-----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, DBIAjuMXQbmpbR+N3jJAGywRARQJIJW0heDs+WZXlLtGNqDbUgmtAM7t25y7BAYn itOa0WCB6oJPQH+TbnQ2ew== 0001047469-99-000625.txt : 19990111 0001047469-99-000625.hdr.sgml : 19990111 ACCESSION NUMBER: 0001047469-99-000625 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19981208 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19990108 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: 99503569 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 8-K/A 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 (earliest event reported): December 8, 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 December 22, 1998, Rocky Mountain Internet, Inc. (the "Company") filed its Current Report on Form 8-K (the "DataXchange Initial Report") dated December 8, 1998 (the date the event requiring the filing of the DataXchange Initial Report) describing the acquisition by the Company of substantially all of the assets of DataXchange Network, Inc. ("DataXchange"). This Current Report on Form 8-K/A (the "Form 8-K/A") amends the DataXchange Initial Report by including with this Form 8-K/A the financial statements and pro forma financial information required pursuant to Item 7. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (a) DATAXCHANGE NETWORK, INC.--FINANCIAL STATEMENTS: AUDITED FINANCIAL STATEMENTS: Independent Auditors' Report--Aidman, Piser & Company, P.A. Balance Sheets as of July 31, 1998 and 1997 and October 31, 1998 (unaudited) Statements of Operations for the Years Ended July 31, 1998, 1997, and 1996 and for the Three Months Ended October 31, 1998 and 1997 (unaudited) Statements of Stockholders' Equity for the Years Ended July 31, 1998, 1997, 1996 and for the Three Months Ended October 31, 1998 (unaudited) Statements of Cash Flows for the Years Ended July 31, 1998, 1997, 1996 and for the Three Months Ended October 31, 1998 and 1997 (unaudited) Notes to 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 September 30, 1998 Pro Forma Condensed Combined Statement of Operations for the Nine Months Ended September 30, 1998 (c) EXHIBITS Filed With DataXchange Initial Report -1- INDEX TO FINANCIAL STATEMENTS DATAXCHANGE NETWORK, INC. - FINANCIAL STATEMENTS: AUDITED FINANCIAL STATEMENTS: Independent Auditors' Report--Aidman, Piser & Company, P.A. ..........................F-2 Balance Sheets as of July 31, 1998 and 1997 and October 31, 1998 (unaudited) ..........F-3 Statements of Operations for the Years Ended July 31, 1998, 1997, and 1996 and for the Three Months Ended October 31, 1998 and 1997 (unaudited).............F-4 Statements of Stockholders' Equity for the Years Ended July 31, 1998, 1997, 1996 and for the Three Months Ended October 31, 1998 (unaudited)..............F-5 Statements of Cash Flows for the Years Ended July 31, 1998, 1997, 1996 and for the Three Months Ended October 31, 1998 and 1997 (unaudited)..........F-6 Notes to Financial Statements..........................................................F-8 PRO FORMA FINANCIAL INFORMATION. Pro Forma Condensed Combined Balance Sheet as of September 30, 1998...................F-17 Pro Forma Condensed Combined Statement of Operations for the nine months ended September 30, 1998.....................................................F-18 Pro Forma Condensed Combined Statement of Operations for the year ended December 31, 1997............................................................F-19 Notes to Pro Forma Condensed Combined Financial Data..................................F-20
F-1 INDEPENDENT AUDITORS' REPORT To the Board of Directors DataXchange Network, Inc. Clearwater, Florida We have audited the accompanying balance sheets of DataXchange Network, Inc. (the "Company") as of July 31, 1998 and 1997 and the related statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended July 31, 1998. The financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits 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 audits provide 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 the Company, as of July 31, 1998 and 1997, and the results of its operations and its cash flows for each of the years in the three-year period ended July 31, 1998 in conformity with generally accepted accounting principles. /s/ Aidman, Piser & Company, P.A. September 30, 1998 Tampa, Florida F-2 DATAXCHANGE NETWORK, INC. BALANCE SHEETS ASSETS
July 31, October 31, ----------------------------- 1998 1998 1997 (unaudited) ----------- ----------- ----------- Current assets: Cash and cash equivalents $ 225,911 $ 177,971 $ 48,341 Receivables: Trade, less allowance for doubtful accounts (1998, $58,000; 1997, $35,000) 152,678 183,031 303,776 Other 2,800 6,553 2,280 Inventory 39,954 58,122 41,250 Contract bid deposits 63,327 --- --- Prepaid expenses and other current assets 30,995 28,272 28,995 ----------- ----------- ----------- Total current assets 515,665 453,949 424,642 Furniture and network equipment, net 171,165 271,439 145,459 Deposits 6,109 7,680 6,109 ----------- ----------- ----------- $ 692,939 $ 733,068 $ 576,210 ----------- ----------- ----------- ----------- ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 253,472 $ 195,510 $ 68,374 Accrued expenses 11,285 8,354 24,445 Customer deposits 192,432 152,540 202,239 Note payable --- --- 298,368 ----------- ----------- ----------- Total current liabilities 457,189 356,404 593,426 ----------- ----------- ----------- Commitments and contingencies Stockholders; equity: Common stock; $.01 par value; 20,000,000 shares Authorized; shares issued and outstanding, 1,228,464 (1998), 1,153,143 (1997) 12,285 11,530 12,285 Additional paid-in capital 1,917,715 1,273,470 1,917,715 Stock subscriptions receivable (40,000) (40,000) (40,000) Accumulated deficit (1,654,250) (868,336) (1,907,216) 235,750 376,664 (17,216) ----------- ----------- ----------- $ 692,939 $ 733,068 $576,210 ----------- ----------- ----------- ----------- ----------- -----------
See Notes to Financial Statements F-3 DATAXCHANGE NETWORK, INC. STATEMENTS OF OPERATIONS
Three Months Ended Years Ended July 31, October 31, ----------------------------------------------- --------------------------- (unaudited) 1998 1997 1996 1998 1997 ----------- ----------- ------------ ---------- ----------- Revenue: Internet access and services $1,898,242 $1,568,339 $1,201,824 $ 641,538 $ 474,193 Equipment sales 118,270 127,881 208,557 11,642 78,775 ----------- ----------- ------------ ---------- ----------- 2,016,512 1,696,220 1,410,381 653,180 552,968 Cost of sales: Internet access and services 1,828,886 1,536,178 855,172 660,175 379,937 Equipment sales 120,477 139,936 130,135 10,864 37,864 ----------- ----------- ------------ ---------- ----------- 1,949,363 1,676,114 985,307 671,039 417,801 ----------- ----------- ------------ ---------- ----------- Gross profit 67,149 20,106 425,074 (17,859) 135,167 General and administrative expenses 750,720 663,375 440,347 208,237 181,542 Depreciation 107,481 158,829 79,944 26,870 26,870 ----------- ----------- ------------ ---------- ----------- Loss from operations (791,052) (802,098) (95,217) (252,966) (73,245) Interest income 6,038 18,388 14,933 --- --- ----------- ----------- ---------- ----------- ------------ Loss before income taxes (785,014) (783,710) (80,284) (252,966) (73,245) Income tax expense 900 900 800 --- --- Net loss $ 785,914 ($ 784,610) ($ 81,084) ($ 252,966) ($ 73,245) ----------- ----------- ------------ ---------- ----------- ----------- ----------- ------------ ---------- ----------- Net Loss Per common shares ($ .67) ($ .68) ($ .07) ( .21) ( .06) ----------- ----------- ------------ ---------- ----------- ----------- ----------- ------------ ---------- -----------
See notes to financial statements. F-4 DATAXCHANGE NETWORK, INC. STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED JULY 31, 1998, 1997, AND 1996
Common Stock Additional Accumulated Stock Total ------------ Paid-in Deficit Subscription ----- Shares Amount Capital ----------- Receivable ------ ------ ---------- ------------ Balances, 3,567 $ 357 $ 559,643 ($ 2,642) ($460,000) $ 97,358 August 1, 1995 Common stock 1,066,433 10,343 ( 10,343) --- --- --- split (300:1) Issuance of 83,143 830 724,170 --- --- 725,000 common stock ($8.72 per share) Collection of stock --- --- --- --- 420,000 420,000 subscriptions receivable Net loss --- --- --- ( 81,084) --- ( 81,084) --------- --------- ---------- ------------ ----------- ----------- Balances, 1,153,143 11,530 1,273,470 ( 83,726) ( 40,000) 1,161,274 July 31, 1996 Net loss --- --- --- ( 784,610) --- ( 784,610) --------- --------- ---------- ------------ ----------- ----------- Balances, 1,153,143 11,530 1,273,470 ( 868,336) ( 40,000) 376,664 July 31, 1997 Issuance of 22,936 230 199,770 --- --- 200,000 common stock ($8.72 per share) Issuance of 30,000 300 224,700 --- --- 225,000 common stock ($7.50 per share) Notes converted to 22,385 225 219,775 --- --- 220,000 common stock Net loss --- --- --- ( 785,914) --- ( 785,914) --------- --------- ---------- ------------ ----------- ----------- Balances, 1,228,464 $ 12,285 $1,917,715 ($1,654,250) ($40,000) $ 235,750 July 31, 1998 Net loss (unaudited) --- --- --- (252,966) --- (252,966) --------- --------- ---------- ------------ ----------- ----------- Balances, 1,228,464 $ 12,285 $1,917,715 ($1,907,216) ($40,000) ($17,216) October 31, 1998 (unaudited) --------- --------- ---------- ------------ ----------- ----------- --------- --------- ---------- ------------ ----------- -----------
See notes to financial statements. F-5 DATAXCHANGE NETWORK, INC. STATEMENTS OF CASH FLOW
Three Months Ended Years Ended July 31, October 31, ---------------------------------------------- ------------------------------ (unaudited) 1998 1997 1996 1998 1997 ---- ---- ---- ---- ---- Cash flows from operating activities: Net Loss ($ 785,914) ($ 784,610) ($ 81,084) ($ 252,966) ($ 73,245) Adjustments to reconcile net loss to net cash provided by ] operating activities: Depreciation 107,481 158,829 79,944 26,870 26,870 Increase (decrease) in cash due to changes in: Accounts receivable 34,106 ( 65,169) ( 31,557) ( 150,578) ( 70,260) Inventory 18,168 ( 20,418) ( 37,704) ( 1,296) 10,000 Prepaid expenses and ( 66,050) ( 11,610) ( 16,662) 2,000 12,678 other current assets Deposits 1,571 ( 6,180) ( 1,500) 63,327 --- Accounts Payable 57,961 129,863 47,435 113,270 --- Accrued Expenses 2,932 4,942 ( 14,099) 13,160 19,003 Customer Deposits 39,892 27,736 65,299 9,807 498 --------- --------- --------- ------- --------- Net cash provided by (used in) ( 589,853) ( 566,617) 10,072 (176,406) ( 74,456) operating activities --------- --------- Cash flows from investing activities: Acquisition of furniture and ( 7,207) ( 58,008) ( 407,312) ( 1,164) ( 2,790) equipment --------- --------- --------- --------- --------- Net cash used in investing ( 7,207) ( 58,008) ( 407,312) ( 1,164) ( 2,790) activities --------- --------- --------- --------- --------- Cash flows from financing activities: Proceeds from sale of common 425,000 --- 1,145,000 --- --- stock and collection of stock subscriptions receivable Proceeds from issuance of 220,000 --- --- --- --- convertible notes --------- --------- --------- --------- --------- Net cash provided by financing 645,000 --- 1,145,000 --- --- activities --------- --------- --------- --------- --------- Net change in cash 47,940 ( 624,625) 747,760 ( 177,570) ( 77,246) Cash at beginning of year 177,971 802,596 54,836 225.911 177,971 --------- --------- --------- --------- --------- Cash at end of year $ 225,911 $ 177,971 $ 802,596 $ 48,341 $ 100,725 --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
(Continued) F-6 DATAXCHANGE NETWORK, INC. STATEMENT OF CASH FLOWS FOR THE YEARS ENDED JULY 31, 1998, 1997, AND 1996 SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION Income taxes paid were $900, $900 and $800 for the years ended July 31, 1998, 1997 and 1996, respectively. Interest paid was $5,950 during the year ended July 31, 1998. Non-cash financing activities: During the year ended July 31, 1998, $220,000 of convertible notes were converted to common stock at a conversion rate of approximately $10 per share. See notes to financial statements. F-7 DATAXCHANGE NETWORK, INC. NOTES TO FINANCIAL STATEMENTS YEARS ENDED JULY 31, 1998, 1997 AND 1996 THREE MONTHS ENDED OCTOBER 31, 1998 AND 1997 (UNAUDITED) 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: NATURE OF BUSINESS: DataXchange Network, Inc. (the "Company") is a national provider of internet access services to approximately 200 local or regional Internet Service Providers (ISP's). The Company also directly provides internet access to approximately 75 corporations. The Company facilitates access to the Internet by means of a telecommunications network comprised of a backbone of leased, high-speed dedicated phone lines, computer hardware and software, and local access points known as points of presence in approximately 325 locations. The Company's high speed, digital telecommunications network provides subscribers with direct access to the full range of internet applications and resources. CASH EQUIVALENTS: The Company considers all liquid investments with original maturities of three months or less to be cash equivalents. At July 31, 1998 and 1997, cash equivalents consisted principally of money market accounts. INVENTORY: Inventory consists primarily of purchased computer network equipment and is stated at the lower of cost or market. Cost is determined generally on a first-in, first-out basis. FURNITURE AND EQUIPMENT: Furniture and equipment are stated at cost. Depreciation is provided on accelerated methods over the estimated useful lives of the related assets. ADVERTISING COST: The Company charges the costs of advertising to operations as such costs are incurred. Advertising expense was approximately $13,000, $32,000 and $8,000 for the years ending July 31, 1998, 1997 and 1996. F-8 DATAXCHANGE NETWORK, INC. NOTES TO FINANCIAL STATEMENTS YEARS ENDED JULY 31, 1998, 1997 AND 1996 THREE MONTHS ENDED OCTOBER 31, 1998 AND 1997 (UNAUDITED) 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): INCOME TAXES: Deferred tax assets and liabilities are recognized for the tax effects of differences between the financial statement and tax bases of assets and liabilities. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that deferred tax assets will not be recognized. DEPENDENCE ON SUPPLIERS: The Company depends upon third-party suppliers for access to the internet through leased telecommunication lines. Although this access is available from several alternate suppliers, there can be no assurance that the Company could obtain substitute services from other providers at reasonable or comparable prices or in a timely manner. The Company is also dependent upon the regional phone companies to provide installations or circuits and to maintain those circuits. REVENUE RECOGNITION: The Company charges customers monthly access fees to the internet and recognizes the revenue in the month the access is provided. Revenue for other services provided, including installation fees or equipment sales, is recognized as the service is performed or the equipment is delivered to the customer. COST OF SALES: Included in cost of sales for internet access and services is principally the cost of high speed data circuits and telephone lines that allow customers access to the Company's service. NEW ACCOUNTING PRONOUNCEMENTS: In 1997, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income", and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information". Both of these standards will be effective for the Company's 1999 fiscal year. Future adoption of these new accounting standards are not expected to have a significant effect on the Company's financial position or results of operations. F-9 DATAXCHANGE NETWORK, INC. NOTES TO FINANCIAL STATEMENTS YEARS ENDED JULY 31, 1998, 1997 AND 1996 THREE MONTHS ENDED OCTOBER 31, 1998 AND 1997 (UNAUDITED) 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principals 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 income and expenses during the reporting period. Actual results could differ from those estimates. Net loss per share: Basic net loss per common share has been determined by dividing net loss by the weighted average number of shares outstanding during each period. Diluted net loss per common share is the same as basic net loss per common share. UNAUDITED INTERIM FINANCIAL STATEMENTS: The unaudited balance sheet as of October 31, 1998 and the unaudited statements of operations, stockholders' equity and cash flows and footnote disclosures for the three months ended October 31, 1998 and 1997 ("interim financial information") have been prepared by the Company, and are unaudited. In the opinion of the Company, the interim financial information includes all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of results of interim periods. The interim financial information should be read in conjunction with the Company's July 31, 1998, 1997 and 1996 audited financial statements appearing herein. The results of operations for the periods ended October 31, 1998 and 1997 may not be indicative of the operating results for the full year. 2. LIQUIDITY AND CAPITAL RESOURCES: Since the Company's inception in 1994, the Company has incurred significant operating losses that have been funded by proceeds from the sale of common stock. The Company's continuation as a going concern is dependent upon additional capital infusions until such time as the Company achieves revenue levels sufficient to cover its costs, including increased working capital and infrastructure requirements that may result from any increase in business volume. The Company's current net cash loss approximates $50,000 per month (unaudited). It is the management's intention to fund operations through additional equity and/or debt offerings. Insofar as those efforts are insufficient, the Company's two principal stockholders have agreed to provide funding sufficient to support the Company's operations through at least December 31, 1999 unless the Company is sold, in which case the shareholder funding commitment would terminate. F-10 DATAXCHANGE NETWORK, INC. NOTES TO FINANCIAL STATEMENTS YEARS ENDED JULY 31, 1998, 1997 AND 1996 THREE MONTHS ENDED OCTOBER 31, 1998 AND 1997 (UNAUDITED) 3. FINANCIAL INSTRUMENTS: FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying values of cash and cash equivalents, accounts receivable, customer deposits and accounts payable approximated fair value due to the short-term maturates of these instruments. CONCENTRATION OF CREDIT RISK: Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of trade accounts receivable and are limited due to the large numbers of customers comprising the Company's customer base, which is dispersed across the United States. The Company controls credit risk associated with its receivables through credit checks and approvals, and monitoring procedures. Generally, the Company requires deposits equal to one month's recurring charges from its customers. The Company maintains its cash and cash equivalents with high quality, credit worthy financial institutions. The Company has not experienced any losses on its cash or cash equivalents. Approximately $117,000 of the Company's $225,911 cash and cash equivalents balance at July 31, 1998 is insured. 4. FURNITURE AND EQUIPMENT: Furniture and equipment consists of the following:
July 31, ------------------------------ 1998 1997 ------------ ------------ Computer equipment $ 501,059 $ 493,853 Furniture and fixtures 27,583 27,582 ------------ ------------ 528,642 521,435 Less accumulated depreciation 357,477 249,996 ------------ ------------ $ 171,165 $ 271,439 ------------ ------------ ------------ ------------
5. NOTE PAYABLE: The note payable at October 31, 1998 is due to a significant supplier, bears interest at 16%, and is payable in full on December 1, 1998. 6. STOCKHOLDERS' EQUITY: During July 1994, the founding stockholders executed common stock subscription agreements for an aggregate of 3,566.67 shares at subscription prices of from $150 to $300 per share. Collection of those subscriptions receivable have occurred as the Company required cash to fund operations. F-11 DATAXCHANGE NETWORK, INC. NOTES TO FINANCIAL STATEMENTS YEARS ENDED JULY 31, 1998, 1997 AND 1996 THREE MONTHS ENDED OCTOBER 31, 1998 AND 1997 (UNAUDITED) 6. STOCKHOLDERS' EQUITY (CONTINUED): During 1996, the company effected a 300 for 1 common stock split for all issued and outstanding shares, including those still subject to subscriptions receivable agreements. Accordingly, the subscription receivable price per share was similarly reduced to $.50 to $`1.00 per share. During 1996 and 1998, the Company completed a private placement of 106,079 shares of common stock at $8.72 per share which generated net proceeds of $925,000 to the Company. During 1998, the Company completed a private placement of 30,000 shares of common stock at $7.50 per share which generated net proceeds of $225,000 to the Company. During the year ended July 31, 1998, the Company issued $220,000 unsecured notes payable to certain shareholders bearing interest at 7% that were convertible into approximately 22,000 shares of common stock. Interest was payable quarterly. All of these notes were subsequently converted to common stock during 1998. Interest expense associated with these converted notes was $5,950 during the year ended July 31, 1998. 7. INCOME TAXES: Income tax expense consists of the following
Year Ended July 31, ----------------------------------------------- 1998 1997 1996 ---- ---- ---- Current: Federal $ -- $ -- $ -- State ( 900) ( 900) ( 800) -------- -------- -------- ( 900) ( 900) ( 800) -------- -------- -------- Deferred: Tax benefits of net operating loss carryforward 286,000 291,000 21,000 Allowance for doubtful accounts 9,000 3,000 9,000 Change in valuation allowance ( 295,000) ( 294,000) ( 30,000) -------- -------- -------- -- -- -- --------- --------- --------- ($ 900) ($ 900) ($ 800) --------- --------- --------- --------- --------- ---------
F-12 DATAXCHANGE NETWORK, INC. NOTES TO FINANCIAL STATEMENTS YEARS ENDED JULY 31, 1998, 1997 AND 1996 THREE MONTHS ENDED OCTOBER 31, 1998 AND 1997 (UNAUDITED) 7. INCOME TAXES (CONTINUED): The difference between income tax expense as provided in the financial statements and that as determined by applying the statutory tax rate to pre-tax accounting income is as follows:
Year Ended July 31, ----------------------------------------------- 1998 1997 1996 ---- ---- ---- Benefit at federal statutory rate 34% 34% 34% State income tax benefit, net 3 3 2 Deferred tax asset valuation allowance ( 37) ( 37) ( 37) --------- --------- --------- ( --%) ( --%) ( 1%) ------------ ------------ ------------ ------------ ------------ ------------
Deferred tax assets at July 31, 1998 and 1997 consist of the following: July 31, ----------------------- 1998 1997 -------- --------- Tax benefits of net operating $598,000 $ 312,000 loss carryforward Allowance for doubtful accounts 22,000 13,000 -------- --------- $620,000 $ 325,000 Less valuation allowance (620,000) ( 325,000) -------- --------- $ -- $ -- -------- --------- -------- ---------
At July 31, 1998, the Company had a net operating loss carryforward for tax purposes of approximately $1,650,000 (expiring from 2009 through 2013) available to offset future taxable income. 8. COMMITMENTS AND CONTINGENCY: LEASE ARRANGEMENTS: The Company leases office space under non-concelable operating leases. Future minimum lease payments required under these agreements with remaining terms in excess of one year as of July 31, 1998 are as follows:
Year ending July 31, -------------------- 1999 $ 10,833 2000 3,667 ---------- $ 14,500 ---------- ----------
F-13 DATAXCHANGE NETWORK, INC. NOTES TO FINANCIAL STATEMENTS YEARS ENDED JULY 31, 1998, 1997 AND 1996 THREE MONTHS ENDED OCTOBER 31, 1998 AND 1997 (UNAUDITED) 8. COMMITMENTS AND CONTINGENCY (CONTINUED): LEASING ARRANGEMENTS (CONTINUED): Total rent expense from all operating leases was approximately $46,000, $37,000 and $11,000 during the years ending July 31, 1998, 1997 and 1996, respectively. CONTINGENT LIABILITY: The Company has an unresolved dispute with a vendor who claims the Company owes them approximately $51,000 more than the Company believes is the case. Management does not believe that the resolution of this dispute will have a material impact on the Company's financial position or results of operations. None of the disputed amount has been recorded in the accompanying financial statements. F-14 DATAXCHANGE NETWORK, INC. VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED JULY 31, 1998, 1997 AND 1996
Balance at Charged Balance beginning to cost or Deductions at end of of period expense (describe) period --------- ------- ---------- ------ Year ended July 31, 1998 Allowance for doubtful accounts $ 35,000 $ 50,500(1) ($ 27,500) $ 58,000 ----------- ------------ ---------- -------- ----------- ------------ ---------- -------- Year ended July 31, 1997 Allowance for doubtful accounts $ 28,000 $ 33,900(1) ($ 26,900) $ 35,000 ----------- ------------ ---------- -------- ----------- ------------ ---------- -------- Year ended July 31, 1996 Allowance for doubtful accounts $ 4,000 $ 46,800(1) ($ 22,800) $ 28,000 ----------- ------------ ---------- -------- ----------- ------------ ---------- --------
(1) Bad Debt write-offs F-15 SELECTED 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 and DataXchange and reflects management's present estimate of pro forma adjustments, including a preliminary estimate of purchase price allocations, which ultimately may be different. The pro forma financial data give effect to the proposed acquisition of DataXchange. 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 and other analyses, with appropriate recognition given to the effect of the Company'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 acquisition as if it 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 the Company and historical statement of operations for the year ended January 31, 1998 of DataXchange. The unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 1998 gives effect to the acquisition as if it had been consummated at January 1, 1998. This pro forma statement of operations combines the historical operations for the Company and DataXchange for the nine month period ended September 30, 1998 and for DataXchange for the nine month period ended October 31, 1998. The unaudited pro forma condensed combined balance sheet as of September 30, 1998 gives effect to the acquisition as if it had been consummated on that date. This pro forma balance sheet combines the historical consolidated balance sheet at that date for the Company and the historical balance sheet at October 31, 1998 for DataXchange. 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. F-16 Pro Forma Condensed Combined Balance Sheet As of September 30, 1998
Historical Pro Forma ---------- --------- Rocky DataXchange Subtotal Pro Forma Pro Forma Mountain Network, Inc. Adjustments(B) Combined Internet, Inc. (Dollars in Thousands) Assets Current Assets: Cash and cash equivalents $ 731 48 $ 779 $ 779 Trade receivables 880 304 1,184 1,184 Inventory 57 41 98 98 Other 174 32 206 206 --------- -------- -------- -------- Total Current Assets $ 1,842 425 $ 2,267 $ 2,267 Property and Equipment, net $ 3,020 145 $ 3,165 $ 3,165 Good will, net 4,450 4,450 5,019 (1) $ 9,469 Customer lists, net 384 384 384 Other assets, net 257 6 263 263 --------- -------- -------- -------- -------- Total Assets $ 9,953 $576 $10,529 5,019 $15,548 --------- -------- -------- -------- -------- --------- -------- -------- -------- -------- Liabilities and Stockholders' Equity Current Liabilities: Current maturities of long term $ 715 $ 298 $ 1,013 $ 1,013 debt and Capital lease obligations Accounts payable and 4,242 93 4,335 4,335 Accrued expenses Notes payable 400 400 400 Unearned income and deposits 289 202 491 491 --------- -------- -------- -------- Total Current Liabilities $ 5,646 593 $ 6,239 $ 6,239 --------- -------- -------- -------- Long-term debt and capital $ 654 $ --- $ 654 $ 654 Lease obligations --------- -------- -------- -------- Stockholders' Equity Common Stock and Additional $17,811 $ 1,890 $19,701 $(1,890)(2) $22,813 paid in capital 5,002 (1) Accumulated deficit (14,075) (1,907) (15,982) 1,907 (2) (14,075) Treasury stock, at cost Common (83) (83) (83) --------- -------- -------- -------- -------- Total Stockholders Equity $ 3,653 (17) $3,636 $5,019 $ 8,655 --------- -------- -------- -------- -------- Total liabilities & stockholders' equity $ 9,953 $ 576 $10,529 $5,019 $15,548 --------- -------- -------- -------- -------- --------- -------- -------- -------- --------
F-17 Pro Forma Condensed Combined Statement of Operations For the Nine Months Ended September 30, 1998
Historical Pro Forma - -------------------------------------------------------------------------------------------------------------------- Rocky DataXchange Mountain Network, Pro Forma Pro Forma Internet, Inc. Inc. Subtotal Adjustments(B) Combined (Amount in Thousands, Except Per Share Data) Revenue: Internet access and services $ 6,241 $ 1,586 $ 7,827 $ 721 (4) $ 8,548 Equipment Sales 266 29 295 295 -------- -------- -------- --------- -------- Total sales 6,507 1,615 8,122 721 8,843 Cost of sales 2,122 1,503 3,625 3,625 -------- -------- -------- -------- Gross Margin 4,385 112 4,497 721 5,218 -------- -------- -------- -------- Operating Expenses: Selling general and 5,950 635 6,585 641 (4) 7,226 administrative Other operating expense 4,549 4,549 715 4,549 Depreciation and 1,032 81 1,113 333 (4) 2,161 amortization -------- -------- -------- --------- -------- Total operating expenses 11,531 716 12,247 1,689 13,936 -------- -------- -------- --------- -------- Other income (expense): Interest expense, net (232) (232) (8)(4) (240) Other income (expense), net 50 2 52 (11)(4) 41 -------- -------- -------- --------- -------- (182) 2 $ 180 (19) ($ 199) -------- --------- -------- Net loss $ (7,328) ( $ 602) $ (7,930) $ (987) $ (8,917) -------- -------- --------- -------- -------- -------- --------- Basic and Diluted loss per share $ (0.99) $ (1.10) -------- -------- -------- Average number of common shares 7,402 8,128 Outstanding -------- -------- -------- --------
F-18 Pro Forma Condensed Combined Statement of Operations For the Year Ended December 31, 1997 (Unaudited)
Historical Pro Forma ---------------------------------------------- -------------------------------- Rocky DataXchange Mountain Network, Pro Forma Pro Forma Internet, Inc. Inc. Subtotal Adjustments(B) Combined -------------- -------------- -------- -------------- ---------- (Amount in Thousands, Except Per Share Data) Revenue: Internet access and services $ 5,740 $ 1,941 $ 7,681 $ 984 (5) $ 8,665 Equipment Sales 387 387 387 ------- ------- ------- ------- ------- Total sales $ 6,127 $ 1,941 $ 8,068 $ 984 $ 9,052 Cost of sales 2,060 1,960 4,020 4,020 ------- ------- ------- ------- ------- Gross Margin $ 4,067 $ (19) $ 4,048 $ 984 $ 5,032 ------- ------- ------- ------- ------- Operating expenses: Selling, general and administrative $ 6,981 $ 722 $ 7,703 $ 1,084 (5) $ 8,787 Depreciation and amortization 887 54 941 953 (3) 2,560 666 (5) ------- ------- ------- ------- ------- Total operating expenses $ 7,868 $ 776 $ 8,644 $ 2,703 $11,347 ------- ------- ------- ------- ------- Other income (expenses): Interest expense, net $ (347) $ 10 $ (337) $ (12)(5) $ (349) Other income (expense), net (5) (5) 15 (5) 10 ------- ------- ------- ------- ------- $ (352) $ 10 $ (342) $ 3 $ (339) ------- ------- ------- ------- ------- Income (loss) from operations $(4,153) $ (785) $(4,938) $(1,716) $(6,654) ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Basic and Diluted loss per share from $(0.79) $(1.09) Operations ------- ------- ------- ------- Average number of common shares 5,268 6,089 Outstanding ------- ------- ------- -------
F-19 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 September 30, 1998. The accompanying unaudited pro forma condensed combined statements of operations are presented for the nine month period ended September 30, 1998, and the year ended December 31, 1997, except for DataXchange Network, Inc. for which the nine month period ended October 31, 1998 and the year ended January 31, 1998, are presented. F-20 (B) PRO FORMA ADJUSTMENTS The following pro forma adjustments have been made to the unaudited condensed combined balance sheet as of September 30, 1998 and the unaudited condensed combined statements of operations for the nine months and year ended September 30, 1998 and December 31, 1997: (1) To reflect the 535,000 shares of RMI stock valued at $5,002,000 which is the number of shares anticipated to be issued in connection with the acquisition of DataXchange. The excess purchase price over the fair value of the net assets acquired has been allocated to goodwill. The pro forma adjustment reflects the incremental goodwill in the amount of $4,766,000. Shares of Common Stock anticipated to be issued for 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 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 list and goodwill. While the 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 acquisition. (3) To adjust amortization expense due to increase in the carrying value of goodwill, using a life of five years, as if such acquisitions had been completed as of January 1, 1997. (4) To adjust for revenues and expenses for the acquisition of Application Methods, Inc. as if such acquisition had been completed as of January 1, 1998. (5) To adjust for revenues and expenses for the acquisition of Application Methods, Inc. as if such acquisition had been completed as of January 1, 1997. F-21 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: January 7, 1999 By: /s/ Peter J. Kushar --------------- --------------------------------- Peter J. Kushar, Secretary, Treasurer, and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----