2)................................. 5,594 8,094 Note payable (note 2)................................................ 0 1,000 ----------- ----------- Total current liabilities........................................ 7,464 10,453 ----------- ----------- Stockholders' equity: Common stock, no par value, 13,000 and 10,050 shares authorized, 13,000 and 10,050 shares issued and outstanding at March 31, 1998 and December 31, 1997, respectively.............................. 1 1 Additional paid-in capital......................................... 23,099 13,099 Accumulated deficit................................................ (20,921) (11,317) ----------- ----------- Total stockholders' equity....................................... 2,179 1,783 ----------- ----------- Commitments (note 3)................................................. ----------- ----------- $ 9,643 $ 12,236 ----------- ----------- ----------- -----------
See accompanying notes to financial statements. F-3 INFOHIWAY, INC. STATEMENTS OF OPERATIONS
SIX MONTHS PERIOD ENDED ENDED YEAR ENDED JUNE 30, JUNE 5, DECEMBER 31, 1997 1998 1997 ----------- ----------- ------------ (UNAUDITED) (UNAUDITED) Revenue............................................ $ 24,496 $ 13,539 $ 31,484 Operating costs and expenses: Operating and administrative..................... 14,902 20,437 29,038 Depreciation..................................... 2,820 2,018 5,687 Amortization..................................... 104 104 210 ---------- ---------- ------------ 17,826 22,559 34,935 ---------- ---------- ------------ Operating income (loss)...................... 6,670 (9,020) (3,451) Interest expense................................... (75) (584) (300) ---------- ---------- ------------ Net income (loss)............................ $ 6,595 $ (9,604) $ (3,751) ---------- ---------- ------------ ---------- ---------- ------------
See accompanying notes to financial statements. F-4 INFOHIWAY, INC. STATEMENTS OF STOCKHOLDERS' EQUITY
ADDITIONAL COMMON PAID-IN ACCUMULATED STOCK CAPITAL DEFICIT TOTAL -------- ---------- ------------ ------- Balance at January 1, 1997................................... 1 13,099 (7,566) 5,534 Net loss..................................................... -- -- (3,751) (3,751) -- ---------- ------------ ------- Balance at December 31, 1997................................. 1 13,099 (11,317) 1,783 Net loss (unaudited)......................................... -- -- (9,604) (9,604) Common stock issued to shareholder........................... -- 10,000 -- 10,000 -- ---------- ------------ ------- Balance at June 5, 1998 (unaudited).......................... 1 23,099 (20,921) 2,179 -- ---------- ------------ ------- -- ---------- ------------ -------
See accompanying notes to financial statements. F-5 INFOHIWAY, INC. STATEMENTS OF CASH FLOWS
SIX MONTHS PERIOD YEAR ENDED ENDED ENDED JUNE 30, JUNE 5, DECEMBER 31, 1997 1998 1997 ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) Cash flows from operating activities: Net income (loss)..................................... $ 6,595 $ (9,604) $ (3,751) Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation and amortization....................... 2,924 2,122 5,897 Changes in operating assets and liabilities: Receivables....................................... (7,255) (271) (206) Accounts payable and accrued liabilities.......... 683 511 (1,969) ----------- ----------- ----------- Net cash used in operating activities........... 2,947 (7,242) (29) ----------- ----------- ----------- Net cash used in investing activities-- Capital expended for property and equipment........... -- -- (322) ----------- ----------- ----------- Cash flows from financing activities-- Proceeds from shareholder note........................ 2,000 -- 4,194 Repayments of notes payable........................... (2,600) (3,500) (3,600) Issuance of common stock.............................. -- 10,000 ----------- ----------- ----------- Net cash used in financing activities........... (600) 6,500 594 ----------- ----------- ----------- Net increase (decrease) in cash................. 2,347 (742) 243 Cash at beginning of period..................... 499 742 499 ----------- ----------- ----------- Cash at end of period........................... $ 2,846 $ 0 $ 742 ----------- ----------- ----------- ----------- ----------- -----------
See accompanying notes to financial statements. F-6 INFOHIWAY, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (INFORMATION AS OF AND FOR THE PERIODS ENDED JUNE 30, 1997 AND JUNE 5, 1998 IS UNAUDITED) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES THE COMPANY Infohiway, Inc. (the Company), formed in April of 1996, is a privately held company located in Denver, CO which maintains their acquired world wide web search engine and advertises for customers on their web page. In addition to advertising revenue, the Company receives commissions on sales of third party products over the internet and also sells their own software. The Company is dependent upon its shareholders for financial support and support of its operations. The shareholders, who are also employees of the Company are not paid an annual salary. PROPERTY AND EQUIPMENT Property and equipment is stated at cost. Computer equipment and software is depreciated over five years using the double declining balance method. INTANGIBLE ASSETS The Company recorded $1,048 of organizational costs in 1996. These costs are amortized over a five year period using the straight-line method. REVENUE RECOGNITION The Company primarily derives revenue from advertisements on their web page, software sales and commissions from third parties related to sales over the internet. Advertising agreements are negotiated individually and vary as to length of time and amounts charged. The Company records accounts receivable and revenue as services are rendered. The Company sells their software over the internet and records revenue as customers "download" the software after remitting payment. INCOME TAXES The Company has elected treatment as a "Subchapter S" corporation for state and federal income tax purposes. Accordingly, all income taxes are paid by its shareholders. 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 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. INTERIM FINANCIAL INFORMATION The accompanying interim financial statements as of June 30, 1997 and the period ended June 5, 1998 (the acquisition date) and for the six-month period ended on June 30, 1997 and the period ended June 5, 1998 are unaudited but, in the opinion of management, reflect all adjustments (consisting of normal recurring accruals) necessary for fair presentation of the F-7 INFOHIWAY, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 (INFORMATION AS OF AND FOR THE PERIODS ENDED JUNE 30, 1997 AND JUNE 5, 1998 IS UNAUDITED) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) results for such periods. The results of any interim period are not necessarily indicative of results for the full year. FAIR VALUE The Company's financial instruments included in current assets and liabilities approximate fair value due to their short term maturities. (2) DEBT As of January 1, 1997, the Company was indebted to three non-shareholders in the amount of $4,600. During 1997, two of these notes were paid in full. The remaining liability of $1,000 plus accrued interest of $584 which is recorded in accounts payable and accrued liabilities was paid in April of 1998. The interest rates on these loans varied from 12 to 24% over the term of the loans. The Company also has a note payable due to the principal shareholder of $8,094 as of December 31, 1997. During the second quarter of 1998 the shareholder made additional loans to the Company in the amount of $7,500. In addition, $10,000 of the note payable was then convected into Common Stock. (3) SUBSEQUENT EVENT On June 5, 1998, the Company's shareholder's sold all of the Company's outstanding stock to Rocky Mountain Internet, Inc. (RMI) in exchange for 150,000 shares of RMI common stock. In connection with the closing of this transaction, the Company became a wholly owned subsidiary of RMI. F-8 INDEPENDENT AUDITORS' REPORT To the Board of Directors Application Methods, Inc./ E-SELL Commerce Systems, Inc. Seattle, Washington We have audited the accompanying combined balance sheet of Application Methods, Inc. and E-SELL Commerce Systems, Inc. as of December 31, 1997, and the related combined statements of operations and retained earnings, and combined cash flows for the year then ended. These combined financial statements are the responsibility of the Companies' 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 financial position of Application Methods, Inc. and E-SELL Commerce Systems, Inc. as of December 31, 1997, and the results of its combined operations and its combined cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ PETERSON SULLIVAN PLLC May 14, 1998 Seattle, Washington F-9 APPLICATION METHODS, INC./E-SELL COMMERCE SYSTEMS, INC. COMBINED BALANCE SHEET DECEMBER 31, 1997 ASSETS Current Assets Cash............................................................................ $ 30,636 Accounts receivable............................................................. 78,107 Advances to shareholder......................................................... 42,201 --------- Total current assets........................................................ 150,944 Furniture and Equipment, at cost, less accumulated depreciation of $50,610........ 8,275 --------- $ 159,219 --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable................................................................ $ 63,778 Notes payable................................................................... 81,022 --------- Total current liabilities................................................... 144,800 Stockholders' Equity Common stock, $.10 par value; 60,000 shares authorized (50,000 for Application Methods, Inc. and 10,000 for E-SELL Commerce Systems, Inc.), 2,000 shares issued and outstanding (1,000 for each Company)............................... 200 Retained earnings............................................................... 14,219 --------- 14,419 --------- $ 159,219 --------- ---------
See Notes to Combined Financial Statements F-10 APPLICATION METHODS, INC./E-SELL COMMERCE SYSTEMS, INC. COMBINED STATEMENT OF OPERATIONS AND RETAINED EARNINGS YEAR ENDED DECEMBER 31, 1997 Revenues Sales and service revenue..................................................... $ 962,895 Other income.................................................................. 21,061 --------- 983,956 Expenses Labor and benefits............................................................ 653,670 Selling, general and administrative........................................... 434,935 --------- 1,088,605 --------- Loss before interest expense.............................................. (104,649) Interest expense................................................................ (12,016) --------- Loss before deferred income taxes......................................... (116,665) Recovery of deferred income taxes............................................... 14,742 --------- Net loss.................................................................. (101,923) Retained earnings, beginning of year............................................ 116,142 --------- Retained earnings, end of year.................................................. $ 14,219 --------- ---------
See Notes to Combined Financial Statements F-11 APPLICATION METHODS, INC./E-SELL COMMERCE SYSTEMS, INC. COMBINED STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1997 Cash Flows From Operating Activities Net loss....................................................................... $(101,923) Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization................................................ 5,495 Changes in operating assets and liabilities Accounts receivable........................................................ 58,533 Accounts payable........................................................... 47,521 Deferred income tax........................................................ (14,742) --------- Cash used in operating activities........................................ (5,116) Cash Flows From Financing Activities Increase in notes payable...................................................... 16,022 Issuance of common stock (1,000 shares of E-SELL issued in December 1997)...... 100 --------- Cash provided by financing activities.................................... 16,122 --------- Net increase in cash..................................................... 11,006 Cash, beginning of year.......................................................... 19,630 --------- Cash, end of year................................................................ $ 30,636 --------- ---------
See Notes to Combined Financial Statements F-12 NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Application Methods, Inc. ("Application Methods") develops computer software for its clients on a custom basis. In addition, it sells certain computer software products it internally develops. During 1997, sales and service revenue from one customer accounted for 13% of total sales and service revenue. Accounts receivable for three customers account for 50% of total accounts receivable. E-SELL Commerce Systems, Inc. ("E-SELL") was established to sell certain software created by Application Methods. At December 31, 1997, there had been no sales and no other operations. These financial statements are the combination of these two companies ("the Companies"). Combination is appropriate because the two companies have the same stock ownership. 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 the 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. Accordingly, actual results could differ from the estimates that were used. ADVERTISING COSTS Advertising costs are expensed as incurred and totaled $6,787 for the year ended December 31, 1997. SOFTWARE DEVELOPMENT COSTS Software development costs are expensed as incurred. CASH Cash includes cash balances held at a bank. Cash balances are occasionally in excess of amounts insured by the Federal Deposit Insurance Corporation. Cash payments for interest were $12,016 during the year ended December 31, 1997. No cash payments for income taxes were made during the year ended December 31, 1997. ACCOUNTS RECEIVABLE The Companies use the allowance method for recognizing bad debts. Management believes no allowance is necessary at December 31, 1997. FURNITURE AND EQUIPMENT Furniture and equipment are depreciated using accelerated methods over the estimated useful lives of the related assets. TAXES ON INCOME The Companies account for income taxes under an asset and liability approach that requires the recognition of deferred tax assets and liabilities for expected future tax consequences of events that have been recognized in financial statements or tax returns. In estimating future tax consequences, the Companies generally consider all expected future events other than enactments of changes in the tax laws or rates. F-13 NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) NOTE 2. NOTES PAYABLE Note payable to bank bearing interest at 11.5% due November 20, 1998, secured by receivables..................................... $ 65,000 Note payable--revolving line of credit agreement with a bank bearing interest at 15.4%, unsecured. Maximum borrowings under the line of credit are $25,000................................... 8,481 Note payable--revolving line of credit agreement with a bank bearing interest at 13.25%, unsecured. Maximum borrowings under the line of credit are $11,000................................... 7,541 --------- $ 81,022 --------- ---------
NOTE 3. LEASES The Companies lease an office under an operating lease expiring January 31, 2002. In addition, the Companies lease certain computer equipment. The following are the future minimum rental payments required under the lease for the years ending December 31: 1998.............................................................. $ 125,723 1999.............................................................. 99,394 2000.............................................................. 98,764 2001.............................................................. 92,434 2002.............................................................. 7,703 --------- Total............................................................. $ 424,018 --------- ---------
Rent expense was $84,605 for the year ended December 31, 1997. NOTE 4. DEFERRED INCOME TAXES The temporary differences causing the deferred tax effects results from using the cash basis of accounting for income tax purposes and the accrual basis for financial reporting purposes. Application Methods has an unused net operating tax loss of $15,100 which expires in 2012. An asset of $2,265 was established for this net operating tax loss which has been fully reserved. NOTE 5. CONTRACTS Application Methods has contracts for consulting with customers totaling $90,169 at December 31, 1997. These contracts start in 1998. These amounts have not been recorded on the balance sheet or included in revenue. NOTE 6. SUBSEQUENT EVENT Subsequent to December 31, 1997, Application Methods and E-SELL signed a letter of intent to sell the Companies to a company that is an internet service provider. The value of the assets and liabilities have not been adjusted for this anticipated sale. F-14 APPLICATION METHODS, INC. (COMBINED WITH E-SELL COMMERCE SYSTEMS, INC. AT JUNE 30, 1998) BALANCE SHEETS June 30, 1998 and 1997
ASSETS 1998 1997 -------- -------- Current Assets Cash $ 6,512 $ 19,985 Accounts receivable 192,083 181,889 Refundable income tax 4,943 Advances to shareholder 45,323 -------- -------- Total current assets 243,918 206,817 Furniture and Equipment, at cost, less accumulated depreciation of $52,731 at June 30, 1998, and $47,774 at June 30, 1997 6,066 11,023 -------- -------- $249,984 $217,840 -------- -------- -------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 33,475 $ 26,303 Notes payable 132,166 97,500 Loan from shareholder 7,738 Deferred income taxes 10,952 8,039 -------- -------- Total current liabilities 176,593 139,580 Stockholders' Equity Common stock, $.10 par value; 60,000 shares authorized, (50,000 for Application Methods, Inc. and 10,000 for e-SELL Commerce Systems, Inc.) 2,000 shares issued and outstanding at June 30, 1998 (1,000 for each company); 50,000 shares authorized, 1,000 shares issued and outstanding at June 30, 1997 200 100 Retained earnings 73,191 78,160 -------- -------- 73,391 78,260 -------- -------- $249,984 $217,840 -------- -------- -------- --------
See Notes to Financial Statements F-15 APPLICATION METHODS, INC. (COMBINED WITH E-SELL COMMERCE SYSTEMS, INC. FOR THE SIX MONTHS ENDED JUNE 30, 1998) STATEMENTS OF OPERATIONS AND RETAINED EARNINGS Six Months Ended June 30, 1998 and 1997
1998 1997 -------- -------- Revenues Sales and service revenue $679,672 $437,948 Other income 41,345 8,188 -------- -------- 721,017 446,136 Expenses Labor and benefits 407,336 349,873 Selling, general and administrative 235,473 135,968 -------- -------- 642,809 485,841 -------- -------- Income (loss) before interest expense and income tax 78,208 (39,705) Interest expense 8,284 4,981 -------- -------- Income (loss) before income tax 69,924 (44,686) Deferred income tax expense (recovery) 10,952 (6,703) -------- -------- Net income (loss) 58,972 (37,983) Retained earnings, beginning of period 14,219 116,143 -------- -------- Retained earnings, end of period $ 73,191 $ 78,160 -------- -------- -------- --------
See Notes to Financial Statements F-16 APPLICATION METHODS, INC. (COMBINED WITH E-SELL COMMERCE SYSTEMS, INC. FOR THE SIX MONTHS ENDED JUNE 30, 1998) STATEMENT OF CASH FLOWS Six Months Ended June 30, 1998
1998 1997 --------- -------- Cash Flows From Operating Activities Net income (loss) $ 58,972 $(37,983) Adjustments to reconcile net income (loss) to net cash used in operating activities Depreciation and amortization 2,209 2,748 Changes in operating assets and liabilities Receivables (113,976) (67,353) Advances to and from shareholder (3,122) 67,100 Accounts payable (30,303) 10,046 Deferred income taxes 10,952 (6,703) --------- -------- Cash used in operating activities (75,268) (32,145) Cash Flows From Financing Activities Increase in notes payable 51,144 32,500 --------- -------- Net increase (decrease) in cash (24,124) 355 Cash, beginning of period 30,636 19,630 --------- -------- Cash, end of period $ 6,512 $ 19,985 --------- -------- --------- --------
See Notes to Financial Statements F-17 NOTES TO FINANCIAL STATEMENTS Note 1. Organization and Significant Accounting Policies ORGANIZATION Application Methods, Inc. ("Application Methods") develops computer software for its clients on a custom basis. In addition, it sells certain computer software products it internally develops. e-SELL Commerce Systems, Inc. ("e-SELL") was established in late 1997 to sell certain software created by Application Methods. As of June 30, 1998, these financial statements are the combination of these two companies. Combination is appropriate because the two companies have the same stock ownership. During the six months ended June 30, 1998, sales and service revenue from three customers accounted for 31% of total sales and service revenue. Accounts receivable for five customers accounted for 58% of total accounts receivable at June 30, 1998. During the six months ended June 30, 1997, sales and service revenue from one customer accounted for 11% of total sales and service revenue. Accounts receivable for five customers accounted for 65% of total accounts receivable at June 30, 1997. 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 the 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. Accordingly, actual results could differ from the estimates that were used. SOFTWARE DEVELOPMENT COSTS Software development costs are expensed as incurred. F-18 Note 1. (Continued) CASH Cash includes cash balances held at a bank. Cash balances are occasionally in excess of amounts insured by the Federal Deposit Insurance Corporation. Cash payments for interest were $8,284 and $4,981 during the six months ended June 30, 1998 and 1997, respectively. No cash payments for income taxes were made during the six months ended June 30, 1998 or 1997. ACCOUNTS RECEIVABLE Application Methods and e-SELL use the allowance method for recognizing bad debts. Management believes no allowance is necessary at June 30, 1998 or 1997. FURNITURE AND EQUIPMENT Furniture and equipment are depreciated using accelerated methods over the estimated useful lives of the related assets. TAXES ON INCOME Application Methods and e-SELL account for income taxes under an asset and liability approach that requires the recognition of deferred tax assets and liabilities for expected future tax consequences of events that have been recognized in the financial statements or tax returns. In estimating future tax consequences, Application Methods and e-SELL generally consider all expected future events other than enactments of changes in the tax laws or rates. Note 2. Notes Payable
1998 1997 -------- ------- Line of credit to a bank, bearing interest at 11.5%, due November 20, 1998, secured by receivables $ 95,000 $65,000 Other 37,166 32,500 -------- ------- $132,166 $97,500 -------- ------- -------- -------
F-19 Note 3. Leases Application Methods and e-SELL lease an office under an operating lease expiring January 31, 2002. In addition, Application Methods leases certain computer equipment. The following are the future minimum rental payments required under the lease for the years ending December 31:
1998 $125,723 1999 99,394 2000 98,764 2001 92,434 2002 7,703 -------- Total $424,018 -------- --------
Rent expense was $65,086 and $38,856 for the six months ended June 30, 1998 and 1997, respectively. Note 4. Deferred Income Taxes The temporary differences causing the deferred tax effects results from using the cash basis of accounting for income tax purposes and the accrual basis for financial reporting purposes. At June 30, 1998, Application Methods and e-SELL have unused net operating tax losses of $66,150 which expire through 2013. An asset of $9,920 was established for this net operating tax loss which has been used to offset the deferred tax liability. At June 30, 1997, unused net operating tax losses resulted in an asset of $15,300 which was also used to reduce the deferred tax liability. Each of the Companies files their own separate income tax returns. This does not have a material effect on the income tax provision. Note 5. Subsequent Event Effective July 1, 1998, Application Methods and e-SELL agreed to sell the Companies to a company that is an internet service provider. The value of the assets and liabilities have not been adjusted for this anticipated sale. F-20 SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA The following selected unaudited pro forma combined financial information presented below has been derived from the unaudited and audited historical financial statements of Rocky Mountain Internet, Inc. ("RMI"), Internet Communications Corporation ("ICC"), Infohiway, Inc. ("Infohiway") , and Application Methods, Incorporated ("Application Methods") and reflect management's present estimate of pro forma adjustments, including a preliminary estimate of purchase price allocations, which ultimately may be different. The unaudited and audited historical financial statements of Infohiway and Application Methods, for the relevant periods are included elsewhere herein. The unaudited and audited historical financial statements of RMI and ICC, for the relevant periods have been filed separately by each of those entities in their respective annual report on Form 10-K and interim report on Form 10-Q. The pro forma financial data give effect to the acquisition of ICC by RMI (the "ICC Acquisition") (anticipated to close in the third quarter of 1998) and the acquisitions of Infohiway (closed June 5, 1998) and Application Methods (closed July 1, 1998), as well as, the Acquisition Financing (as defined below). The acquisitions are 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 and other analyses, with appropriate recognition given to the effect of RMI's borrowing rates and income tax rates. The unaudited pro forma combined statement of operations for the year ended December 31, 1997 gives effect to the acquisitions as if they had been consummated at the beginning of such year. This pro forma statement of operations combines the historical consolidated statement of operations for the year ended December 31, 1997 for RMI, the historical consolidated statement of operations for the eleven months ended December 31, 1997 for ICC, the historical combined statement of operations for the year ended December 31, 1997 for Application Methods and the historical statement of operations for the year ended December 31, 1997 for Infohiway. The unaudited pro forma condensed combined statement of operations for the six months ended June 30, 1998 for ICC and Application Methods and the period from January 1, 1998 to June 5, 1998 (the acquisition date) for Infohiway, gives effect to the acquisitions as if they had been consummated at January 1, 1997. This pro forma statement of operations combines the historical operations for RMI, ICC, Application Methods and Infohiway for the six month period ended June 30, 1998. The unaudited pro forma condensed combined balance sheet as of June 30, 1998 gives effect to the acquisitions as if they had been consummated on that date. This pro forma balance sheet combines the historical consolidated balance sheet at that date for RMI and the historical balance sheets at such date for ICC and Application Methods. RMI has contractual rights under the merger agreement with ICC, to effect the ICC Acquisition and expects to complete the transaction as soon as possible after the ICC shareholders' meeting, scheduled for the third quarter of 1998. Consummation of the Private Placement Offering (as defined below) is conditioned upon the prior consummation of the ICC Acquisition. RMI currently intends, subject to market and other conditions, including the consummation of the ICC Acquisition, to complete a private placement offering to raise approximately $175.0 million in a private placement of high yield securities pursuant to Rule 144A adopted under the Securities Act (the Private Placement Offering). The securities to be offered in the Private Placement Offering will consist of senior notes (and may include other securities) and will not be registered under the Securities Act or applicable state securities laws. The Private Placement Offering will be made only by means of an offering memorandum. RMI has obtained a bridge loan commitment from lenders to fund the ICC Acquisition if the Private Placement Offering is not completed. The Acquisition Financing, referred to above, represents that portion of the financing from the Private Placement Offering or the Bridge Loan Commitment, if required, which is necessary to complete the ICC Acquisition. The unaudited pro forma condensed combined financial statements may not be indicative of the results that actually would have occurred if the transactions described above had been completed and in effect for the periods indicated or the results that may be obtained in the future. The actual purchase accounting adjustments may be revised upon completion of the ICC Acquisition. 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 RMI, ICC, Application Methods and Infohiway. F-21 PRO FORMA CONDENSED COMBINED BALANCE SHEET JUNE 30, 1998 (UNAUDITED) (AMOUNTS IN THOUSANDS)
HISTORICAL ---------------------------------- ROCKY MOUNTAIN APPLICATION PRO FORMA INTERNET, INC. METHODS ADJUSTMENTS ------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 762 7 - Trade receivables 635 192 - Inventory 61 - - Costs and estimated earnings in excess of billings - - - Other 112 45 - ------------------------------------------------------- Total Current Assets 1,570 244 - ------------------------------------------------------- Property and equipment, net 2,612 6 - Goodwill, net 1,324 - 3,325 (3) Customer lists, net 413 - - Net assets of discontinued operations - - - Other assets, net 324 - - Long-term restricted investment ------------------------------------------------------- Total Assets $ 6,243 250 3,325 ------------------------------------------------------- ------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Notes payable $ - 132 - Current maturities of long-term debt and capital lease obligations 675 - - Accounts payable and accrued expenses 2,147 45 - Billings in excess of costs and estimated billings 315 - - Unearned income and deposits - - - ------------------------------------------------------- Total Current Liabilities 3,137 177 0 ------------------------------------------------------- Long-term debt and capital lease obligations 629 - - Notes Other long-term obligations - - - Stockholders' Equity Preferred stock - - - Common Stock 11,257 - 3,398 (3) Accumulated deficit (8,780) 73 (73) (5) Stockholders' notes - - - Unearned compensation - - - ------------------------------------------------------- Total Stockholders' Equity 2,477 73 3,325 ------------------------------------------------------- Total Liabilities and Stockholders' Equity $ 6,243 250 3,325 ------------------------------------------------------- -------------------------------------------------------
F-22
HISTORICAL -------------- INTERNET TOTAL PRO FORMA COMMUNICATIONS PRO FORMA PRO FORMA COMBINED CORPORATION ADJUSTMENTS COMBINED ----------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents 769 422 42,000 (1) 1,191 (42,000) (1) Trade receivables 827 7,238 - 8,065 Inventory 61 3,563 - 3,624 Costs and estimated earnings in excess of billings - 543 - 543 Other 157 933 - 1,090 ----------------------------------------------------------- Total Current Assets 1,814 12,699 - 14,513 ----------------------------------------------------------- Property and equipment, net 2,618 1,642 - 4,260 Goodwill, net 4,649 2,126 38,954 (4) 45,729 Customer lists, net 413 - - 413 Net assets of discontinued operations - 496 - 496 Other assets, net 324 1,284 1,758 (1) 2,316 (1,050)(7) Long-term restricted investment ----------------------------------------------------------- Total Assets 9,818 18,247 39,662 67,727 ----------------------------------------------------------- ----------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Notes payable 132 6,135 - 6,267 Current maturities of long-term debt and capital lease obligations 675 - - 675 Accounts payable and accrued expenses 2,192 6,441 1,758 (1) 10,391 Billings in excess of costs and estimated billings 315 1,047 - 1,362 Unearned income and deposits - 1,069 - 1,069 ----------------------------------------------------------- Total Current Liabilities 3,314 14,692 1,758 19,764 ----------------------------------------------------------- Long-term debt and capital lease obligations 629 364 - 993 Notes 42,000 (1) 42,000 Other long-term obligations - 167 - 167 Stockholders' Equity Preferred stock - - - - Common Stock 14,655 14,758 (14,758) (5) 17,455 2,800 (7) Accumulated deficit (8,780) (11,712) 11,712 (5) (12,630) (3,850) (7) Stockholders' notes - (22) - (22) Unearned compensation - - - - ----------------------------------------------------------- Total Stockholders' Equity 5,875 3,024 (4,096) 4,803 ----------------------------------------------------------- Total Liabilities and Stockholders' Equity 9,818 18,247 39,662 67,727 ----------------------------------------------------------- -----------------------------------------------------------
F-23 PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
HISTORICAL --------------------------------------------- ROCKY MOUNTAIN INFOHIWAY APPLICATION PRO FORMA INTERNET, INC. INC. METHODS ADJUSTMENTS -------------------------------------------------------------- Revenue Internet access and services $ 3,748 13 721 - Network services - - - - Network integration 193 - - - -------------------------------------------------------------- Total sales 3,941 13 721 - Cost of sales 1,384 21 - - -------------------------------------------------------------- Gross margin 2,557 (8) 721 - -------------------------------------------------------------- Operating expenses: Selling, general and administrative 3,972 - 643 - Depreciation and amortization 489 2 - 466 (6) -------------------------------------------------------------- Total operating expenses 4,461 2 643 466 -------------------------------------------------------------- Other income (expense): Interest expense, net (129) - (8) - Other income (expense), net - - (11) - -------------------------------------------------------------- (129) - (19) - -------------------------------------------------------------- Income (loss) from continuing operations (2,033) (10) 59 (466) -------------------------------------------------------------- -------------------------------------------------------------- Basic and Diluted loss per share from continuing operations $ (0.29) ----------- ----------- Average number of common shares outstanding 7,012 ----------- -----------
F-24
HISTORICAL ------------------ INTERNET TOTAL PRO FORMA COMMUNICATIONS PRO FORMA PRO FORMA COMBINED CORPORATION ADJUSTMENTS COMBINED ---------------------------------------------------------- Revenue Internet access and services 4,482 - - 4,482 Network services - 7,579 - 7,579 Network integration 193 9,176 - 9,369 ---------------------------------------------------------- Total sales 4,675 16,755 - 21,430 Cost of sales 1,405 11,898 - 13,303 ---------------------------------------------------------- Gross margin 3,270 4,857 - 8,127 ---------------------------------------------------------- Operating expenses: Selling, general and administrative 4,615 7,533 - 12,148 Depreciation and amortization 957 352 1,948 (6) 3,257 ---------------------------------------------------------- Total operating expenses 5,572 7,885 1,948 15,405 ---------------------------------------------------------- Other income (expense): Interest expense, net (137) (291) (3,591) (2) (4,019) Other income (expense), net (11) - - (11) --------------------------------------------------------- (148) (291) (3,591) (4,030) --------------------------------------------------------- Income (loss) from continuing operations (2,450) (3,319) (5,539) (11,308) --------------------------------------------------------- --------------------------------------------------------- Basic and Diluted loss per share from continuing operations (1.52) ---------- ---------- Average number of common shares outstanding 7,448 ---------- ----------
F-25 PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE PERIODS ENDED DECEMBER 31, 1997 (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
HISTORICAL --------------------------------------------- ROCKY MOUNTAIN INFOHIWAY APPLICATION PRO FORMA INTERNET, Inc. INC. METHODS ADJUSTMENTS ------------------------------------------------------------ Revenue Internet access and services $ 5,740 31 984 - Network services - - - - Network integration 387 - - - ------------------------------------------------------------ Total sales 6,127 31 984 - Cost of sales 2,060 13 - - ------------------------------------------------------------ Gross Margin 4,067 18 984 - ------------------------------------------------------------ Operating expenses: Selling, general and administrative 6,981 16 1,084 - Depreciation and amortization 887 6 5 929 (6) ------------------------------------------------------------ Total operating expenses 7,868 22 1,089 929 ------------------------------------------------------------ Other income (expense): Interest expense, net (347) - (12) - Other income (expense), net (5) - 15 - ------------------------------------------------------------ (352) - 3 - ------------------------------------------------------------ Income (loss) from continuing operations (4,153) (4) (102) (929) ------------------------------------------------------------ ------------------------------------------------------------ Basic and Diluted loss per share from continuing operations $ (0.79) -------------- -------------- Average number of common shares outstanding 5,268 -------------- --------------
F-26
HISTORICAL ---------------- INTERNET TOTAL PRO FORMA COMMUNICATIONS PRO FORMA PRO FORMA COMBINED CORPORATION ADJUSTMENTS COMBINED -------------------------------------------------------- Revenue Internet access and services 6,755 305 - 7,060 Network services - 12,064 - 12,064 Network integration 387 20,744 - 21,131 -------------------------------------------------------- - Total sales 7,142 33,113 - 40,255 - Cost of sales 2,073 23,693 - 25,766 -------------------------------------------------------- Gross Margin 5,069 9,420 - 14,489 -------------------------------------------------------- Operating expenses: Selling, general and administrative 8,081 10,901 - 18,982 Depreciation and amortization 1,827 1,469 3,895 (6) 7,191 -------------------------------------------------------- Total operating expenses 9,908 12,370 3,895 26,173 -------------------------------------------------------- Other income (expense): Interest expense, net (359) (400) (7,182)(2) (7,941) Other income (expense), net 10 - - 10 -------------------------------------------------------- (349) (400) (7,182) (7,931) -------------------------------------------------------- Income (loss) from continuing operations (5,188) (3,350) (11,077) (19,615) -------------------------------------------------------- -------------------------------------------------------- Basic and Diluted loss per share from continuing operations (3.44) ------------ ------------ Average number of common shares outstanding 5,704 ------------ ------------
F-27 NOTES TO THE PRO FORMA CONDENSED COMBINED FINANCIAL DATA (UNAUDITED) (A) BASIS OF PRESENTATION The accompanying unaudited pro forma condensed combined balance sheet is presented as of June 30, 1998. The accompanying unaudited pro forma condensed combined statements of operations are presented for the six month period ended June 30, 1998 and for the year ended December 31, 1997, except for ICC for which the eleven month period ended December 31, 1997 is presented. (B) PRO FORMA ADJUSTMENTS The following pro forma adjustments have been made to the unaudited condensed combined balance sheet as of June 30, 1998 and the unaudited condensed combined statements of operations for the periods ended June 30, 1998 and December 31, 1997: (1) To adjust for the effects of the issuance of the $42.0 million of Acquisition Financing, assuming a pro forma interest rate of 11% on the face value of the Private Placement Offering. Approximately $57.8 million of the proceeds from the Private Placement Offering will be restricted cash, and invested in U.S. Government Securities to be held in an Interest Reserve Account. Applying the interest related to the gross amount of the notes to the proceeds net of the interest reserve account results in an assumed pro forma effective interest rate of approximately 16.5%. This rate has been used to calculate the pro forma interest expense related to the issuance of the $42,000,000 of Acquisition Financing. The final interest rate has not been determined at this date. The pro forma effects are as follows (in thousands): CASH AND CASH EQUIVALENTS ------------------------- Proceeds from interim Acquisition Financing................ $ 42,000 --------- --------- OTHER ASSETS: ------------- Deferred financing costs................................... $ 1,758 --------- --------- DEBT: ----- Principal amount of Acquisition Financing.................. $ 42,000 --------- ---------
(2) To increase interest expense to reflect the issuance of $42,000,000 of the Acquisition Financing and the amortization of the net debt issuance costs estimated at $1,758,000 as if transaction had been in effect for the entire period, presented as follows (in thousands):
12-31-97 6-30-98 --------- --------- Record estimated interest expense on the Acquisition Financing....... $ 6,930 $ 3,465 Record amortization expense of new debt issuance costs............... 252 126 --------- --------- $ 7,182 $ 3,591 --------- --------- --------- ---------
For each 1/8 percent change (or 0.125%) in the interest rate, interest expense and pro forma income from continuing operations would change $52,500. F-28 NOTES TO THE PRO FORMA CONDENSED COMBINED FINANCIAL DATA (UNAUDITED) (3) COMPLETED ACQUISITION: To reflect the 436,369 shares of RMI Common Stock valued at $4,574,000 which is the approximate number of shares issued in connection with acquisitions of Application Methods and Infohiway. The excess purchase prices over the fair value of net assets acquired has been allocated to goodwill. The pro forma adjustment reflects the incremental goodwill, in excess of existing goodwill in the amount of $4,649,000. Shares of common stock issued for acquisitions were recorded at fair value as determined by RMI's board of directors and based on the then 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 and in accordance with the terms thereof, the excess purchase price currently allocated to goodwill will be allocated to the appropriate asset classifications, including customer lists and goodwill. While the goodwill is being amortized over periods ranging from 5-10 years, customer lists or other identified intangibles may be amortized over shorter periods, which would therefore increase amortization expense. Summary information regarding the completed acquisitions is as follows (in thousands):
ENTITY DATE CLOSED CASH STOCK TOTAL ------ ----------- ---- ----- ----- COMPLETED ACQUISITION Infohiway June 5, 1998 $ 0 $ 1,335 $ 1,335 Application Methods June 30, 1998 $ 0 $ 3,239 $ 3,239 Total Consideration $ 0 $ 4,574 $ 4,574 ------- ------- ------- ------- ------- -------
(4) ANTICIPATED ACQUISITION: To reflect the $ 42,000,000 in cash to be paid as the $39,400,000 purchase price plus $2,600,000 of estimated transaction costs for the ICC Acquisition. The excess purchase prices over the fair value of net assets acquired has been allocated to goodwill. The pro forma adjustment reflects the incremental goodwill, in excess of existing goodwill in the amount of $41,080,000. The final allocation of the purchase price will be made after the appropriate appraisals or other analyses are performed. Upon completion of the appraisals and in accordance with the terms thereof, the excess purchase price currently allocated to goodwill will be allocated to the appropriate asset classifications, including customer lists and goodwill. While the goodwill is being amortized over periods ranging from 5-10 years, customer lists or other identified intangibles may be amortized over shorter periods, which would therefore increase amortization expense. F-29 NOTES TO THE PRO FORMA CONDENSED COMBINED FINANCIAL DATA (UNAUDITED) Summary information regarding the anticipated acquisition is as follows (in thousands):
ENTITY DATE CLOSED CASH STOCK TOTAL ------ ----------- ---- ----- ----- ANTICIPATED ACQUISITION ICC ** $ 42,000 $ 0 $42,000 ---------------------------------- Total Consideration $ 42,000 $ 0 $42,000 --------- ------- ------- --------- ------- -------
** This transaction is anticipated to close in the third quarter of 1998, however no assurances can be given that it will close at that time, if at all. (5) To eliminate the equity accounts of the acquisitions. (6) To adjust amortization expense due to the increase in carrying value of goodwill, using lives ranging from five to ten years, as if such acquisitions had been completed as of January 1, 1997. (7) In connection with a loan facility provided to RMI, RMI agreed to pay the lenders and the arranger of such facility an aggregate approximate amount of $1,050,000 and agreed to issue warrants to the lenders and the arranger to acquire a total of 560,000 shares of RMI Common Stock. Warrants to acquire 220,833 shares have an exercise price of approximately $9.01 per share and warrants to acquire the remaining 339,167 shares have an exercise price of $.01. Upon completion of the Offering, RMI will record an aggregate expense related to these warrants of at least $2,800,000. Prior to recording this expense, an independent valuation of these warrants will be obtained. To the extent it is determined that the value of the warrants differ from these amounts, further adjustments in such expense may be made. Additionally, upon completion of the Offering, RMI will record an expense of approximately $1,050,000 in connection with the loan facility's origination fee. (C) OTHER CONSIDERATIONS (1) Income tax expense or benefit has not been reflected in the pro forma condensed combined financial statements due to consolidated net operating losses for the periods ended March 31, 1998 and December 31, 1997. (2) In addition to the purchase consideration described in Note B above, RMI has a commitment to pay contingent purchase consideration to the former shareholders of Application Methods in the form of shares of Common Stock not to exceed a market value of $2,500,000. This contingent consideration will be computed by determining the number of shares of RMI Common Stock whose fair value equals 30% of the net income before taxes of Application Methods as a stand alone subsidiary of RMI. Any RMI Common Stock to be issued as contingent consideration will be valued based on the average closing price for the twenty consecutive trading days preceding the end of the six month performance interval. The performance intervals are each of the 6 month periods (6 periods) in the three year period following the acquisition. In the event the contingent consideration is payable in future periods, it will result in an increase to goodwill which will be amortized over the remaining amortization period of the initial goodwill. It is anticipated the goodwill related to Application Methods will be amortized over a five year period. F-30 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed by its behalf by the undersigned hereunto duly authorized. Rocky Mountain Internet, Inc. ---------------------------------------- (Registrant) Date: August 21, 1998 By: /s/ Peter J. Kushar -------------- ----------------------------------- Peter J. Kushar, Secretary, Treasurer, and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----