-----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, SsyNTVgKEqdHfumFgXijti3i62V85sdHdrjGYIEAgLmel5AkLg4FkaPs2Z4i96sK 9FOQZR3NlBi3YfwZbkBRAg== 0001047469-99-030390.txt : 19990810 0001047469-99-030390.hdr.sgml : 19990810 ACCESSION NUMBER: 0001047469-99-030390 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990809 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RMI NET INC CENTRAL INDEX KEY: 0001003282 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] IRS NUMBER: 841322326 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-28738 FILM NUMBER: 99681335 BUSINESS ADDRESS: STREET 1: 999 18TH STREET STREET 2: STE 2201 CITY: DENVER STATE: CO ZIP: 80202 BUSINESS PHONE: 3036720700 MAIL ADDRESS: STREET 1: 999 18TH STREET STREET 2: STE 2201 CITY: DENVER STATE: CO ZIP: 80202 FORMER COMPANY: FORMER CONFORMED NAME: ROCKY MOUNTAIN INTERNET INC DATE OF NAME CHANGE: 19960508 10-Q 1 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 --------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------------ ------------- Commission file number 001-12063 RMI.NET, INC. - ----------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 84-1322326 - ------------------------------------------- ------------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 999 EIGHTEENTH STREET, SUITE 2201 DENVER, COLORADO 80202 - -------------------------------------------------- -------------------------- (Address of principal executive offices) (Zip Code) (303) 672-0700 - ----------------------------------------------------------------------------- (Registrant's telephone number, including area code) Rocky Mountain Internet, Inc. - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports, and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Shares Outstanding as of August 2, 1999 - --------------------------------- ----------------------------------------- Common Stock, $0.001 par value 12,370,999 CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q and the information incorporated by reference may include "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. In particular, your attention is directed to Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation and Part II, Item 1. Legal Proceedings. We intend the disclosure in these sections and throughout the Quarterly Report on Form 10-Q to be covered by the safe harbor provisions for forward-looking statements. All statements regarding our expected financial position and operating results, our business strategy, our financing plans and the outcome of any contingencies are forward-looking statements. These statements can sometimes be identified by our use of forward-looking words such as "may," "believe," "plan," "will," "anticipate," "estimate," "expect," "intend" and other phrases of similar meaning. Known and unknown risks, uncertainties and other factors could cause the actual results to differ materially from those contemplated by the statements. The forward-looking information is based on various factors and was derived using numerous assumptions. Although we believe that the expectations expressed in these forward-looking statements are reasonable, our expectations may not turn out to be correct. Actual results could be materially different from our expectations, including the following: - we may lose subscribers or fail to grow our subscriber base; - we may not successfully integrate new subscribers or assets obtained through acquisitions; - we may fail to compete with existing and new competitors; - we may not be able to sustain our current growth; - we may not adequately respond to technological developments impacting the Internet; - we may fail to identify and correct a significant Year 2000 compliance problem and experience a major system failure; - we may fail to settle outstanding litigation; and - we may not be able to find needed financing. This list is intended to identify some of the principal factors that could cause actual results to differ materially from those described in the forward-looking statements included elsewhere in this report. These factors are not intended to represent a complete list of all risks and uncertainties inherent in our business, and should be read in conjunction with the more detailed cautionary statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 1998 under the caption "Item 1. Business - Risk Factors" and in our other SEC filings and our press releases. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS RMI.NET, INC. INDEX TO FINANCIAL STATEMENTS Page ---- Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998 1 Consolidated Statements of Operations for the Three Months Ended June 30, 1999 and 1998 2 Consolidated Statements of Operations for the Six Months Ended June 30, 1999 and 1998 3 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1999 and 1998 4 Notes to Consolidated Financial Statements 5 RMI.NET, INC. CONSOLIDATED BALANCE SHEETS ASSETS
(Unaudited) June 30, 1999 December 31, 1998 ----------------- ----------------- CURRENT ASSETS Cash and cash equivalents $ 4,422,661 $ 5,729,346 Trade receivables, net of allowance for doubtful accounts 4,686,705 1,598,479 Inventories 237,267 56,440 Other 840,272 224,629 ----------------- ----------------- Total current assets 10,186,905 7,608,894 ----------------- ----------------- PROPERTY AND EQUIPMENT, NET 8,269,918 3,540,400 GOODWILL, NET 21,636,797 13,101,814 OTHER 116,718 430,693 ----------------- ----------------- Total assets $ 40,210,338 $ 24,681,801 ----------------- ----------------- ----------------- ----------------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 4,361,130 $ 2,280,101 Current maturities of long-term debt and capital lease obligations 1,919,198 915,211 Deferred revenue 1,076,441 513,167 Accrued payroll and related taxes 408,254 302,660 Accrued expenses 2,069,934 1,611,242 ----------------- ----------------- Total current liabilities 9,834,957 5,622,381 ----------------- ----------------- LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS 3,226,550 493,963 ----------------- ----------------- Total liabilities 13,061,507 6,116,344 ----------------- ----------------- REDEEMABLE, CONVERTIBLE PREFERRED STOCK: Series B, $.001 par value; 9,600 shares authorized, 5,426 and 8,000 shares issued and outstanding (liquidation preference of $5,426,000 at June 30, 1999), respectively, net 4,594,412 6,747,843 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Common stock, $.001 par value; 100,000,000 shares authorized, 12,307,831 and 9,446,272 issued, respectively, 12,249,117 and 9,384,677 outstanding, respectively 12,308 9,384 Additional paid-in capital 47,496,637 29,257,415 Accumulated deficit (24,878,901) (17,449,185) ------------------ ------------------ 22,554,419 11,817,614 ----------------- ----------------- $ 40,210,338 $ 24,681,801 ----------------- ----------------- ----------------- -----------------
See Notes to Consolidated Financial Statements 1 RMI.NET, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended June 30 1999 1998 ------------ ------------ REVENUE Communication services $ 5,393,928 $ 1,790,433 Web solutions 994,830 371,326 ------------ ------------ 6,388,758 2,161,759 ------------ ------------ COST OF REVENUE EARNED Communication services 2,857,366 854,213 Web solutions 245,139 100,800 ------------ ------------ 3,102,505 955,013 ------------ ------------ GROSS PROFIT 3,286,253 1,206,746 General, selling, and administrative expenses 5,792,242 1,624,207 Depreciation and amortization 1,461,834 249,103 ------------ ------------ OPERATING LOSS (3,967,823) (666,564) Other income (expense) Interest expense (143,045) (66,917) Interest income 45,946 14,436 ------------ ------------ NET LOSS (4,064,922) (719,045) Preferred stock dividends 78,607 - ------------ ------------ NET LOSS APPLICABLE TO COMMON STOCKHOLDERS $ (4,143,529) $ (719,045) ------------ ------------ ------------ ------------ Basic and diluted loss per common share $ (0.39) $ (0.10) ------------ ------------ ------------ ------------ Weighted average common shares outstanding 10,608,000 6,947,000 ------------ ------------ ------------ ------------
See Notes to Consolidated Financial Statements 2 RMI.NET, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Six Months Ended June 30 1999 1998 ------------ ------------ REVENUE Communication services $ 9,800,938 $ 3,255,377 Web solutions 1,850,820 685,667 ------------ ------------ 11,651,758 3,941,044 ------------ ------------ Cost of revenue earned Communication services 5,405,253 1,358,875 Web solutions 511,269 245,140 ------------ ------------ 5,916,522 1,604,015 ------------ ------------ GROSS PROFIT 5,735,236 2,337,029 General, selling, and administrative expenses 10,222,371 3,766,662 Depreciation and amortization 2,604,937 489,075 ------------ ------------ OPERATING LOSS (7,092,072) (1,918,708) Other income (expense) Interest expense (228,484) (140,415) Interest income 68,446 25,728 ------------ ------------ NET LOSS (7,252,110) (2,033,395) Preferred stock dividends 177,607 - ------------ ------------ NET LOSS APPLICABLE TO COMMON STOCKHOLDERS $ (7,429,717) $ (2,033,395) ------------ ------------ ------------ ------------ Basic and diluted loss per common share $ (0.73) $ (0.29) ------------ ------------ ------------ ------------ Weighted average common shares outstanding 10,141,000 7,073,000 ------------ ------------ ------------ ------------
See Notes to Consolidated Financial Statements 3 RMI.NET, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30 (Unaudited) 1999 1998 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $(7,252,110) $(2,033,395) Items not requiring cash: Depreciation 822,884 290,716 Amortization 1,782,053 198,359 Stock option compensation - 383,077 Stock contribution to pension plan 42,139 39,994 Changes in operating assets and liabilities net of effects from acquired interests: Trade receivables (1,284,521) 38,489 Inventories (114,672) (14,439) Other current assets (214,234) (715) Accounts payable 1,235,346 1,046,775 Deferred revenue 343,643 (30,381) Accrued payroll and related taxes 66,362 (9,637) Accrued expenses (331,376) (29,603) ----------- ----------- Net cash used in operating activities (4,904,486) (120,760) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment (2,184,823) (276,834) Purchase of interests, net of cash acquired 33,656 - Increase in deferred acquisition costs (87,745) (248,082) ----------- ----------- Net cash used in investing activities (2,238,912) (524,916) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from exercise of common stock options and warrants 6,531,723 687,265 Purchase of treasury stock - (18,000) Payments on long-term debt and capital lease obligations (695,010) (314,813) ----------- ----------- Net cash provided by financing activities 5,836,713 354,452 ----------- ----------- DECREASE IN CASH AND CASH EQUIVALENTS (1,306,685) (291,224) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,729,346 1,053,189 ----------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,422,661 $ 761,965 ----------- ----------- ----------- -----------
See Notes to Consolidated Financial Statements 4 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. BASIS OF PRESENTATION The interim financial data are unaudited; however, in the opinion of management, the interim data include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim periods. The financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures included herein are adequate to make the information presented not misleading. COST OF REVENUE EARNED Communication Services cost of revenue earned consists of the cost of high speed data circuits and telephone lines that allow customers access to the Company's service plus Internet access fees paid by the Company to Internet backbone carriers. Cost of revenue earned for Web Solutions consist of payroll costs of employees directly related to the production of customers' web sites and outside services required for such projects. Previously, the payroll costs of these employees were included in Selling, General and Administrative expenses. RECLASSIFICATIONS Certain prior year balances have been reclassified to conform to the current year presentation. NOTE 2. NET LOSS PER SHARE The Company follows the provisions of SFAS No. 128, "Earnings Per Share." SFAS No. 128 provides for the calculation of "Basic" and "Diluted" earnings per share. Basic loss per share includes no dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted loss per share reflects the potential dilution of securities that could share in the earnings of an entity. As all of the Company's stock options and warrants are antidilutive, basic and diluted loss per share is the same for all periods presented herein. NOTE 3. ACQUISITIONS On June 25, 1999, the Company issued 48,387 shares (valued at approximately $570,000) to acquire the assets of CyberDesic Communications Corporation, Inc., an Internet service provider headquartered in Peoria, Illinois. On June 23, 1999, the Company issued 108,790 shares (valued at approximately $1.25 million) to acquire CommerceGate Corporation, an e-commerce software development and consulting services firm headquartered in Seattle, Washington. The seller is entitled to receive additional consideration, not to exceed $1,600,000, pursuant to certain earn-out conditions defined in the acquisition agreement. On June 16, 1999, the Company issued 84,010 shares (valued at approximately $980,000) to acquire Colorado Mountain Net, Inc., a web hosting and Internet service provider headquartered in Steamboat Springs, Colorado. On June 11, 1999, the Company issued 146,611 shares (valued at approximately $1.74 million) to acquire IdealDial Corporation, an enhanced full-service telecommunications provider headquartered in Denver, Colorado. On June 10, 1999, the Company issued 123,565 shares (valued at approximately $1.44 million) to acquire Internet Connect, Inc., an Internet service provider headquartered in Salt lake City, Utah. On February 5, 1999, the Company acquired substantially all of the assets of ImageWare Technologies, L.L.C., an Alabama limited liability company ("ImageWare"), and Communication Network Services, L.L.C., an Alabama limited liability company ("CNS"), pursuant to the terms of an Asset Purchase Agreement. Imageware and CNS were interrelated telecommunications services companies, which provided long-distance and local telecommunications services as well as 5 telemarketing services. The Company purchased the assets of the two related companies for approximately $565,000, payable in the form of approximately 43,000 shares of restricted Common Stock of the Company, and assumed certain liabilities of the related companies. On February 2, 1999, the Company acquired all of the outstanding common stock of the August 5th Corporation, d/b/a Dave's World, an Illinois corporation headquartered in Bloomington, Illinois ("Dave's World"), pursuant to which Dave's World merged with and into the Company. Pursuant to the terms of the Merger Agreement, the Company provided the shareholders of Dave's World, in the aggregate, approximately $3,000,000,payable in 214,286 shares of Common Stock of the Company. Substantially all the purchase prices of the acquisitions was recorded as goodwill. All of these purchases have been accounted for using the purchase method of accounting. Results of the acquired companies have been included in the Company's operations since the acquisition date. The allocation of the purchase price is preliminary, subject to further evaluation of assets and liabilities assumed. NOTE 4. SEGMENT INFORMATION The Company's management regularly evaluates the performance of the Company by reviewing operating results comprising two segments of the business. As such, the Company considers each division to be an operating segment. In making operating decisions and allocating resources, the Company's management specifically focuses on the revenues and operating costs generated by each operating segment, as summarized in the following tables. Certain shared costs of the segments have been allocated to each segment based upon its share of the consolidated revenues for the period reported.
Three Months Ended June 30 Six Months Ended June 30 (Unaudited) (Unaudited) 1999 1998 1999 1998 NET SALES Communication Services $ 5,393,928 $ 1,790,433 $ 9,800,938 $ 3,255,377 Web Solutions 994,830 371,326 1,850,820 685,667 Total Net Sales 6,388,758 2,161,759 11,651,758 3,941,044 COST OF GOODS SOLD Communication Services 2,857,366 854,213 5,405,253 1,358,875 Web Solutions 245,139 100,800 511,269 245,140 Total COGS 3,102,505 955,013 5,916,522 1,604,015 SG&A Communication Services 4,890,299 1,345,216 8,598,602 3,111,334 Web Solutions 901,943 278,991 1,623,769 655,328 Total SG&A 5,792,242 1,624,207 10,222,371 3,766,662 Operating Income (Loss) Before Depreciation and Amortization Communication Services (2,353,737) (408,996) (4,202,917) (1,214,832) Web Solutions (152,252) (8,465) (284,218) (214,801) Total Operating Income (Loss) (2,505,989) (417,461) (4,487,135) (1,429,633)
NOTE 5. COMMITMENTS AND CONTINGENCIES In June 1998, the Company announced it had entered into a merger agreement to acquire Internet Communications Corporation ("ICC"). The closing of the acquisition was subject to various closing conditions, and the merger agreement contained certain rights of termination. On October 13, 1998, the Company announced that it terminated the merger 6 agreement due to, among other things, ICC's failure to satisfy certain obligations under the merger agreement. On October 14, 1998, ICC filed a complaint against the Company in Denver District Court claiming $30 million in damages and alleging, among other things, that the Company had breached the merger agreement and had made certain misrepresentations to ICC with respect to the merger transaction. The Company has consistently stated that ICC's claims were frivolous and without merit, and vigorously defended such action and asserted counterclaims against ICC. On August 6, 1999, ICC agreed to dismiss with prejudice all claims brought in their lawsuit against the Company, and entered into a Settlement Agreement resolving all current and future claims related to the terminated merger. Under the Settlement Agreement, the Company made no payment of monies or anything of value to ICC as a result of the dismissal of all claims. As a result of the merger termination and the related financing transactions, which were not completed, the Company incurred cost, expenses and related fees between $6.1 million, a portion of which are in dispute. Of this amount, approximately $4.2 million relates to a non-cash item related to warrants issued by the Company. Of the $6.1 million expensed, $0.8 million remained accrued at June 30, 1999 related to this matter. At this time, management of the Company is unable to determine the possible outcome of this dispute. NOTE 6. COMMON STOCK TRANSACTIONS The increase in the Company's common stock issued and outstanding as of June 30, 1999 is primarily a result of: - The Company issued 226,064 shares of common upon conversion of 2,687 shares of its Series B Preferred Stock and an additional 113 shares of Series B Preferred Stock as dividends. Pursuant to the terms of the Company's Series B Preferred Stock, the conversion price was 91% of the arithmetic average of the lowest three closing bid prices during the 20 consecutive trading days immediately preceding the conversion date. - During the second quarter of 1999, the Company exercised a call option and issued 1,468,964 shares of common stock for aggregate consideration of approximately $4.5 million upon exercise of warrants issued in the Company's 1996 initial public offering. The exercise price of the warrants was $3.07 per share. - During the second quarter of 1999, the Company issued 362,285 shares of common stock upon exercise of warrants issued in the Company's 1997 private placement. The exercise price of the warrants was $2.56 per share. Proceeds from the exercise of private placement warrants, together with an additional 310,500 shares of common stock purchased by holders of the private placement warrants, totaled $1.2 million. - On June 25, 1999, the Company issued 48,387 shares (valued at approximately $570,000) to acquire the assets of CyberDesic Communications Corporation, Inc., an Internet service provider headquartered in Peoria, Illinois. - On June 23, 1999, the Company issued 108,790 shares (valued at approximately $1.25 million) to acquire CommerceGate Corporation, an e-commerce software development and consulting services firm headquartered in Seattle, Washington. 7 - On June 16, 1999, the Company issued 84,010 shares (valued at approximately $980,000) to acquire Colorado Mountain Net, Inc., a web hosting and Internet service provider headquartered in Steamboat Springs, Colorado. - On June 11, 1999, the Company issued 146,611 shares (valued at approximately $1.74 million) to acquire IdealDial Corporation, an enhanced full-service telecommunications provider headquartered in Denver, Colorado. - On June 10, 1999, the Company issued 123,565 shares (valued at approximately $1.44 million) to acquire Internet Connect, Inc., an Internet service provider headquartered in Salt lake City, Utah. NOTE 7. SUBSEQUENT EVENTS In July 1999, the Company filed its amended and restated Certificate of Incorporation with the Secretary of State of Delaware, thereby changing the Company's name from Rocky Mountain Internet, Inc. to RMI.NET, Inc. The Company's common stockholders had previously approved the name change at the 1999 Annual Meeting of Stockholders. On July 30, 1999, the Company entered into an agreement to acquire ACES Research, Inc. ("ACES"), an Arizona corporation headquartered in Tucson, Arizona. The Company agreed to pay approximately $2 million, payable in the form of 174,634 shares of common stock. ACES is an Internet service provider. On August 3, 1999, the Company entered into an agreement to acquire WebZone, a division of Triad, L.L.C. , an Oklahoma limited liability company headquartered in Tulsa, Oklahoma. The Company agreed to pay approximately $5.25 million, payable in the form of 441,175 shares of common stock. WebZone is an Internet service provider. On August 6, 1999, Internet Communications Corporation ("ICC") agreed to dismiss with prejudice all claims brought in their lawsuit against the Company based on a failed 1998 merger. ICC entered into a Settlement Agreement resolving all current and future claims related to the terminated merger. Under the Settlement Agreement, the Company made no payment of monies or anything of value to ICC as a result of the dismissal of all claims. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION The following discussion of the results of operations and financial condition of RMI.NET, Inc. (the "Company") should be read in conjunction with the Company's Consolidated Financial Statements and the Notes thereto included elsewhere in this Quarterly Report. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998 TOTAL REVENUE The Company's total revenues grew 196% from $2.16 million to $6.39 million for the three months ended June 30, 1999 from June 30, 1998. Revenue growth is primarily attributable to an increase in the number of the Company's customers as a result of more aggressive sales efforts and customers added by acquisition. The Company intensified its sales efforts in 1999 versus 1998 by increasing the size of the sales force and by segmenting the sales team by product group. COMMUNICATION SERVICES Communication Services is comprised predominately of dial-up and dedicated Internet access service. Communication Services revenues grew 201% from $1.79 million to $5.39 million for the three months ended June 30, 1999 from June 30, 1998. The increase is due to increasing demand for a wide range of bandwidth options to connect customers to the Internet and the productivity of the Company's sales department in the second half of 1998. In addition, the Company added over 22,000 dial-up customers, over 500 dedicated access customers and over 13,000 local and long distance customers due to acquisitions in the fourth quarter of 1998 and the first six months of 1999. WEB SOLUTIONS Web Solutions revenues grew 168% from $0.37 million for the three months ended June 30, 1998 to $0.99 million for the three months ended June 30, 1999. Web Solutions revenues are comprised of three major products: web site hosting, web site production and web site marketing. Web site hosting accounted for $0.15 million of revenue in the three months ended June 30, 1998 and $0.26 million in the three months ended June 30, 1999 for an increase of 82%. Web site production increased from $0.19 million in the three months ended June 30, 1998 to $0.72 million in the three months ended June 30, 1999, for an increase of 274%. The increase in web site production is primarily due to the acquisition of Application Methods in July 1998. GROSS PROFIT Gross profit consists of total revenue less the direct cost of delivering services and equipment. These costs include costs for circuit and local line charges to provide service to customers. Gross margin for the three months ended June 30, 1999 was $3.29 million, or 51% of revenue, compared to $1.21 million, or 56% of revenue for the three months ended June 30, 1998. The lower gross margin ratio was due primarily to lower margins of three recent non-ISP acquisitions. Although the Company expects the underlying cost structure for these acquisitions to be improved to restore the Company to higher margins, traditional telecom services historically generate lower gross margins than the Company's other Communication Services operations. The Company plans to transition these local and long distance telecom customers to dial-up Internet subscribers over the next two quarters, which may help restore margins to historical levels. SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES Total selling, general, and administrative expenses ("SG&A") increased from approximately $1.62 million for the three months ended June 30, 1998 to $5.71 million for the three months ended June 30, 1999, or an increase of 257%. This increase was primarily the result of higher payroll costs and benefits. Payroll and 9 benefits cost increased 247% from $0.99 million in the three months ended June 30, 1998 to $3.46 million in the three months ended June 30, 1999 as a result of increasing the Company's headcount from approximately 80 employees in June 1998 to approximately 340 employees in June 1999. DEPRECIATION AND AMORTIZATION Depreciation and amortization increased from $0.25 million for the three months ended June 30, 1998 to $1.46 million for the three months ended June 30, 1999 for an increase of 487%. The increase was due to higher goodwill amortization associated with the Company's acquisitions completed after June 30, 1998. SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998 TOTAL REVENUE The Company's total revenues grew 192% from $3.94 million to $11.65 million for the six months ended June 30, 1999 from June 30, 1998. Revenue growth is attributable to an increase in the number of the Company's customers as a result of more aggressive sales efforts and customers added by acquisition. The Company intensified its sales efforts in 1999 versus 1998 by increasing the size of the sales force and by segmenting the sales team by product group. COMMUNICATION SERVICES Communication Services is comprised predominately of dial-up and dedicated Internet access service. Communication Services revenues grew 201% from $3.26 million to $9.80 for the six months ended June 30, 1999 from June 30, 1998. The increase is due to increasing demand for a wide range of bandwidth options to connect customers to the Internet and the productivity of the Company's sales department. In addition, the Company added over 22,000 dial-up customers, over 500 dedicated access customers and over 13,000 local and long distance customers due to acquisitions in the fourth quarter of 1998 and the first six months of 1999. WEB SOLUTIONS Web Solutions revenues grew 170% from $0.69 million for the six months ended June 30, 1998 to $1.85 million for the six months ended June 30, 1999. Web Solutions revenues are comprised of three major products: web site hosting, web site production and web site marketing. Web site hosting accounted for $0.28 million of revenue in the first six months of 1998 and $0.54 million in the first six months of 1999 for an increase of 89%. Web site production increased from $0.34 million in the first six months of 1998 to $1.28 million in the first six months of 1999, for an increase of 281%. The increase in web site production is primarily due to the acquisition of Application Methods in July 1998. GROSS PROFIT Gross profit consists of total revenue less the direct cost of delivering services and equipment. These costs include costs for circuit and local line charges to provide service to customers. Gross margin for the first six months of 1999 was $5.74 million, or 49% of revenue, compared to $2.34 million, or 59% of revenue for the first six months of 1998. The lower gross margin ratio was due primarily to lower margins of three recent non-ISP acquisitions. Although the Company expects the underlying cost structure for these acquisitions to be improved to restore the Company to higher margins, traditional telecom services historically generate lower gross margins than the Company's other Communication Services operations. The Company plans to transition these local and long distance telecom customers to dial-up Internet subscribers over the next three quarters, which may help restore margins to historical levels. SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES Total selling, general, and administrative expenses ("SG&A") increased from approximately $3.77 million for the six months ended June 30, 1998 to $10.22 million for the six months ended June 30, 1999, or an increase of 171%. This increase was primarily the result of higher payroll costs and benefits. Payroll and 10 benefits cost increased 175% from $2.22 million in the first six months of 1998 to $6.1 million in the first six months of 1999 as a result of increasing the Company's headcount from approximately 80 employees in June 1998 to approximately 340 employees in June 1999. DEPRECIATION AND AMORTIZATION Depreciation and amortization increased from $0.49 million for the six months ended June 30, 1998 to $2.60 million for the six months ended June 30, 1999 for an increase of 430%. The increase was due to higher goodwill amortization that was associated with acquisitions completed after June 30, 1998. EFFECTS OF INFLATION Historically, inflation has not had a material effect on the Company. LIQUIDITY AND CAPITAL RESOURCES For the six months ended June 30, 1999, the Company's cash used in operations was $4.90 million as compared to $0.12 million for the six months ended June 30, 1998. The increase in cash used in operations primarily resulted from increased operating losses and higher working capital requirements in 1999. The Company expects to continue to have operating cash flow deficiencies for the near future as it develops and expands its business. For the six months ended June 30, 1999, the Company used $2.24 million in investing activities compared to $0.52 million for the same period in 1998. This change was primarily due to increased capital expenditures in 1999. Cash provided by financing activities increased in the six months ended June 30, 1999 compared to the same period in 1998 due to proceeds received from the exercise of warrants issued in conjunction with the Company's 1996 initial public offering. The warrants were exercised after the Company exercised its call option. Since its inception, the Company has funded its operations and working capital needs primarily through the public and private placement of the Company's equity securities. In addition, a significant portion of the Company's capital expenditures has been financed through capital lease obligations payable to finance companies. The Company has also borrowed amounts from its Chief Executive Officer in order to fund working capital requirements. The Company also issued 8,000 shares of its Series B Redeemable, Convertible Preferred Stock ("Series B Preferred Stock") through a private placement, which was completed on December 10, 1998. The Company received $8.0 million in gross proceeds from the issuance of the Series B Preferred Stock, which was sold to two institutional investors. The Series B Preferred Stock is convertible, subject to certain restrictions, into shares of the Company's common stock at a variable rate, based on a formula linked to the market price at the time of conversion. The terms of the Series B Preferred Stock also includes restrictions on conversion depending on certain market conditions, restrictions against short sales and other hedging transactions by the investors and a conversion rate which may be up to a 20% premium to the market price or a discount to the market price depending on the time of conversion. The Series B Preferred Stock may be redeemed by the Company at any time if the Company is in compliance with certain covenants at a minimum redemption price equal to 115% times the outstanding face amount plus accrued but unpaid dividends and interest. In addition, the Series B Preferred Stock may be redeemed at the option of the holders if the Company's common stock ceases to be traded on either the NASDAQ, NASDAQ Small Cap, NYSE or the AMEX stock exchanges, if the 11 Company is unable to convert the shares into common stock upon a requested conversion or if the Company is merged into another entity where the Company's voting stockholders do not collectively own greater than 51% of the merged entity. As of June 30, 1999, 2,687 shares of Series B Preferred Stock have been converted into 226,064 shares of the Company's common stock and 113 shares of Series B Preferred Stock have been issued as dividends; 5,426 shares of Series B Preferred Stock remained outstanding. From June 30, 1999 to August 2, 1999, an additional 2,687 shares of Series B Preferred Stock have been converted into 241,932 shares of the Company's common stock, leaving 2,932 shares of Series B Preferred Stock outstanding. In addition, the Company issued warrants to purchase 155,000 shares of common stock with an exercise price equal to 130% of the closing day market price, exercisable at any time over the next five years, to the purchasers of the Series B Preferred Stock and warrants to purchase 100,000 shares of common stock with an exercise price equal to 120% of the closing day market price, exercisable over the next five years, to certain brokers in connection with the transaction. The Company has agreed to register the common stock issuable upon conversion of the Series B Preferred Stock and the exercise of the warrants pursuant to registration rights agreements. During the second quarter of 1999, the Company exercised a call option and issued 1,468,964 shares of common stock for aggregate consideration of approximately $4.5 million upon exercise of 1,032,480 warrants issued in the Company's 1996 initial public offering. In addition, the Company issued 362,285 shares of common stock upon exercise of warrants issued in the Company's 1997 private placement. The exercise price of the warrants was $2.56 per share. Proceeds from the exercise of private placement warrants, together with an additional 310,500 shares of common stock purchased by holders of the private placement warrants, totaled $1.2 million. The Company has cash and cash equivalents of $4.4 million as of June 30, 1999. Management estimates that, based upon its current expectations for growth, the Company will require additional funding of up to $6 million through the end of 1999 for the execution of its current business plan including the financing of its anticipated capital expenditures and operating losses. In addition to increasing cash flow from operations, the Company intends to obtain this funding from one or more of the following sources: (1) a commitment, subject to certain conditions, from one of the institutional investors who purchased the Series B Preferred Stock in December 1998 to purchase an additional $5 million of preferred stock with the same terms as the Series B Preferred Stock, (2) the exercise of warrants held by the Company's Chief Executive Officer, and (3) establishing a credit facility to finance equipment purchased and other capital expenditures for $5.0 million. Management believes its current operating funds, along with these additional financing sources, will be sufficient to fund its cash requirements for at least the next 12 months. The Company issued warrants to its Chief Executive Officer to purchase 4,000,000 shares of the Company's common stock at an exercise price of $1.90 per share, subject to adjustment, in October 1997. These warrants are scheduled to expire on September 22, 1999 unless extended. The Chief Executive Officer exercised a portion of these warrants in March 1998 to purchase 50,000 shares of the Company's common stock and in January 1999 to purchase 25,000 shares of the Company's common stock. The sale of additional equity or convertible debt securities could result in additional dilution to the Company's stockholders. In addition, the Company will, from time to time, consider the acquisition of or investment in complementary businesses, products, services, and technologies, and the repurchase and retirement of debt, which might impact the Company's liquidity requirements or cause the Company to issue additional equity or debt securities. There can be no assurance that financing will be available in amounts or on terms acceptable to the Company, if at all. Should the Company be unsuccessful in its efforts to raise capital it may be required to modify or curtail its plans for growth. YEAR 2000 ISSUES RMI.NET is preparing its systems and applications for the Year 2000 (Y2K). Various problems may result from the improper processing of dates and date-sensitive calculations by computers and other machinery as the year 2000 is approached and reached. These problems arise from the fact that most of the world's computer hardware and software have historically used only two digits to identify 12 the year in a date. If the computer systems cannot distinguish between the year 1900 and 2000, system failures or other computer errors could result. STATE OF READINESS The Company has established a Y2K Committee to coordinate appropriate activity and a reporting structure to the Board of Directors on a monthly basis with regard to the Year 2000 issue. This committee has outlined a comprehensive plan and is currently implementing the tasks associated for the Company to become Y2K ready. Preliminary indications are that, since RMI.NET is a relatively new Company (founded in 1993), most hardware and software systems, as well as software programs used by the Company, will not be impacted by the Year 2000 issues. All of the Company's MIS user equipment is based on Microsoft Windows 95, 98, or NT. Microsoft has issued or is issuing patches that will make this software compliant by year-end. Internal MIS systems that handle accounting and customer care are being replaced due to growth needs. All future software that will be purchased will be Y2K compliant. All internally written software is currently being checked to ensure Y2K compliance and will be completed no later than October 1999. Users have been briefed on the necessity for them to check any special, non-mission critical software that they have purchased for their departments to ensure that it is Y2K compliant. The Company has inventoried the externally purchased network elements including routers, router software, router redundancy options, processor cards, and switches. The Company has verified 100% completion of testing, in cooperation with the external vendors, that the products associated with the network elements are Y2K compliant. After testing and certification, the Company learned that over 90% of the network elements passed the Y2K compliance test. Of the elements that failed, and therefore were not Y2K compliant, the Company has upgraded the majority of equipment and software to be Year 2000 compliant. The remaining items will be replaced no later than October 1999. RMI.NET has acquired 15 companies since June 1998. The Company is currently working very closely with each company to determine their state of readiness. Overall, the companies are approximately 85% Y2K compliant from a hardware and software perspective. The Company believes that the remaining 15% non-compliance is a result primarily of not yet being able to complete testing of those components. With respect to communications from external third parties requesting that the Company provide verification of Y2K compliance on the Company's goods and services, the Company has sent formal response letters for all requests received prior to June 30, 1999. With respect to communications with external third party vendors that provide additional goods and services to the Company, the Company expects to complete its issuance of requests to all those parties to provide verification of Y2K compliance on their goods and services no later than August 15, 1999. Subsequent testing will indicate what modifications or replacements will be necessary for the Company to be internally Year 2000 ready. The Company is continuing to evaluate the financial impact for Y2K compliance and expects that total costs will not exceed $150,000 to $200,000. The estimates for the costs of the Year 2000 Program are based upon management's best estimates and may be updated or revised as additional information becomes available. The Company has incurred approximately $20,000 thus far on administrative costs in connection with assessing the Year 2000 issues. Due to the Company's headquarters and data center move during the first quarter of 1999, the Company estimates no more than $50,000 was spent for the data center move and to ensure non-Y2K compliant equipment was replaced with equipment that met Y2K standards. The Company is assessing whether or not they will hire an external consultant to assess the state of readiness of all systems, which could be affected by the Year 2000 issue. The Company believes such costs will not have a material effect on the Company's financial condition, liquidity or results of operation. 13 RISK ASSESSMENT The failure by the Company to correct a material Year 2000 problem could result in an interruption in, or a failure of, certain normal business activities or operations. Presently, however, the Company perceives that its most likely worst case scenario related to the Year 2000 is associated with potential concerns with third party services or products. The Company is dependent on a significant number of third party vendors to provide network services and equipment. A significant Year 2000-related disruption of the network services or equipment provided to the Company by third party vendors could cause customers to consider seeking alternate providers or cause an unmanageable burden on customer service and technical support, which in turn could materially and adversely affect the Company's results of operations, liquidity and financial condition. Although the Company believes that internal Y2K compliance will be achieved by December 31, 1999, there can be no assurance that the Y2K problem will not have a material adverse affect on the Company's business, financial condition and results of operations as a result of third party failures. CONTINGENCY PLANS Due to the current phase of the Company's Year 2000 analysis, the Company is currently unable to fully assess its risk and determine what contingency plans, if any, need to be implemented by the Company. The Company's primary concern, at this point, is with its third party communications providers. These service providers are conducting their own assessments of their Year 2000 readiness. The Company expects that these third party vendors will be Year 2000 ready. However, any failure by third party vendors to resolve Year 2000 issues on a timely basis or in a manner that is compatible with the Company's systems could have a material adverse effect on the Company. Preliminary indications are, however, that the Company's third-party providers are, or will be, Year 2000 compliant. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company does not have any derivative financial instruments as of June 30, 1999. The Company's interest income and expense are sensitive to changes in the general level of interest rates. In this regard, changes in interest rates can affect the interest earned on the Company's cash equivalents. The Company's long-term debt has fixed interest rates and the fair value of these instruments is affected by changes in market interest rates. To mitigate the impact of fluctuations in interest rates, the Company generally enters into fixed rate investing and borrowing arrangements. As a result, the Company believes that the market risk arising from holding of its financial instruments is not material. 14 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In June 1998, the Company announced it had entered into a merger agreement to acquire Internet Communications Corporation ("ICC"). The closing of the acquisition was subject to various closing conditions, and the merger agreement contained certain rights of termination. On October 13, 1998, the Company announced that it terminated the merger agreement due to, among other things, ICC's failure to satisfy certain obligations under the merger agreement. On October 14, 1998, ICC filed a complaint against the Company in Denver District Court claiming $30 million in damages and alleging, among other things, that the Company had breached the merger agreement and had made certain misrepresentations to ICC with respect to the merger transaction. The Company has consistently stated that ICC's claims were frivolous and without merit, and vigorously defended such action and asserted counterclaims against ICC. On August 6, 1999, ICC agreed to dismiss with prejudice all claims brought in their lawsuit against the Company, and entered into a Settlement Agreement resolving all current and future claims related to the terminated merger. Under the Settlement Agreement, the Company made no payment of monies or anything of value to ICC as a result of the dismissal of all claims. As a result of the merger termination and the related financing transactions, which were not completed, the Company incurred cost, expenses and related fees between $6.1 million, a portion of which are in dispute. Of this amount, approximately $4.2 million relates to a non-cash item related to warrants issued by the Company. Of the $6.1 million expensed, $0.8 million remained accrued at June 30, 1999 related to this matter. At this time, management of the Company is unable to determine the possible outcome of this dispute. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS During the three months ended June 30, 1999, the Company issued and/or sold the following unregistered securities: - The Company issued 226,064 shares of common upon conversion of 2,687 shares of its Series B Preferred Stock and an additional 113 shares of Series B Preferred Stock as dividends. Pursuant to the terms of the Company's Series B Preferred Stock, the conversion price was 91% of the arithmetic average of the lowest three closing bid prices during the 20 consecutive trading days immediately preceding the conversion date. 15 - During the second quarter of 1999, the Company exercised a call option and issued 1,468,964 shares of common stock for aggregate consideration of approximately $4.5 million upon exercise of warrants issued in the Company's 1996 initial public offering. The exercise price of the warrants, as adjusted for dilution, was $3.07 per share. - During the second quarter of 1999, the Company issued 362,285 shares of common stock upon exercise of warrants issued in the Company's 1997 private placement. The exercise price of the warrants, as adjusted for dilution, was $2.56 per share. Proceeds from the exercise of private placement warrants, together with an additional 310,500 shares of common stock purchased by holders of the private placement warrants, totaled $1.2 million. - On June 28, 1999, the Company issued 48,387 shares (valued at approximately $570,000) to acquire the assets of CyberDesic Communications Corporation, Inc., an Internet service provider headquartered in Peoria, Illinois. - On June 23, 1999, the Company issued 108,790 shares (valued at approximately $1.25 million) to acquire CommerceGate Corporation, an e-commerce software development and consulting services firm headquartered in Seattle, Washington. - On June 16, 1999, the Company issued 84,010 shares (valued at approximately $980,000) to acquire Colorado Mountain Net, Inc., a web hosting and Internet service provider headquartered in Steamboat Springs, Colorado. - On June 11, 1999, the Company issued 146,611 shares (valued at approximately $1.74 million) to acquire IdealDial Corporation, an enhanced full-service telecommunications provider headquartered in Denver, Colorado. - On June 10, 1999, the Company issued 123,565 shares (valued at approximately $1.44 million) to acquire Internet Connect, Inc., an Internet service provider headquartered in Salt lake City, Utah. Each of the above transactions was exempt from registration under Section 4(2) or Section 3(a)(9) of the Securities Act of 1933. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The following matters were submitted to a vote of security holders at the 1999 annual Meeting of Stockholders held on June 24, 1999: 1. Election of five directors to the Board of Directors of the Company for a one-year term. The following votes were cast in the election of directors:
Director For Withhold Authority ---------------------- ------------------- ----------------------- Douglas H. Hanson 8,015,124 22,201 D. D. Hock 8,011,636 25,689 Robert W. Grabowski 8,013,661 23,664 Lewis H. Silverberg 8,010,941 26,384 Mary Beth Vitale 8,014,174 23,151
2. Proposed amendment to Article 1 of the Company's Amended and Restated Certificate of Incorporation to change the name of the Company from Rocky Mountain Internet, Inc. to "RMI.NET, Inc." There were 8,013,414 votes cast for approval of the amendment, 17,707 votes cast against approval of the amendment and 6,204 abstentions. 3. Proposed amendment to Article 4 of the Company's Amended and Restated Certificate of Incorporation to increase the number of authorized shares of the Company's common stock, as described in the proxy statement dated May 28, 1999. There were 7,551,509 votes cast for approval of the amendment, 463,370 votes cast against approval of the amendment and 22,446 abstentions. 16 4. Proposed amendment to the Company's 1998 Employees' Option Plan, as amended, to increase the number of shares of common stock that the Company may issue thereunder, as described in the proxy statement dated May 28, 1999. There were 3,648,454 votes cast for approval of the amendment, 141,328 votes cast against approval of the amendment and 31,420 abstentions. 5. Proposed ratification of issuance of all shares of common stock that the Company would be entitled to issue upon conversion of the Company's Convertible Series B Preferred Stock, as described in the proxy statement dated May 28, 1999. There were 3,543,354 votes cast for ratification, 259,291 votes cast against ratification and 18,557 abstentions. 6. Proposed ratification of the appointment of Ernst & Young LLP as the independent auditors of the Company for the fiscal year ending December 31, 1999. There were 8,021,129 votes cast for ratification, 11,965 votes cast against ratification and 4,231 abstentions. ITEM 5. OTHER EVENTS In July 1999, the Company filed its amended and restated Articles of Incorporation with the Secretary of State of Delaware, thereby changing the Company's name from Rocky Mountain Internet, Inc. to RMI.NET, Inc. The Registrant's common stockholders had previously approved the name change at the 1999 Annual Meeting of Stockholders, as discussed under "Item 4. Submission of Matters to a Vote of Security Holders." On July 30, 1999, the Company entered into an agreement to acquire ACES Research, Inc. ("ACES"), an Arizona corporation headquartered in Tucson, Arizona. The Company agreed to pay approximately $2 million, payable in the form of 174,634 shares of common stock. The consideration that the Company agreed to pay ACES was determined through arm's length negotiation. There was no material relationship between the Company and ACES prior to the acquisition. ACES is an Internet service provider. The Company intends to utilize the assets acquired from ACES in the same manner that ACES utilized the assets. On August 3, 1999, the Company entered into an agreement to acquire WebZone a division of Triad, L.L.C., an Oklahoma limited liability company headquartered in Tulsa, Oklahoma. The Company agreed to pay approximately $5.25 million, payable in the form of 441,175 shares of common stock. The consideration that the Company agreed to pay WebZone was determined through arm's length negotiation. There was no material relationship between the Company and WebZone prior to the acquisition. WebZone is an Internet service provider. The Company intends to utilize the assets acquired from WebZone in the same manner that WebZone utilized the assets. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (b) Exhibits.
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT ------------- -------------------------------------------------- 3.1 Amended and Restated Articles of Incorporation. 27.1 Financial Data Schedule.
(b) Reports on Form 8-K. 1) On June 28, 1999, the Company filed a Current Report on Form 8-K to report the Company's acquisitions of IdealDial Corporation, a Colorado corporation, and Internet Connect, Inc., a Utah corporation. 17 2) On April 19, 1999, the Company filed a Current Report on Form 8-K to report the Company's acquisition of August 5th Corporation, d/b/a Dave's World, an Illinois corporation. Pursuant to Item 7 of Form 8-K, the Form 8-K contained financial information concerning the Dave's World acquisition. 18 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: August 9, 1999. RMI.NET, INC. a Delaware corporation By: /s/ Douglas H. Hanson ----------------------------------------------- Name: Douglas H. Hanson Title: Chairman of the Board, Chief Executive Officer and Director (PRINCIPAL EXECUTIVE OFFICER) By: /s/ Michael D. Dingman, Jr. ----------------------------------------------- Name: Michael D. Dingman, Jr. Title: Treasurer (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER) EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT ------------- -------------------------------------------------- 3.1 Amended and Restated Articles of Incorporation. 27.1 Financial Data Schedule.
19 EX-3.1 2 EXHIBIT 3.1 Exhibit 3.1 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF ROCKY MOUNTAIN INTERNET, INC. It is hereby certified that: 1. The present name of the corporation (hereinafter called the "corporation") is ROCKY MOUNTAIN INTERNET, INC., which is the name under which the corporation was originally incorporated; and the date of filing the original certificate of incorporation of the corporation with the Secretary of State of Delaware is October 16, 1995. 2. The Amended and Restated Certificate of Incorporation restates and ingrates and further amends the Certificate of this Corporation as more particularly set forth in EXHIBIT A. 3. The text of the Certificate of Incorporation as amended or supplemented heretofore is restated as more particularly set forth on EXHIBIT A. 4. The amendments and the restatement of the certificate of incorporation herein certified have been duly adopted by the stockholders in accordance with the provisions of Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware 5. The Amended and Restated Certificate of Incorporation shall be effective on the 1st day of July, 1999. EXHIBIT A AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF RMI.NET, INC. ARTICLE 1 The name of the corporation is RMI.NET, INC. ARTICLE 2 The address of the corporation's registered office in the State of Delaware is 1013 Centre Road, Wilmington, Delaware 19805-1297. The name of its registered agent at such address is The Prentice-Hall Corporation System, Inc. ARTICLE 3 The purposes for which this corporation is organized are to engage in any business and in any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law and to possess and employ all powers and privileges now or hereafter granted or available under the laws of the State of Delaware to such corporations. ARTICLE 4 (a) AUTHORIZED SHARES. The aggregate number of shares which the corporation has authority to issue 100,750,000. The authorized shares consisting of 100,000,000 shares of Common Stock with a par value of $.0001 per share ("Common Stock"), and 750,000 shares of Preferred Stock with a par value of $.0001 per share ("Preferred Stock"). (b) COMMON STOCK. The common stock shall have unlimited voting rights, subject to the voting rights of any shares of preferred stock. The common stock shall be entitled to receive the net assets of the corporation upon dissolution, subject to the rights of any shares of preferred stock to receive distributions upon dissolution. The affirmative vote of a majority of all outstanding shares of the corporation's common stock shall be required for the stockholders to act. (c) PREFERRED STOCK: Prior to the issuance of any shares of preferred stock, the board of directors shall amend these Articles to prescribe the preferences, limitations and relative rights of such shares. For that purpose, the board of directors may divide the preferred stock into series, each having a distinguishing designation, with such preferences, limitations and relative rights as the board of directors may prescribe. The board of directors shall have complete discretion in prescribing the preferences, limitations and relative rights of the preferred stock or any series thereof, subject only to the restriction, if any, imposed by Delaware law. ARTICLE 5 The name and mailing address of the incorporator: Stephen S. Halasz 633 17th Street, Suite 3000 Denver, Colorado 80202 ARTICLE 6 The powers of the incorporator shall terminate upon filing this certificate of incorporation in the office of the Secretary of State of the State of Delaware. The names and mailing addresses of the persons who are to serve as the directors of corporation until their successors are elected and qualified or their earlier resignation or removal is: NAME MAILING ADDRESS Jim D. Welch 2860 South Circle Drive, Suite 2202 Colorado Springs, Colorado 80902 Christopher K. Phillips 2860 South Circle Drive, Suite 2202 Colorado Springs, Colorado 80902 Roy Dimoff 2860 South Circle Drive, Suite 2202 Colorado Springs, Colorado 80902 The number of directors of the corporation shall be fixed from time to time in the manner provided in the bylaws and may be increased or decreased from time to time in the manner provided in the bylaws. Election of directors need not be by written ballot except and to the extent provided in the bylaws of the corporation. The affirmative vote of a majority of all directors constituting the board of directors shall be required for the board of directors to act. ARTICLE 7 The board of directors of the corporation is expressly authorized to make, alter or repeal the bylaws of the corporation, but such authorization shall not divest the stockholders of the power, nor limit their power, to adopt, amend or repeal bylaws. ARTICLE 8 No director of the corporation shall be personally liable to the corporation or its stock holders for monetary damages for breach of fiduciary duty as a director, except as to liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) for violations of Section 174 of the Delaware General Corporation Law or (iv) for any transaction from which the director derived any improper personal benefit. If the Delaware General Corporation Law hereafter is amended to eliminate or limit further the liability of a director, then, in addition to the elimination and limitation of liability provided by the preceding sentence, the liability of each director shall be eliminated or limited to the fullest extent provided or permitted by the amended Delaware General Corporation Law. Any repeal or modification of this Article 8 shall not adversely affect any right or protection of a director under this Article 8 as in effect immediately prior to such repeal or modification with respect to any liability that would have accrued, but for this Article 8, prior to such repeal or modification. ARTICLE 9 The corporation shall have authority, to the fullest extent now or hereafter permitted by the Delaware General Corporation Law, or by any other applicable law, to enter into any contract or transaction with one or more of its directors or officers, or with any corporation, partnership, joint venture, trust, association or other entity in which one or more of its directors or officers are directors or officers or have a financial interest, notwithstanding such relationships and notwithstanding the fact that the director or officer is present at or participates in the meeting of the board of directors or committee thereof which authorizes the contract or transaction. IN WITNESS WHEREOF, Rocky Mountain Internet, Inc. has caused this Amended and Restated Certificate of Incorporation to be signed and acknowledged by its Chief Executive Officer and Chairman of the Board and attested by its Secretary on this 30th day of June, 1999. ROCKY MOUNTAIN INTERNET, INC. a Delaware corporation By: /s/ Douglas H. Hanson --------------------------------------- Name: Douglas H. Hanson Its: Chief Executive Officer and Chairman of the Board ATTEST: By: /s/ Christopher J. Melcher ---------------------------------- Christopher J. Melcher, Secretary EX-27.1 3 EXHIBIT 27.1
5 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 4,422,661 0 5,409,705 723,000 237,267 10,186,905 11,035,934 2,766,016 40,210,338 9,834,957 0 4,594,412 0 12,308 22,542,111 40,210,338 0 11,651,758 0 5,916,522 12,214,891 612,417 228,484 (7,252,110) 0 (7,252,110) 0 0 0 (7,429,717) (0.73) (0.73)
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