EX-99.2 3 exh99-2.txt PRO FORMA FINANCIAL INFORMATION EXHIBIT 99.2 UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS OF RAPID LINK, INCORPORATED AND TELNATIONAL COMMUNICATIONS, INC. The following unaudited pro forma condensed combined financial statements give effect to the acquisition of Telenational Communications, Inc. (Telenational) by Rapid Link, Incorporated (Rapid Link) under the purchase method of accounting. The following unaudited pro forma condensed combined balance sheet of Rapid Link and Telenational as of January 31, 2006 and March 31, 2006, respectively, is based on historical balance sheets and has been prepared to reflect the acquisition as if it had been consummated on January 31, 2006. Such pro forma information is based upon the historical consolidated balance sheet data of Rapid Link and the historical balance sheet data of Telenational as of January 31, 2006 and March 31, 2006, respectively. The following unaudited pro forma condensed combined statement of operations combines Rapid Link's historical statement of operations for the year ended October 31, 2005 with Telenational's historical statement of operations for the year ended December 31, 2005 as if the acquisition were consummated on November 1, 2004. The following unaudited pro forma condensed combined statement of operations combines Rapid Link's consolidated statement of operations for the three months ended January 31, 2006 with Telenational's statement of operations for the three months ended March 31, 2006, assuming the acquisition were consummated on November 1, 2004. Under the purchase method of accounting, the aggregate consideration paid is allocated to the tangible and identified intangible asset acquired and liabilities assumed on the basis of their fair values on the transaction date. Any excess purchase price is recorded as goodwill. These unaudited pro forma condensed combined financial statements have been prepared based on preliminary estimates of fair values. The actual amounts recorded as of the completion of the acquisition may differ materially from the information presented in these unaudited pro forma condensed combined financial statements. In addition, the impact of ongoing integration activities could cause material differences in the information presented. These unaudited pro forma condensed combined financial statements should be read in conjunction with the historical financial statements and accompanying notes of Rapid Link, as well as the sections entitled, "Management Discussion and Analysis or Plan of Operations" and "Risk Factors" included in the historical consolidated financial statements and accompanying notes of Rapid Link contained in Rapid Link's annual report on Form 10-KSB for the year ended October 31, 2005, and the unaudited consolidated condensed financial statements contained in Rapid Link's Quarterly Report on Form 10-QSB for the quarter ended January 31, 2006 incorporated by reference herein, together with the audited financial statements of Telenational for the year ended December 31, 2005 included as exhibit 99.1 herein. The unaudited pro forma condensed combined consolidated financial statements are not necessarily indicative of the consolidated results of operations or financial condition of the combined company that would have been reported had the acquisition been completed as of the dates presented, and are not necessarily representative of future consolidated results of operations or financial condition of the combined company. UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF JANUARY 31, 2006 ASSETS ------ Historical -------------------------------- Rapid Telenational * Pro Forma Link, Inc. Communications, Inc. Adjustments Pro Forma -------------------------------- ------------------------- CURRENT ASSETS Cash and cash equivalents $ 106,009 $ 563,074 $ - $ 669,083 Trade accounts receivable, net of allowance for doubtful accounts 668,049 820,252 1,488,301 Prepaid expenses and other current assets 217,737 56,592 274,329 -------------------------------- ------------------------- Total current assets 991,795 1,439,918 - 2,431,713 -------------------------------- ------------------------- PROPERTY AND EQUIPMENT, net 267,848 202,951 470,799 NON-CURRENT ACCOUNTS RECEIVABLE - 12,712 12,712 GOODWILL, net 1,796,917 - (a) 634,984 2,431,901 CUSTOMER LIST - - (b) 3,500,000 3,500,000 OTHER ASSETS, net 200,017 18,665 218,682 -------------------------------- ------------------------- TOTAL ASSETS $ 3,256,577 $ 1,674,246 $ 4,134,984 $ 9,065,807 ================================ ========================= * Telenational as of March 31, 2006 The accompanying notes are an integral part of this unaudited pro forma condensed financial statement.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF JANUARY 31, 2006 (continued) LIABILITIES AND SHAREHOLDERS' DEFICIT ------------------------------------- Historical -------------------------------- Rapid Telenational * Pro Forma Link, Inc. Communications, Inc. Adjustments Pro Forma -------------------------------- ------------------------- CURRENT LIABILITIES Capital lease obligation $ 126,196 $ - $ - $ 126,196 Trade accounts payable 3,407,804 660,527 4,068,331 Accrued liabilities 848,210 85,101 (c) 50,000 983,311 Advances from shareholder 500,000 - 500,000 Accrued interest (including $926,934 to related parties) 1,079,019 - 1,079,019 Deferred revenue 396,773 - 396,773 Contingent payment per purchase agreement - - (d) 500,000 500,000 Deposits and other payables 418,109 16,183 434,292 Due to shareholder - - (k) 237,669 237,669 Convertible debentures, current portion 1,064,981 - 1,064,981 Net current liabilities from discontinued operations 1,162,000 - 1,162,000 -------------------------------- ------------------------- Total current liabilities 9,003,092 761,811 787,669 10,552,572 -------------------------------- ------------------------- CONVERTIBLE DEBENTURES, net of current portion and net of debt discount 303,031 - 303,031 CONVERTIBLE NOTES PAYABLE TO RELATED PARTIES, net of debt discount 934,454 - 934,454 NOTE PAYABLE - - (e) 1,000,000 1,000,000 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' DEFICIT Preferred stock - - - Common stock 29,298 1 (f)(g) 19,174 48,473 Additional paid-in capital 42,858,862 999 (f)(g) 3,239,576 46,099,437 Accumulated earnings (deficit) (49,817,290) 911,435 (g) (911,435) (49,817,290) Treasury stock, 12,022 common shares at cost (54,870) - (54,870) -------------------------------- ------------------------- Total shareholders' equity (deficit) (6,984,000) 912,435 2,347,315 (3,724,250) -------------------------------- ------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $ 3,256,577 $ 1,674,246 $ 4,134,984 $ 9,065,807 ================================ ========================= * Telenational as of March 31, 2006 The accompanying notes are an integral part of this unaudited pro forma condensed financial statement.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2005 Historical -------------------------------- Rapid Telenational * Pro Forma Link, Inc. Communications, Inc. Adjustments Pro Forma -------------------------------- ------------------------- REVENUES $ 9,827,049 $10,907,141 $ - $20,734,190 COSTS AND EXPENSES Costs of revenues 7,713,349 7,159,393 14,872,742 Sales and marketing 205,973 1,235,777 1,441,750 General and administrative 3,227,609 1,980,911 5,208,520 Depreciation and amortization 557,131 56,616 (h) 700,000 1,313,747 Gain on sale of equipment (8,800) - (8,800) Gain on settlement of liabilities/legal settlement (225,000) - (225,000) -------------------------------- ------------------------- Total costs and expenses 11,470,262 10,432,697 700,000 22,602,959 -------------------------------- ------------------------- Operating income (loss) (1,643,213) 474,444 (700,000) (1,868,769) OTHER INCOME (EXPENSE) Interest expense and financing costs (651,253) - (i) (80,000) (731,253) Related party interest expense and financing costs (219,362) - - (219,362) Foreign currency exchange gains 10,486 - - 10,486 Other - 9,095 - 9,095 -------------------------------- ------------------------- Total other income (expense), net (860,129) 9,095 (80,000) (940,129) -------------------------------- ------------------------- INCOME (LOSS) FROM CONTINUING OPERATIONS $(2,503,342) $ 483,539 $ (780,000) $(2,808,898) ================================ ========================= NET INCOME (LOSS) PER SHARE: Basic and diluted net income (loss) per share Continuing operations $ (0.11) $ N/A $ (0.04) $ (0.07) ================================ ========================= WEIGHTED AVERAGE SHARES USED IN THE CALCULATION OF PER SHARE AMOUNTS: Basic and diluted 23,790,407 N/A (j) 19,175,000 42,965,407 ================================ ========================= * Telenational year ended December 31, 2005 The accompanying notes are an integral part of this unaudited pro forma condensed financial statement.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED JANUARY 31, 2006 Historical -------------------------------- Rapid Telenational * Pro Forma Link, Inc. Communications, Inc. Adjustments Pro Forma -------------------------------- ------------------------- REVENUES $ 1,986,112 $ 2,722,025 $ - $ 4,708,137 COSTS AND EXPENSES Costs of revenues 1,528,115 1,870,491 3,398,606 Sales and marketing 142,382 296,549 438,931 General and administrative 657,424 450,817 1,108,241 Depreciation and amortization 104,212 16,766 (h) 175,000 295,978 Gain on sale of equipment - - - Gain on settlement of liabilities/legal settlement - - - -------------------------------- ------------------------- Total costs and expenses 2,432,133 2,634,623 175,000 5,241,756 -------------------------------- ------------------------- Operating income (loss) (446,021) 87,402 (175,000) (533,619) OTHER INCOME (EXPENSE) Interest expense and financing costs (248,381) - (i) (20,000) (268,381) Related party interest expense and financing costs (33,057) - (33,057) Foreign currency exchange gains 22,283 - 22,283 -------------------------------- ------------------------- Total other income (expense), net (259,155) - (20,000) (279,155) -------------------------------- ------------------------- NET INCOME (LOSS) $ (705,176) $ 87,402 $ (195,000) $ (812,774) ================================ ========================= NET INCOME (LOSS) PER SHARE: Basic and diluted net income (loss) per share $ (0.02) $ N/A $ (0.01) $ (0.02) ================================ ========================= WEIGHTED AVERAGE SHARES USED IN THE CALCULATION OF PER SHARE AMOUNTS: Basic and diluted 29,285,161 - (j) 19,175,000 48,460,161 ================================ ========================= * Telenational quarter ended March 31, 2006 The accompanying notes are an integral part of this unaudited pro forma condensed financial statement.
1. Purchase price calculation The Company's original purchase agreement required an initial payment of 9,587,500 shares of stock and included a contingent payment of 9,587,500 common shares. Following the closing, the Company amended the original purchase agreement to change the contingent payment of shares to a second payment of 9,587,500 shares payable immediately. The contingent cash payment is based on certain milestones which management has determined are probable of occurring. The note payable accrues interest at 8%, and all unpaid interest and principle is due within 18 months. The acquisition costs is management's estimate of the total direct costs incurred as a result of the acquisition of Telenational. Purchase price ------------------------------------------- Shares Price per Share Value ---------- --------------- ----------- Initial common shares 9,587,500 $ 0.18 $ 1,725,750 2nd portion of common shares 9,587,500 0.16 1,534,000 Contingent cash pmt (full realization probable) 500,000 Note payable 1,000,000 Acquisition costs 50,000 ---------- ----------- Total purchase price 19,175,000 $ 4,809,750 ---------- ----------- The initial common shares were granted on May 5, 2006. The 3 day average price before and after the grant date was $0.18 per share. The second portion of common shares was granted on June 5, 2006. The closing stock price on the grant date was $0.16 per share for the second portion of common shares. 2. Purchase price allocation The Company's purchase price allocation was based on total consideration of $4,809,750. Customer list will be amortized over its estimated useful life of five years. The purchase price allocated to customer list was determined by management's estimate. Goodwill was recorded for the excess of consideration given over the fair value of assets acquired. Value ----------- Total Telenational assets acquired $ 1,362,950 Telenational liabilities assumed 688,184 ----------- Telenational equity acquired as of 4/30/06 674,766 Customer list 3,500,000 Goodwill 634,984 ----------- Total purchase price $ 4,809,750 =========== 3. Pro forma adjustments The unaudited pro forma condensed combined financial statements give effect to the transaction described in item 2.01 as if had occurred on January 31, 2006 for purposes of the pro forma condensed combined balance sheet and November 1, 2004 for the purposes of the pro forma condensed combined statements of operations for the year ended October 31, 2005 and for the first quarter ended January 31, 2006. The pro forma statements of operations do not include any restructuring charges that may arise with respect to Rapid Link as a result of the transaction described in item 2.01. Adjustments to the unaudited pro forma condensed combined financial statements as follows: (a) Adjustment to record goodwill related to the acquisition (b) Adjustment to record value associated with Telenational's customer list related to the acquisition (c) Adjustment to record accrual of costs directly related to acquisition of Telenational (d) Adjustment to reflect probable contingent cash payment to Apex Corporation (the "seller") in accordance with the purchase agreement (e) Adjustment to record 18-month, $1,000,000 note payable at 8% due to the seller in accordance with purchase agreement. (f) Adjustment to reflect fair value of common stock issued for Telenational, net of adjustments to reflect the elimination of Telenational's common stock (g) Adjustment to eliminate Telenational's equity as of March 31, 2006 (h) Adjustment to record amortization expense related to acquired customer list using the straight line method of amortization over the estimated useful life of five years (i) Adjustment to record interest expense related to the 18-month, $1,000,000 note issued at 8% interest (j) Adjustment to recognize shares issued to acquire Telenational (k) Adjustment to reflect amounts due to shareholder for the activity for the period subsequent to March 31, 2006 through the date of the initial closing of the acquisition