<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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
---------
ROCKY MOUNTAIN INTERNET, INC
----------------------------------------------------
Exact name of Registrant as specified in its charter
Delaware 84-1322326
- -------- ---------------
State or other jurisdiction of IRS Employer
incorporation or organization Identification
1099 18th Street, Suite 3000 DENVER COLORADO 80202
- --------------------------------------------- ---------------
Address of principal executive offices Zip Code
Registrant's telephone number, including area code: 303-672-0700
------------
Former name, former address and former fiscal year, if changed since last
report: NA
Indicate by check mark whether the Registrant (1) has filed all annual,
quarterly and other 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 periods 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
As of April 15, 1998, Rocky Mountain Internet, Inc. had 7,311,761 shares of
common stock, $.001 par value, outstanding.
Transitional Small Business Disclosure Format (check one) Yes [ ]No [X]
Page 1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ROCKY MOUNTAIN INTERNET, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
(Note) (Unaudited)
<S> <C> <C>
Current assets
Cash and Cash equivalents $ 1,053,189 $ 1,152,420
Trade receivables, less allowance for doubtful
accounts 12/31/1997 - $176,000; 3/31/1998 - $226,857 672,094 616,814
Inventories 46,945 67,019
Other 112,891 153,436
------------ ------------
$ 1,885,119 $ 1,989,689
Property and equipment
Equipment 2,927,016 3,114,444
Computer software 218,801 221,319
Leasehold Improvements 190,235 190,235
Furniture, fixtures, and office equipment 431,814 444,575
------------ ------------
$ 3,767,866 $ 3,970,573
Less accumulated depreciation and amortization 1,118,217 1,329,005
------------ ------------
$ 2,649,649 $ 2,641,568
Other assets
Customer Lists 471,096 441,912
Investments - 3,000
Deposits 76,255 76,255
------------ ------------
$ 547,351 $ 521,167
------------ ------------
$ 5,082,119 $ 5,152,424
------------ ------------
------------ ------------
</TABLE>
Note: The Consolidated Balance Sheet information as of December 31, 1997 has
been derived from the Company's audited financial statements appearing in Form
10-KSB previously filed with the U.S. Securities and Exchange Commission.
See Notes to Consolidated Financial Statements
Page 2
<PAGE>
ROCKY MOUNTAIN INTERNET, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, March 31
1997 1998
(Note) (Unaudited)
<S> <C> <C>
Current liabilities
Current maturities of long-term debt and
obligations under capital leases $ 609,390 $ 646,148
Accounts payable 581,366 1,288,372
Deferred revenue 345,857 340,149
Accrued payroll and related taxes 182,569 193,162
Other accrued expense 374,940 243,688
------------ ------------
Total current liabilities $ 2,094,122 $ 2,711,519
------------ ------------
Long-term debt and obligations under capital
leases, less current maturities $ 904,627 $ 784,451
------------ ------------
Stockholders equity
Preferred stock, $.001 par value; authorized
12/31/97 - 790,000, 3/31/1998 - 750,000 shares;
issued and outstanding 12/31/97, 40,000 shares
and 3/31/1998, 0 shares $ 40 $ -
Common stock, $.001 par value; authorized
12/31/97 - 10,000,000 shares, 3/31/1998 -
25,000,000 shares; issued 1997 - 6,736,889
shares; 3/31/1998 - 7,286,275 shares; and
outstanding 1997 - 6,667,846 shares,
3/31/1998 - 7,218,281 shares. 6,737 7,286
Additional paid-in capital 9,284,720 9,799,715
Accumulated deficit (6,747,050) (8,061,398)
Unearned Compensation (383,077)
------------ ------------
$ 2,161,370 $ 1,745,603
Treasury stock, at cost
Common; 1997 - 59,043 shares,
3/31/1998 - 67,474 (78,000) (89,149)
------------ ------------
Total Stockholders' Equity $ 2,083,370 $ 1,656,454
------------ ------------
$ 5,082,119 $ 5,152,424
------------ ------------
------------ ------------
</TABLE>
See Notes to Consolidated Financial Statements
Page 3
<PAGE>
ROCKY MOUNTAIN INTERNET, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1998
<S> <C> <C>
Revenue
Internet access and services $ 1,314,039 $ 1,713,316
Equipment sales 83,244 65,969
------------ ------------
$ 1,397,283 $ 1,779,285
------------ ------------
Cost of revenue earned
Internet access and services $ 437,111 $ 601,130
Equipment sales 63,865 50,956
------------ ------------
$ 500,976 $ 652,086
------------ ------------
Gross Profit $ 896,307 $ 1,127,199
Selling, general and administrative expenses 1,708,306 2,454,330
Other operating expenses (74,987)
------------ ------------
Operating (loss) income $ (811,999) $ (1,252,144)
Other income (expense)
Interest income 12,849 18,620
Interest expense (85,002) (80,826)
Other expense (5,485)
------------ ------------
$ (77,638) $ (62,206)
------------ ------------
Net (loss) income before income taxes $ (889,637) $ (1,314,350)
Income tax expense - -
------------ ------------
Net (loss) income $ (889,637) $ (1,314,350)
------------ ------------
Preferred Stock Dividends $ 25,000 $ -
Net loss applicable to common shareholders $ (914,637) $ (1,314,350)
------------ ------------
------------ ------------
Basic and diluted loss per share
Net loss per share $ (0.19) $ (0.19)
------------ ------------
------------ ------------
</TABLE>
See Notes to Consolidated Financial Statements
Page 4
<PAGE>
ROCKY MOUNTAIN INTERNET, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (889,637) $ (1,314,350)
Items not requiring (providing) cash:
Depreciation and amortization 175,011 239,973
Stock option compensation 383,077
Common stock contributed to pension plan 17,664
Changes in assets and liabilities:
Trade receivables (102,740) 55,281
Inventories (25,861) (20,074)
Other current assets 101,005 (41,965)
Accounts payable 433,195 707,007
Deferred revenue 38,938 (5,708)
Accrued payroll and related taxes (335,304) 10,593
Other accrued expenses (209,820) (138,097)
----------- ------------
Net cash provided by (used in) operating
activities $ (815,215) $ (106,599)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from investments $ 779,711 $ -
Acquisition of ONE, Inc. assets (125,300) -
Purchase of property and equipment (166,461) (129,268)
Investments (3,000)
(Increase) decrease in deposits (14,490) -
----------- ------------
Net cash provided by (used in)
investing activities $ 473,460 $ (132,268)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock $ - $ 511,115
Proceeds from notes payable $ 495,000 -
Proceeds from long-term debt 248,300 -
Purchase of treasury stock (12,000) (18,000)
Payment of Preferred Stock Dividend (12,500)
Payments on long-term debt and obligations
under capital leases (199,733) (155,017)
----------- ------------
Net cash provided by (used in)
financing activities $ 519,067 $ 338,098
----------- ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 177,313 $ 99,231
CASH AND CASH EQUIVALENTS
Beginning 348,978 1,053,189
----------- ------------
Ending $ 526,290 $ 1,152,420
----------- ------------
----------- ------------
</TABLE>
See Notes to Consolidated Financial Statements
Page 5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 REPRESENTATION OF MANAGEMENT
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.
Note 2 EARNINGS PER SHARE
The Earnings per Share calculation is based on average shares outstanding of
6,816,394 for the quarter ending March 31, 1998. These calculations assume all
shares issued prior to the Company's initial public offering in September 1996,
were outstanding during all periods presented, including shares issueable under
debenture and preferred stock conversions, and shares relating to stock options,
calculated using the treasury stock approach. All stock options and warrants
issued during or subsequent to the Company's initial public offering are
excluded from the computation of diluted earnings per share as they would have
an antidilutive effect on earnings per share.
NOTE 3 INCREASE IN AUTHORIZED SHARES
The first stockholders' meeting was held on March 12, 1998. At this time the
stockholders approved an amendment to the Company's Certificate of Incorporation
to increase the number of authorized shares of the Company's common stock from
10,000,000 to 25,000,000.
NOTE 4 1998 EMPLOYEES' STOCK OPTION PLAN
On March 12, 1998, the stockholders approved an employee incentive stock option
plan. This plan reserves 266,544 shares of Common Stock for issuance over the
ten-year term of the plan.
NOTE 5 APPROVAL OF 401K PLAN
The Board of Directors has approved a 401(k) Savings and Retirement Plan that
will cover substantially all employees effective January 16, 1998. The
Company's contributions to the Plan will be determined annually by the Board of
Directors.
Page 6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Certain information contained in this Form 10-QSB, including "Management's
Discussion and Analysis of Financial Condition and Results of Operations" ,
contain forward-looking statements. The forward-looking statements herein are
based on current expectations that involve a number of risks and uncertainties.
Such forward-looking statements are based on assumptions that the Company will
continue to design, market and provide successful new services, that competitive
conditions will not change materially, that demand for the Company's services
will continue to grow, that the Company will retain and add qualified personnel,
that the Company's forecasts will accurately anticipate revenue growth and the
costs of producing that growth, and that there will be no material adverse
change in the Company's business. In light of the significant uncertainties
inherent in the forward-looking information included in this Form 10-QSB, actual
results could differ materially from the forward-looking information contained
in this Form 10-QSB.
Year 2000 Risks. Currently, many computer systems, hardware, and software
products are coded to accept only two digit entries in the date code field and,
consequently, cannot distinguish 21st century dates from 20th century dates. As
a result, many companies' software and computer systems may need to be upgraded
or replaced in order to comply with such "Year 2000" requirements. The Company
and third parties with which the Company does business rely on numerous computer
programs in their day to day operations. The Company has begun the process of
identifying computer systems that could be affected by the Year 2000 issue but
has not estimated the costs of addressing the Year 2000 issue as it relates to
Company's internal hardware and software, as well as third party computer
systems with which the Company interacts. In the event that the Company
acquires other assets or businesses, the software and hardware acquired by the
Company in connection with those business combinations may also be Year 2000
non-compliant. There can be no assurance that the Year 2000 issues will be
resolved in 1998 or 1999. The Company may incur significant costs in resolving
its Year 2000 issues. If not resolved, this issue could have a significant
adverse impact on the Company's business, operating results, financial
condition, and cash flow.
The Company's common stock is traded on the Nasdaq SmallCap Market. The
Directors of The Nasdaq Stock Market, Inc. changed Nasdaq Listing Requirements.
A minimum maintenance standard of two million dollars in net tangible assets is
included in the new listing requirements. As of March 31, 1998, the Company's
net tangible assets are approximately $785,000 below the $2,000,000 minimum
requirement for listing. On May 15, 1998, Mr. Douglas H. Hanson exercised
421,053 warrants (each warrant was exercised at a price of $1.90 for one share
of common stock) resulting in a total infusion of equity of $800,000. Listed
below is the proforma balance sheets reflecting the effect of the infusion of
the equity based on the March 31, 1998 balance sheet, assuming the transaction
occurred as of that date. The proforma balance sheet is not indicative of the
financial position of the Company as of March 31, 1998.
Page 7
<PAGE>
ROCKY MOUNTAIN INTERNET, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
March 31 Investment Proforma
1998 May 15,1998 May 15,1998
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Current assets
Cash and Cash equivalents $ 1,152,420 $ 800,000 $ 1,952,420
Trade receivables, less allowance for doubtful
accounts; 3/31/1998 - $226,857 616,814 616,814
Inventories 67,019 67,019
Other 153,436 153,436
------------ ------------ ------------
$ 1,989,689 $ 800,000 $ 2,789,689
Property and equipment
Equipment 3,114,444 3,114,444
Computer software 221,319 221,319
Leasehold Improvements 190,235 190,235
Furniture, fixtures, and office equipment 444,575 $ 444,575
------------ ------------ ------------
$ 3,970,573 $ - $ 3,970,573
Less accumulated depreciation and amortization 1,329,005 1,329,005
------------ ------------ ------------
$ 2,641,568 $ - $ 2,641,568
Other assets
Customer Lists 441,912 441,912
Investments 3,000 3,000
Deposits 76,255 76,255
------------ ------------ ------------
$ 521,167 $ - $ 521,167
------------ ------------ ------------
$ 5,152,424 $ 800,000 $ 5,952,424
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Page 8
<PAGE>
ROCKY MOUNTAIN INTERNET, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
Liabilities And Stockholders' Equity
<TABLE>
<CAPTION>
March 31 Investment Proforma
1998 May 15,1998 May 15,1998
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Current liabilities
Current maturities of long-term debt and
obligations under capital leases $ 646,148 $ - $ 646,148
Accounts payable 1,288,372 1,288,372
Deferred revenue 340,149 340,149
Accrued payroll and related taxes 193,162 193,162
Other accrued expense 243,688 243,688
------------ ------------ ------------
Total current liabilities $ 2,711,519 $ - $ 2,711,519
------------ ------------ ------------
Long-term debt and obligations under capital leases,
less current maturities $ 784,451 $ - $ 784,451
------------ ------------ ------------
Stockholders equity
Preferred stock, $.001 par value; authorized $ - $ - $ -
3/31/1998 - 750,000 shares; issued and
outstanding 3/31/1998, 0 shares
Common stock, $.001 par value; authorized 7,286 421 7,707
3/31/1998 - 25,000,000 shares; issued
3/31/1998 - 7,286,275 shares; and outstanding
3/31/1998 - 7,218,281 shares.
Additional paid-in capital 9,799,715 799,579 10,599,294
Accumulated deficit (8,061,398) (8,061,398)
------------ ------------ ------------
$ 1,745,603 $ 800,000 $ 2,545,603
Treasury stock, at cost Common;
1997 - 59,043 shares, 3/31/1998 - 67,474 (89,149) (89,149)
------------ ------------ ------------
Total Stockholder's' Equity $ 1,656,454 $ 800,000 $ 2,456,454
------------ ------------ ------------
$ 5,152,424 $ 800,000 $ 5,952,424
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Page 9
<PAGE>
This investment brings the Company into compliance with the Nasdaq Small Cap
Market listing requirements. See LIQUIDITY AND CAPITAL RESOURCES below for
additional discussion of this matter.
RECENT DEVELOPMENTS
The Company is implementing several new service offerings which will be
generating revenues subsequent to the period covered by this Form 10-QSB.
NATIONAL INTERNET PROVIDER Effective March 11, 1998, the Company entered into
an agreement with PSINet, Inc., (refer to Exhibit 10.13: PSINet Wholesale Usage
Agreement) whereby the Company obtains access to PSINet's network to provide the
Company's customers access to dialup and "switched" network access in over 235
locations nationally. The agreement allows the Company to expand service
nationally to provide dial up and ISDN services in each of the locations
serviced by PSINet. Customers will receive technical support, e-mail services,
news services, etc., from the Company's servers, providing a "private label"
solution to the anticipated new customer base.
IP TELEPHONY The Company is expanding its communication services in order to
provide a more complete product offering to its customers. The Company has
announced its intent to provide long distance services using Internet Protocol
("IP") telephony at $0.07 per minute within the continental United States to
customers in Denver, Boulder, and Colorado Springs, Colorado areas.
COMPETITIVE LOCAL EXCHANGE CARRIER The Company filed an application in March,
1998 with the Colorado PUC to become a Competitive Local Exchange Carrier
("C-LEC"). A wholly owned subsidiary, Rocky Mountain Broadband, Inc., has
been formed for providing these services. On April 22, 1998, The Public
Utilities Commission of the State of Colorado granted the request by Rocky
Mountain Broadband, Inc. to become a C-LEC. Refer to Exhibit 10.15: "Order
Granting a Certificate to Provide Local Exchange Telecommunications Services."
RISK FACTORS
The Company may experience fluctuations in operating results in the future
caused by various factors, some of which are outside of the Company's control,
including general economic conditions, specific economic conditions in the
Internet access industry, user demand for the Internet, capital expenditures and
other costs relating to the expansion of operations, the timing and number of
customer subscriptions, the introduction of new services by the Company or its
competitors, the mix of services sold and the mix of distribution channels
through which those services are sold. In addition, the Company's expenses,
including but not limited to obligations under equipment leases, facilities
leases, telephone access lines, and Internet access are relatively fixed in the
short term, and therefore variations in the timing and amount of revenues could
have a material adverse effect on the Company's results of operations.
Page 10
<PAGE>
TERMINATION OF THIRD PARTY AGREEMENT
The Company and Zero Error Networks ("ZEN"), a third party with which the
Company had contacted as described below under "Dial-Up Service," signed a
"TERMINATION AGREEMENT" effective July 3, 1997, which affects four points of
presence (POP) located in Pueblo, Hayden, Leadville, and Alamosa, Colorado.
These POPs have been operated under a revenue and expense sharing contract
between the two parties. The Termination Agreement calls for ZEN to operate the
Hayden, Leadville, and Alamosa, Colorado locations and receive the rights to the
customer base currently existing in those locations while the Company will
operate and maintain the customer base in Pueblo and surrounding areas. The
transition occurred during the months of July, August, and December of 1997. The
Termination Agreement includes a limited non-compete clause wherein neither
party may directly solicit the existing customer base of the other for a period
of one year. The net effect of the Termination Agreement on net income is
expected to be neutral in the short run and have a positive long term result.
The Pueblo revenues are expected to grow at a faster rate than the other three
POP's combined and the Company plans to focus additional effort to selling
dedicated access in the Pueblo market. However, there can be no assurance that
the Company's efforts will be successful or that the long-term effects of the
Termination Agreement on net income will be positive.
Page 11
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1998
The Company has a net loss applicable to common shareholders of $914,637 and
$1,314,350 for the first quarters of 1997 and 1998 respectively for an
increase in the loss of 58%. Based on earnings before interest, taxes,
depreciation, and amortization ("EBITDA") the loss was $637,427 for the first
quarter of 1997 as compared to $993,552 for the first quarter of 1998.
During the first quarter of 1998, the Company recorded a non-cash
compensation expense of $383,077 for employee stock options, which is
included in the EBITDA and net loss calculations. If this non-cash
compensation item is removed from the EBITDA calculation then the loss
decreased by 4% from $637,427 for the first quarter of 1997 to $610,475 for
the first quarter of 1998. The resulting loss per share for these items are
presented in the following schedule.
First Quarter 1997 First Quarter 1998
- --------------------------------------------------------------------------------
Type of Loss Loss Loss Per Loss Loss Per
Share Share
- --------------------------------------------------------------------------------
Net Loss $(914,637) $ (0.19) $(1,314,350) $ (0.19)
- --------------------------------------------------------------------------------
Net Loss adjusted for
non-cash compensation $(914,637) $ (0.19) $ (931,273) $ (0.14)
- --------------------------------------------------------------------------------
EBITDA Loss $(637,427) $ (0.13) $ (993,552) $ (0.15)
- --------------------------------------------------------------------------------
EBITDA Loss adjusted for
non-cash compensation $(637,427) $ (0.13) $ (610,475) $ (0.09)
- --------------------------------------------------------------------------------
Effective January 16, 1997, the Company acquired dial-up and dedicated access
subscribers from Online Network Enterprises, Inc. (ONE), a Boulder, Colorado,
based provider of Internet access and Web services for consideration consisting
of $150,000 of cash and 116,932 shares of the Company's common stock.
The Company's revenues grew 27% from $1,397,283 to $1,779,285 for the three
months ended March 31, 1998 as compared to the comparable period in 1997.
Listed below is a breakdown of the revenue billing categories.
<TABLE>
<CAPTION>
Three Months Ended
March 31
Revenue 1997 1998 %Change
<S> <C> <C> <C>
Dial-Up Service $ 595,686 565,263 ( 5%)
Dedicated Access Service $ 347,592 798,394 130%
Web Services $ 216,472 314,341 45%
Equipment Sales $ 83,244 65,969 ( 21%)
Other $ 153,963 35,318 ( 77%)
Total $1,396,957 1,779,285 27%
</TABLE>
DIAL-UP SERVICE
Page 12
<PAGE>
The Company's strategy is to provide an high quality service with few busy
signals. In the past the Company was not prepared to offer flat rate pricing
for unlimited access service, however, on November 4, 1997, the Company
announced a flat rate offering to the Denver, Colorado and Boulder Colorado
markets. This offering has become more economically attractive than in the past
due to lower costs for circuits and a lower cost per port for dial up access.
The new offering includes higher speed modem access using K 56 Flex technology.
The table below shows the composite weighted average billing rate for full
service Internet access by quarter for 1995, 1996, and 1997. The reduction in
the average rate for September 1997 is the result of a change in the average
rates resulting from the termination of Dial-Up Service contracts with third
parties in Alamosa and Leadville. The remaining contracts with other third
parties provide an higher percentage of lower rate services. Effective with the
December 1997 billings, most Denver and Boulder, Colorado area customers who
were on payment plans over $19.95 per month were converted to the new $19.95
flat rate service, resulting in a lower average billing rate. The full effect
of the conversions occurred during the last quarter of 1997 and the first
quarter of 1998. The Company expects the average revenue per dial-up customer
to stabilize contingent upon the current pricing remaining in effect.
<TABLE>
<CAPTION>
For the Three Months Ended
Mar Jun Sep Dec Mar Jun Sep Dec
1995 1995 1995 1995 1996 1996 1996 1996
<S> <C> <C> <C> <C> <C> <C> <C>
$20.52 $20.42 $20.88 $21.02 $20.97 $20.33 $20.41 $20.50
</TABLE>
<TABLE>
<CAPTION>
Mar Jun Sep Dec Mar
1997 1997 1997 1997 1998
<S> <C> <C> <C> <C>
$20.10 $20.04 $19.65 $18.62 $17.98
</TABLE>
The Company experienced a 5% revenue reduction in Dial-Up Service from the first
quarter of 1997 as compared to the first quarter of 1998 from $595,360 to
$565,263. The decrease is the result of a combination of the reduction in
average customer revenues resulting from the new flat rate pricing offered and a
reduction in revenues from business alliances as explained in the following
paragraph.
Dial-up Services have been split approximately evenly between commercial and
residential customers throughout 1995, 1996, 1997, and 1998 based on customer
count. Based on revenue the split between commercial and residential customers
is 35% to 65% respectively.
RMI has established business alliances through contracts with three, locally-
based unrelated parties for the purpose of providing Internet services in
secondary markets in the State of Colorado. The services are provided under a
written contract that provides for the locally-based party to provide equipment
and marketing services while RMI provides Internet access and administrative
services. Dial-up revenues based on these contracts generated $127,534 in
revenues for the first quarter of 1997 and $59,937 in revenues for the first
quarter of 1998 for a decrease of 53%. The POPs established pursuant to these
contracts
Page 13
<PAGE>
began in the second quarter of 1995 and grew to six locations by the end of
1995 and nine locations by the end of 1996. Effective July 3, 1997, the
contract with Zero Error Networks was terminated. Under the termination
agreement, the Company will operate the Pueblo POP as a Company only location
and ZEN will operate Alamosa, Leadville, and Hayden locations. A similar
contract in Grand Junction, Colorado was terminated by the Company effective
April 30, 1997. The marketing efforts by the locally-based third party in this
location were minimal and sales were less than $1,000 per month. The Company is
operating this facility as a Company only location at this time.
DEDICATED ACCESS SERVICE
Dedicated access services are primarily provided to commercial customers and
include a wide range of connectivity options tailored to the requirements of the
customer. These services include private port (dedicated modem), Integrated
Services Digital Network (ISDN) connections, 56 Kbps frame relay connections, T-
1 (1.54 Mbps) frame relay connections, point to point connections, and T-3 (45
Mbps) or fractional T-3 connections. The Company also offers a colocation
service in which the customer's equipment is located in the RMI data center,
thereby providing access to the Internet directly through the Company's
connection.
Dedicated business has grown based principally on ISDN and high speed circuits
(56K, DS-1, and DS-3) growth. ISDN sales have grown from $107,404 to $209,061
from first quarter 1997 to first quarter 1998 for an increase of 95%, while high
speed circuits have increased from $208,027 to $531,509 for the same periods for
an increase of 156%.
The table below shows the quarterly customer count by each of the component
services offered for dedicated access as of the dates indicated:
<TABLE>
<CAPTION>
Service Mar 31 Jun 30 Sep 30 Dec 31 Mar 31 Jun 30 Sep 30 Dec 31
1995 1995 1995 1995 1996 1996 1996 1996
- ------------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Private Port 29 30 36 35 42 47 46 54
56 Kbps 18 27 27 34 47 69 71 72
ISDN 0 0 0 2 3 13 46 80
T-1 7 10 10 11 16 25 29 30
Colocation 0 1 4 4 6 4 5 6
</TABLE>
<TABLE>
<CAPTION>
Service Mar 31 Jun 30 Sep 30 Dec 31 Mar 31
1997 1997 1997 1997 1998
- ------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Private Port 50 41 36 31 23
56 Kbps 78 72 65 60 57
ISDN 168 193 211 233 256
T-1 65 84 99 123 151
Colocation 11 12 11 21 30
</TABLE>
WEB SERVICES
Page 14
<PAGE>
Web services revenues are composed of Web page hosting and Web page production
and Web page marketing. Web page hosting provides ongoing revenue from
customers for whom RMI hosts a Web site on Web servers in the RMI data center.
All access made to these Web Sites by the customer and the Internet community as
a whole are processed on the RMI servers. The advantage to customers is high
speed access to sites by their targeted audiences. The following is a summary
of the number of Web hosting customers as of the dates indicated:
<TABLE>
<CAPTION>
Mar Jun Sep Dec Mar Jun Sep Dec
1995 1995 1995 1995 1996 1996 1996 1996
<S> <C> <C> <C> <C> <C> <C> <C>
1 21 45 90 157 217 242 341
Mar Jun Sep Dec Mar
1997 1997 1997 1997 1998
<S> <C> <C> <C> <C>
418 424 417 428 448
</TABLE>
Web page hosting accounted for $104,693 of revenue in the first quarter of 1997
and $138,201 in the first quarter of 1998 for an increase of 32%.
Web page production increased from $113,914 for the first quarter 1997 to
$144,585 for the first quarter 1998 for an increase of 27%.
The Company added a new service, Web page marketing, to customers in late 1997.
For the first quarter of 1998, revenues of $22,006 were recognized for this
service. Web page marketing offers the customer a service wherein the Company
optimizes the position in Web search engines for a customer's site based on
queries by selected key words. This service results in a significant increase
in the level of traffic for a Web site.
OTHER REVENUE
Other revenue includes training revenue ($7,812 decreased to $4,595), consulting
($109,286 decreased to $4,001)and sales from the Information Exchange, a voice
messaging subsidiary ($36,866 decreased to $26,722). The Information Exchange
was acquired in a stock transaction in late 1996. The reduction in consulting
revenue occurred due to a large consulting contract in the first quarter of 1997
which was concluded and no similar consulting arrangement occurred in the first
quarter of 1998.
GROSS PROFIT
Gross profit consists of total revenue less the cost of delivering services and
equipment. The gross profit from Internet access and services was 67% of
revenues from that segment for the three months ended March 31, 1997 and 65% for
the same period in 1998. The reduction in gross profit is principally the result
of offering a flat rate dial-up product which required a decrease in customers
to modem ratios, resulting in higher circuit and equipment costs. Gross profits
on equipment sales were approximately equal at 23% for both comparative periods.
Sale of equipment is provided as an accommodation to the Company's customers and
gross profit margin may vary considerably based on the mix of products sold.
Page 15
<PAGE>
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
General selling and administrative expenses ("G S & A") increased from
approximately $1,708,306 in the first quarter of 1997 to approximately
$2,473,421 in the first quarter of 1998 or 45%. Exclusive of option
compensation expense, discussed in the following paragraph, G S & A increased
16% from the first quarter 1997 to the first quarter of 1998. Significant items
are discussed below.
Payroll costs and benefits increased 53% from $957,911 to $1,465,806 for the
periods ended March 31, 1997 and 1998 respectively. Payroll costs included a
non-cash charge to compensation for the first quarter of 1998 in the amount of
$383,077 for the exercise of employee stock options. Exclusive of this amount
payroll costs and related benefits increased 12%.
Sales and marketing expenses consisting of advertising, promotion, attendance at
trade shows, printing, and finders fees increased from $47,675 for three months
ending March 31, 1997 to $49,291 for the same period in 1998 for an increase of
3.4%.
Facilities rent expense increased by 3% from $109,544 to $112,891 for the first
quarter of 1997 to the first quarter 1998. The Company has headquarters in
downtown Denver, Colorado with additional office facilities in Colorado Springs,
Colorado.
The Company experienced a decrease in communications expense from $74,229 for
the quarter ended March 31, 1997 to $61,176 for the quarter ended March 31,1998
or 18%. These expenses included local telephone service, cellular phones and
pager costs and long distance telephone expenses. The Company uses multiple
"800" phone numbers to provide technical support, customer support, and sales
order processing to its growing base of customers.
Legal and accounting expenses increased from $68,603 in the first quarter of
1997 to $216,773 in the first quarter of 1998 or an increase of 216%. This
increase resulted from legal and accounting work required in preparation of the
Company's proxy statement for the Shareholder meeting held on March 12, 1998,
legal work in the preparation of a registration statement on Form S-1 which is
discussed elsewhere in this document, and legal expense incurred in relation to
the lawsuit referenced in Part II, Item 1 of this document, and due diligence
work performed in regards to potential acquistions.
Outside services, which includes temporary to hire staff and professional
services, decreased 11% from $98,544 to $88,061 from the first quarter of 1997
to the same period in 1997. The Company hires many of the technical support
call center staff and the Web production staff on a "temp to hire" program
wherein the new employee remains on the temporary employment agency's payroll
for approximately ninety days. This allows the staff to be fully evaluated
prior to becoming a full time Company employee.
During the first quarter of 1998, the Company realized a gain of $74,987
relating to the decision by the former President and CEO and another former
officer to forego the remainder of severance payments in exchange for a release
from non-compete agreements. The non-competes were released effective March 6,
1998.
Page 16
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has had a series of financings to provide the funds during the
initial growth phases when earning have been negative. These financings are: a
convertible debenture offering in late 1995 and early 1996 that brought in
$490,000 (the debentures were converted to common stock in October, 1996), a
preferred stock offering in mid-1996 that netted $406,000, an initial public
offering in September, 1996, with proceeds of $3,775,900, and a private
placement (with one unit consisting of two common shares and a warrant to
purchase an additional common share at a set price) from June to September, 1997
which raised $1,117,900. Effective October 1, 1997, Mr. Douglas H. Hanson
invested $2,398,577 in common stock and became the President, Chief Executive
Officer and Chairman of the Board of the Company. Mr. Hanson invested $503,615
in March, 1998 by exercising purchased warrants and options that were granted in
October, 1997, at the time of his initial investment. On May 15, 1998,
Mr.Hanson exercised 421,053 resulting in a cash injection of $800,000 in order
to maintain the Company's listing on the Nasdaq stock market.
On May 15, 1998, the Company submitted to the U. S. Securities and Exchange
Commission a registration statement on Form S-1 in order to register the
shares underlying the warrants issued during the Company's initial public
offering on September 5, 1996 along with other securities for which the Company
has committed to register under various agreements. The Warrants are currently
traded on the Nasdaq SmallCap Market under the symbol "RMIIW". Upon the
successful completion of this registration, the Company will have the right to
call these 1,365,000 warrants for $0.25 each, and the warrant holder will have a
thirty day period to exercise the warrant at an exercise price of $3.14 per
underlying share. 1,900,566 common shares are underlying the warrants. If all
of the shares underlying these Warrants are exercised the Company would realize
proceeds of approximately $5,670,000. The Company has not announced plans to
call these Warrants, but may elect to do so upon completion of the registration
statement and as funds are needed.
The Company has received a loan commitment from Phoenix Leasing Incorporated
wherein the Company will have available a financing line available for
acquisition of fixed assets in the amount of $352,000 to be used in four
increments of $88,000. The financing will be secured by the assets purchased and
by an Equipment Loan Bond provided by Amwest Surety Insurance Company. The
Company expects to complete this agreement and initiate the first draw around
the end of May 1998.
RMI is an Internet Service Provider ("ISP") with an high growth rate (as
discussed elsewhere in this document). The Company's growth is dependent on
continuing to build a strong infrastructure and hiring high quality sales,
technical, and administrative personnel. In order to build the infrastructure
and acquire the human resources needed to maintain an high growth rate, the
Company has operated with a negative cash flow from operations during 1996 and
1997. The Company's cash requirements are relatively fixed for the near term and
the Company expects to generate positive operating cash flows by mid 1998 if
revenues continue to increase according to expectations without any significant
cost increases. Should revenues not continue to increase according to
expectations, the Company may have to seek additional financing to fund
operating losses or implement reductions in operating
Page 17
<PAGE>
expenses. Reductions in operating expenses, if effected, could adversely affect
revenues and therefore not result in the expected increase in cash flow. The
Company does not currently have access to additional bank financing and
therefore additional financing would have to result from additional issuances of
equity or debt securities.
The Company's common stock is traded on the NASDAQ SmallCap Market. The NASDAQ
Stock Market, Inc. implemented changes to the maintenance criteria for listing
eligibility on the Small Cap Market, including a requirement that issuers have
at least $2,000,000 in net tangible assets. As of March 31, 1998, the Company
had net tangible assets of $1,214,542 (equity of $1,656,454 less intangible
customer lists of $441,912). Effective May 15, 1998, Mr. Douglas H. Hanson,
President and CEO, exercised warrants exercisable at $1.90 per share resulting
in an equity infusion of $800,000. On a proforma basis as of March 31, 1998,
these investments bring the Company in compliance with the Nasdaq requirements.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On September 6, 1996, Robert Lewis and Storefronts in Cyberspace, L.L.C., filed
a complaint in Denver District Court naming the Company as defendant. A jury
trial commenced in this case on February 23, 1998. The jury rendered its
verdict on February 27, 1998. Rocky Mountain Internet, Inc. prevailed in three
of the four claims in the case and received a net judgment of $286.74. Based on
the verdict of the jury, the court found for the plaintiff (Robert Lewis) in the
amount of $12,000 on the plaintiff's claim for breach of contract. The court
found for the defendant (the Company) in the amount of $12,000 for the
defendant's claim for tortious interference with economic advantage. The court
found for the defendant in the amount of $285.74 in its claim for account stated
(amount past due) and for $1 for the defendant's claim of defamation. The
Company is not a party to any other litigation.
Item 2. Changes in Securities
The Company filed a Form S-1 Registration with the U.S. Securities and
Exchange Commission on May 15, 1998, requesting the registration of Common
Stock underlying the Warrants issued during the Initial Public Offering of
September 5, 1996 along with other securities for which the Company has
committed to register under various agreements. The Warrants are currently
traded on the Nasdaq stock exchange under the symbol "RMIIW". Upon the
successful completion of this registration, the Company will have the right
to call these 1,365,000 warrants for redemption for $0.25 each, and the
warrant holder will have a thirty day period to exercise the warrant at an
exercise price of $3.14 per underlying share. 1,900,566 common shares are
underlying the warrants.
Item 4. Submission of Matters to a Vote of Security Holders
A Stockholder Meeting was held on March 12, 1998, for the following purposes:
Page 18
<PAGE>
1. To elect five members to the Board of Directors to serve for the
ensuing year and until their successors are duly elected and
qualified;
2. To approve the Rocky Mountain Internet, Inc. 1997 Stock Option Plan;
3. To approve the Rocky Mountain Internet, Inc. 1998 Employees' Stock
Option Plan;
4. To approve the Rocky Mountain Internet, Inc. 1998 Non-Employee
Directors Stock Option Plan;
5. To approve an amendment to the Company's Certificate of Incorporation
to increase the number of authorized shares of the Company's common
stock from 10,000,000 to 25,000,000;
6. To approve an amendment to the Company's Certificate of Incorporation
to decrease the number of votes required for action on a matter by the
stockholders of the Company at a meeting thereof from a majority of
the shares of common stock outstanding to a majority of the shares
present in person or represented by proxy at a meeting and entitled to
vote on the matter;
7. To approve an amendment to the Company's Certificate of Incorporation
to implement a reverse split of the Company's Common Stock of up to
one-for-ten, in the event the Board of Directors determines that a
reverse stock split is desirable at any time within one year from the
date of the March 12, 1998 meeting, with the exact size of the reverse
stock split to be determined by the Board of Directors;
8. To consider and act upon a proposal to ratify the appointment of
Baird, Kurtz & Dobson, Certified Public Accountants, as the Company's
independent public accountants for the fiscal years ending December
31, 1997 and 1998.
All of the persons who were nominated to become directors of the Company were
elected, and all of the above listed proposals were approved by the
stockholders. Please reference the Definitive Proxy Statement as filed with the
Securities and Exchange Commission Schedule 14A on February 13, 1998 for
additional information.
Page 19
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
Number Description of Exhibits
3.1 Certificate of Incorporation (1)
3.2 Bylaws of Rocky Mountain Internet, Inc. (1)
3.3 Certificate of Amendment of Certificate of Incorporation of Rocky
Mountain Internet, Inc. (13)
4.1 Form of Warrant Agreement dated September 5,1996 between Rocky
Mountain Internet, Inc. and American Securities Transfer,
Inc. (1)
4.2 Form of Subordinated Convertible Promissory Note (1)
4.3 Form of Lock-Up Agreement for Shareholders (1)
4.4 Form of Lock-Up Agreement for Preferred Stockholders (1)
4.5 Form of Lock-Up Agreement for Debenture Holders (1)
4.6 Form of Stock Certificate (1)
4.7 Form of Warrant Certificate (1)
4.8 Warrant Agreement between Rocky Mountain Internet, Inc. and
Douglas H. Hanson dated October 1, 1997 (8)
4.9 1996 Employees' Stock Option Plan (6)
4.10 1996 Non-Employee Directors' Stock Option Plan (6)
4.11 Rocky Mountain Internet Inc. 1997 Non-Qualified Stock Option
Plan (7)
4.12 1997 Stock Option Plan (9)
4.12.1 First Amendment to Non-Qualified Stock Option Agreement
pursuant to the Rocky Mountain Internet, Inc. 1997 Stock
Option Plan (13)
4.12.2 First Amendment to Incentive Stock Option Agreement pursuant to
the Rocky Mountain Internet, Inc. 1997 Stock Option Plan (13)
4.13 Rocky Mountain Internet, Inc. 1998 Employees' Stock Option
Plan (10)
4.14 Rocky Mountain Internet, Inc. 1998 Non-Employee Directors' Stock
Option Plan (11)
10.1 Agreement of Lease between Denver-Stellar Associates Limited
Partnership, Landlord and Rocky Mountain Internet, Inc.,
Tenant (2)
10.2 Asset Purchase Agreement - Acquisition of CompuNerd, Inc. (2)
10.3 Confirmation of $2.0 million lease line of credit (2)
10.4 Agreement between MCI and Rocky Mountain Internet, Inc. governing
the provision of professional information system development
services for the design and development of the MCI internal
Intranet project referred to as Electronic Advice. (2)
10.5 Sublease Agreement-February 26, 1997-1800 Glenarm,
Denver, Co. (4)
10.6 Acquisition of The Information Exchange (4)
10.7 Asset purchase of On-Line Network Enterprises (4)
10.8 1996 Incentive Compensation Plan - Annual Bonus Incentive (4)
10.9 1997 Incentive Compensation Plan - Annual Bonus Incentive (4)
10.10 TERMINATION AGREEMENT of joint venture between Rocky Mountain
Internet, Inc. and Zero Error Networks, Inc. (5)
10.11 Private Placement Memorandum (5)
10.12 Carrier Services Switchless Agreement Between Frontier
Communications of the West, Inc. and Rocky Mountain Broadband,
Inc. (12)
Page 20
<PAGE>
10.13 Wholesale Usage Agreement Between PSINet Inc. and Rocky Mountain
Internet, Inc. (12)
10.14 PacNetReseller Agreement (12)
10.15 Order Granting a Certificate to Provide Local Exchange
Telecommunications Services
16.1 Letter re: change in certifying accountant (3)
27.1 Financial Data Schedule
(1) Incorporated by reference from the Company's registration
statement on Form SB-2 filed with the Commission on August 30,
1996, registration number 333-05040C.
(2) Incorporated by reference from the Company's Quarterly Report on
Form 10-QSB filing dated September 30, 1996.
(3) Incorporated by reference to the Company's Current Report on Form
8-K filing dated January 28, 1997
(4) Incorporated by reference to the Company's Annual Report on Form
10-KSB dated December 31, 1996.
(5) Incorporated by reference to the Company's Quarterly Report on
Form 10-QSB dated June 30, 1997.
(6) Incorporated by reference to the Company's documents filed with
Initial Public Offering.
(7) Incorporated by reference to the Company's Form S-8 Registration
Statement filed on September 26, 1997.
(8) Incorporated by reference to the Company's Current Report on Form
8-K dated October 6, 1997.
(9) Incorporated by reference to the Definitive Proxy Statement
(Appendix A) filed on Schedule 14A on February 13, 1998.
(10) Incorporated by reference to the Definitive Proxy Statement
(Appendix B) filed on Schedule 14A on February 13, 1998.
(11) Incorporated by reference to the Definitive Proxy Statement
(Appendix C) filed on Schedule 14A on February 13, 1998.
(12) To be filed by amendment to the Company's Form 10-QSB for the
period ending March 31, 1998.
(13) Incorporated by reference to the Company's Form 10-KSB filed on
March 31, 1998.
(b) Reports on 8-K. State whether any reports on Form 8-K were filed
during the last quarter of the period covered by this report, listing
the items reported, any financial statements filed and the dates of
such reports.
None
Page 21
<PAGE>
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, hereunto duly
authorized.
Date: May 15, 1998
By:
/S/ PETER J. KUSHAR
-------------------
Peter J. Kushar
Chief Financial Officer
/S/ DOUGLAS H. HANSON
---------------------
Douglas H. Hanson
Chairman, Chief Executive
Officer, and President
Page 22
<PAGE>
EXHIBIT 10.15 ORDER GRANTING A CERTIFICATE TO PROVIDE LOCAL EXCHANGE
TELECOMMUNICATIONS SERVICES
Decision No. C98-397
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF COLORADO
DOCKET NO. 98A-101T
________________________________________________________________________________
IN THE MATTER OF THE APPLICATION OF ROCKY MOUNTAIN BROADBAND, INC., REQUESTING A
CERTIFICATE OF PUBLIC CONVENIENCE AND NECESSITY TO PROVIDE LOCAL EXCHANGE
TELECOMMUNICATIONS SERVICE, PRIVATE LINE TELECOMMUNICATIONS SERVICES, SWITCHED
ACCESS SERVICE, INTRALATA TOLL AND ADVANCED REATURES, AND ITS NOTICE OF INTENT
TO EXERCISE OPERATING AUTHORITY.
________________________________________________________________________________
ORDER GRANTING A CERTIFICATE TO PROVIDE LOCAL EXCHANGE
TELECOMMUNICATIONS SERVICES, CERTIFICATE OF PUBLIC CONVENIENCE AND
NECESSITY TO PROVIDE EMERGING COMPETITIVE (PART 3)
TELECOMMUNICATIONS SERVICES
________________________________________________________________________________
Mailed Date: April 28, 1998
Adopted Date: April 22, 1998
I. BY THE COMMISSION
A. STATEMENT AND FINDINGS OF FACT
1. On March 9, 1998, Rocky Mountain Broadband, Inc. ("RMB"),
Filed a combined application for a Certificate to Provide Local Exchange
Telecommunications Services ("CPLE") on both a resale and a facilities-owned
basis throughout the State of Colorado in which US WEST Communications, Inc.
("US WEST"), is currently certified to provide local exchange telecommunications
services (maps provided). Collectively, the CPLE and the Notice of Intent to
Exercise Operating Authority, when approved, will result in the issuance of a
Certificate of Public convenience and Necessity to provide Local Exchange
Telecommunications services ("CPCN"). Additionally, RMB's combined application
included a request for a Certificate of Public convenience and Necessity to
Provide the following Emerging Competitive
<PAGE>
(Part 3) Telecommunications Services throughout the entire Sate of Colorado:
Switched Access; IntraLATA Toll and Private Line telecommunications services.
2. On March 16, 1998, the Commission issued a Notice of Application
Filed and Notice of Hearing providing notice to all interested parties that this
application had been filed. Interventions were due on or before April 15, 1998.
3. On April 15, 1998, US West, pursuant to Rule 64 (a) of 4 CODE OF
COLORADO REGULATIONS ("CCR") 723-1, filed its Entry of Appearance and Notice of
Intervention in this application. No other party petitioned to intervene.
B. DISCUSSION
1. Pursuant to S 40-6-109 (5), C.R.S., the Commission finds that
this matter may be considered without a hearing.
2. US West, in its intervention, states that "...if the Commission
were to grant RMB's application with the provision that RMB is obligated to 1)
offer service to all customers on a non-discriminatory basis and to 2) comply
with all applicable statutes and Commission regulations governing
telecommunications providers, consistent with previous Commission decisions
granting certificates to provide local exchange telecommunications services, US
West would not be opposed to the granting of the application without the need
for a hearing." The Commission will grant the CPCN in accordance with US West's
statement. Therefore, the application is unopposed.
3. Consistent with terms and conditions established in previous
Commission decisions, RMB will be required to participate in the Colorado High
Cost Fund, the Telecommunications Relay Services for the Disabled Telephone
Users Program, the Emergency Telephone Access Act Program, and other financial
support mechanisms that may be created in the future by the Commission to
implement SS 40-15-502 (4) and (5), C.R.S. RMB further acknowledges that prior
to providing local exchange telecommunications services it must: (1) have on
file with the Commission, effective tariffs or price lists for its services; and
(2) comply with all Commission rules and orders applicable to the provision of
local exchange telecommunications services unless it has obtained a waiver.
2
<PAGE>
4. Additionally, in accordance with Rule 25 (c) of the Commission's
Rules of Practice and Procedure, 4 CCR 723-1, RMB will be required to maintain
its books of accounts and records using Generally Accepted Accounting
Principles.
5. Granting RMB a CPCN and emerging competitive telecommunications
services is consistent with the legislative statements of policy contained in SS
40-15-101, and 40-15-502, C.R.S.
II. ORDERS
A. THE COMMISSION ORDERS THAT:
1. Rocky Mountain Broadband, Inc.'s combined application for a
Certificate to Provide Local Exchange Telecommunications Services, Notice of
Intent to Exercise Operating Authority, and its application for a Certificate to
provide Local Exchange Telecommunications Services, Notice of Intent to Exercise
Operating Authority, and its application for a Certificate of Public Convenience
and Necessity to provide Emerging Competitive Telecommunications Services is
deemed complete.
2. Rocky Mountain Broadband, Inc., is granted a Certificate to
Provide Local Exchange Telecommunications Services on both a resale and
facilities-owned basis throughout the entire State of Colorado.
3. Rocky Mountain Broadband, Inc., is granted a Certificate of
Public convenience and Necessity to provide local exchange telecommunications
services on both a resale and facilities-owned basis, throughout those portions
of the State of Colorado in which US West Communications, Inc., is currently
certified to provide local exchange telecommunications services. A detailed
description of this geographic area has been delineated in the local exchange
maps that were submitted as part of the application.
4. For Rocky Mountain Broadband, Inc.'s local exchange
telecommunications services provided on a facilities-owned basis, Rocky Mountain
Broadband, Inc., shall have the obligation to serve all customers in its service
territory on a nondiscriminatory basis only in areas in which it has such
facilities. Specifically, Rocky Mountain Broadband, Inc., shall not be allowed
to refuse service to a qualified customer, that is,
3
<PAGE>
a customer that has the ability to pay for the service. For clarification,
"service territory" shall be defined as that portion of Colorado included in the
exchange maps provided as part of the application. Further, as a condition of
this certificate and operating authority, Rocky Mountain Broadband, Inc., shall
be required to provide local exchange telecommunications services to residential
and business customers in compliance with S 40-15-502 (3) (b) (I), C.R.S.
5. For Rocky Mountain Broadband, Inc.'s local exchange
telecommunications services provided on a resale basis, Rocky Mountain
Broadband, Inc., shall have the territory on a nondiscriminatory basis.
Specifically, Rocky Mountain Broadband, Inc., shall not be allowed to refuse
service to a qualified customer, that is, a customer that has the ability to pay
for the service. For clarification, "service territory" shall be defined as
that portion of Colorado included in the exchange maps provided as part of the
application. Further, as a condition of this certificate and operating
authority, Rocky Mountain Broadband, Inc., shall be required to provide local
exchange telecommunications services to residential and business customers in
compliance with S 40-15-502 (3) (b) (I), C.R.S. However, Rocky Mountain
Broadband, Inc., shall not be required to extend service to customers where the
underlying facilities-based provider has no facilities.
6. As a provider of local exchange telecommunications services,
Rocky Mountain Broadband, Inc., is reminded of the timeframes specified at Rule
9, 4 CODE OF COLORADO REGULATIONS 723-35 regarding failure of a provider to
provide service to customers in its operating area within the following time
after the grant of operating authority, unless the Commission orders otherwise:
not more than three years if the entity is a reseller and not more than five
years if the entity is a facilities-based carrier.
7. Rocky Mountain Broadband, Inc., is also granted a Certificate of
Public Convenience and Necessity to Provide Emerging Competitive
Telecommunications Services consisting of; IntraLATA Toll; Switched Access; and
Private Line Telecommunications Services to customers throughout the entire
State of Colorado.
8. Rocky Mountain Broadband, Inc., is required to file applicable
tariffs to provide emerging competitive telecommunications services within 30
days of the
4
<PAGE>
effective date of this Order. For good cause shown, and if a proper request is
filed within 30 days of the effective date of this Decision and Order, the
Commission may grant Rocky Mountain Broadband, Inc., additional time within
which to file tariffs and price lists, if applicable. Further, for facilities-
based emerging competitive telecommunications services, Rocky Mountain
Broadband, Inc., is required to file tariffs to implement these services within
three years of the effective date of this Decision and Order.
9. The hearing in this matter scheduled for June 16, 1998 at 9:00am
is vacated.
10. This Order is effective on its Mailed Date.
B. ADOPTED IN COMMISSIONERS' WEEKLY MEETING April 22, 1998.
THE PUBLIC UTILITIES COMMISION
OF THE STATE OF COLORADO
ROBERT J. HIX
-----------------------------------
R. BRENT ALDERFER
-----------------------------------
Commissioners
COMMISSIONER VINCENT MAJKOWSKI ABSENT
(Seal State of Colorado)
ATTEST: A TRUE COPY
/S/ Bruce N. Smith
- -------------------
Bruce N. Smith
Director
5
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET DATED MARCH 31, 1998 AND THE CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1998 FOR ROCKY MOUNTAIN INTERNET,
INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,152,420
<SECURITIES> 0
<RECEIVABLES> 843,671
<ALLOWANCES> 226,857
<INVENTORY> 67,019
<CURRENT-ASSETS> 1,989,689
<PP&E> 3,970,573
<DEPRECIATION> 1,329,005
<TOTAL-ASSETS> 5,152,424
<CURRENT-LIABILITIES> 2,711,519
<BONDS> 0
0
0
<COMMON> 7,286
<OTHER-SE> 1,738,317
<TOTAL-LIABILITY-AND-EQUITY> 5,152,424
<SALES> 65,869
<TOTAL-REVENUES> 1,779,285
<CGS> 50,956
<TOTAL-COSTS> 652,086
<OTHER-EXPENSES> 2,379,343
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 80,826
<INCOME-PRETAX> (1,314,350)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,314,350)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,314,350)
<EPS-PRIMARY> (.19)
<EPS-DILUTED> (.19)
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