<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 2 TO
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (earliest event reported): June 5, 1998
Rocky Mountain Internet, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 001-12063 84-1322326
- -------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
1099 Eighteenth Street, 30th Floor, Denver, Colorado 80202
- ---------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 672-0700
-----------------------------
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On August 19, 1998, Rocky Mountain Internet, Inc. (the "Registrant")
filed an amendment ("Amendment No. 1") to its Current Report on Form 8-K
dated June 5, 1998 and its Current Report on Form 8-K dated July 1, 1998 (the
"Original Reports"). Amendment No. 1 was filed for the purpose of reporting
certain financial statements and pro forma financial information not
reported in the Original Reports.
Notes (B)(7) and (C)(2) to the pro forma condensed combined financial
data were inadvertently reversed in Amendment No. 1. This Amendment No. 2 to
the Original Reports is being filed primarily to place notes (B)(7) and
(C)(2) to the pro forma financial information in the correct order. The
financial statements and the pro forma condensed combined financial data
contained in Amendment No. 1 have not been changed in this Amendment No. 2.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of businesses acquired.
The following financial statements are filed as a part of this
Report:
INFOHIWAY, INC--FINANCIAL STATEMENTS:
AUDITED FINANCIAL STATEMENTS:
Independent Auditors' Report--KPMG Peat Marwick LLP
Balance Sheets as of December 31, 1997 and June 5, 1998 (unaudited)
Statements of Operations for the Year Ended December 31, 1997 and for
the Six Months Ended June 30, 1997 (unaudited) and the Period
Ended June 5, 1998 (unaudited)
Statements of Stockholders' Equity for the Year Ended
December 31, 1997
Statements of Cash Flows for the Year Ended December 31, 1997 and for
the Six Months Ended June 30, 1997 (unaudited) and the Period
Ended June 5, 1998 (unaudited)
Notes to Financial Statements
APPLICATION METHODS, INCORPORATED/E-SELL COMMERCE SYSTEMS, INC.--
COMBINED AUDITED FINANCIAL STATEMENTS:
Independent Auditors' Report--Peterson Sullivan PLLC
Combined Balance Sheet as of December 31, 1997
Combined Statement of Operations and Retained Earnings
for the Year Ended December 31, 1997
Combined Statement of Cash Flows for the Year Ended December 31, 1997
Notes to Combined Financial Statements
UNAUDITED FINANCIAL STATEMENTS:
Balance Sheets as of June 30, 1998 (combined) and June 30, 1997
Statements of Operations and Retained Earnings for the Six
Months Ended June 30, 1998 (combined) and June 30, 1997
Statements of Cash Flows for the Six Months Ended
June 30, 1998 (combined) and June 30, 1997
Notes to Combined Financial Statements
(b) Pro forma financial information.
The following pro forma financial information is filed as part of
this Report:
Pro Forma Condensed Combined Balance Sheet as of June 30, 1998
Pro Forma Condensed Combined Statement of Operations for the Six
Months Ended June 30, 1998
Pro Forma Condensed Combined Statement of Operations for the Periods
Ended December 31, 1997
(c) Exhibits.
2.1 Merger Agreement among Rocky Mountain Internet, Inc., RMI Subsidiary,
Inc., Infohiway, Inc., and Jeremy J. Black, Kenneth Covell, and John-Michael
Keyes (1).
2.2 Agreement and Plan of Merger among Rocky Mountain Internet, Inc.,
Internet Acquisition Corporation, and Internet Communications Corporation (1).
2.3 Merger Agreement among Rocky Mountain Internet, Inc., RMI Acquisition
Subsidiary, Inc., Application Methods, Incorporated, and Ronald M. Stevenson,
Gregory A. Brown, and Ronald Nicholl (2).
99.1 News Release dated June 5, 1998 announcing the acquisition of
Infohiway, Inc. and Internet Communications Corporation (1).
99.2 News Release dated July 1, 1998 announcing the acquisition of
Application Methods, Incorporated (2).
-1-
<PAGE>
- ------------------
(1) Filed with the Registrant's Current Report on Form 8-K on June 11, 1998.
(2) Filed with the Registrant's Current Report on Form 8-K on July 14, 1998.
-2-
<PAGE>
Rocky Mountain Internet, Inc. and Subsidiaries
Index to Financial Statements
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
INFOHIWAY, INC--FINANCIAL STATEMENTS:
AUDITED FINANCIAL STATEMENTS:
Independent Auditors' Report--KPMG Peat Marwick LLP ..................................................... F-2
Balance Sheets as of December 31, 1997 and June 5, 1998 (unaudited)...................................... F-3
Statements of Operations for the Year Ended December 31, 1997 and for the Six Months ended June 30,
1997 (unaudited) and the Period Ended June 5, 1998 (unaudited)......................................... F-4
Statements of Stockholders' Equity for the Year Ended December 31, 1997.................................. F-5
Statements of Cash Flows for the Year Ended December 31, 1997 and for the Six Months Ended June 30,
1997 (unaudited) and the Period Ended June 5, 1998 (unaudited)......................................... F-6
Notes to Financial Statements............................................................................ F-7
APPLICATION METHODS, INCORPORATED/E-SELL COMMERCE SYSTEMS, INC.--COMBINED
AUDITED FINANCIAL STATEMENTS:
Independent Auditors' Report--Peterson Sullivan PLLC..................................................... F-9
Combined Balance Sheet as of December 31, 1997........................................................... F-10
Combined Statement of Operations and Retained Earnings
for the Year Ended December 31, 1997................................................................... F-11
Combined Statement of Cash Flows for the Year Ended December 31, 1997.................................... F-12
Notes to Combined Financial Statements................................................................... F-13
UNAUDITED FINANCIAL STATEMENTS:
Balance Sheets as of June 30, 1998 Combined and June 30, 1997............................................ F-15
Statements of Operations and Retained Earnings for the Six Months Ended June 30, 1998 Combined and
June 30, 1997.......................................................................................... F-16
Statements of Cash Flows for the Six Months Ended June 30, 1998 Combined and June 30, 1997............... F-17
Notes to Financial Statements............................................................................ F-18
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
STOCKHOLDERS
INFOHIWAY, INC.:
We have audited the accompanying balance sheet of Infohiway, Inc. as of
December 31, 1997 and the related statements of operations, stockholders' equity
and cash flows for the year then ended. These financial statements are the
responsibility of Infohiway's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Infohiway, Inc. as of
December 31, 1997, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Denver, Colorado
July 14, 1998
F-2
<PAGE>
INFOHIWAY, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 5, DECEMBER
1998 31, 1997
----------- -----------
(UNAUDITED)
<S> <C> <C>
Current Assets:
Cash................................................................. $ -- $ 742
Trade receivables.................................................... 477 206
----------- -----------
Total current assets................................................. 477 948
Property and equipment:
Equipment.......................................................... 5,465 5,465
Software........................................................... 13,555 13,555
----------- -----------
19,020 19,020
Less accumulated depreciation...................................... (10,466) (8,448)
----------- -----------
8,554 10,572
----------- -----------
Organization costs................................................... 1,048 1,048
Less accumulated amortization...................................... (436) (332)
----------- -----------
612 716
----------- -----------
$ 9,643 $ 12,236
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities............................. $ 1,870 $ 1,359
Note payable to shareholder (note 2)................................. 5,594 8,094
Note payable (note 2)................................................ 0 1,000
----------- -----------
Total current liabilities........................................ 7,464 10,453
----------- -----------
Stockholders' equity:
Common stock, no par value, 13,000 and 10,050 shares authorized,
13,000 and 10,050 shares issued and outstanding at March 31, 1998
and December 31, 1997, respectively.............................. 1 1
Additional paid-in capital......................................... 23,099 13,099
Accumulated deficit................................................ (20,921) (11,317)
----------- -----------
Total stockholders' equity....................................... 2,179 1,783
----------- -----------
Commitments (note 3).................................................
----------- -----------
$ 9,643 $ 12,236
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
INFOHIWAY, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS PERIOD
ENDED ENDED YEAR ENDED
JUNE 30, JUNE 5, DECEMBER 31,
1997 1998 1997
----------- ----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenue............................................ $ 24,496 $ 13,539 $ 31,484
Operating costs and expenses:
Operating and administrative..................... 14,902 20,437 29,038
Depreciation..................................... 2,820 2,018 5,687
Amortization..................................... 104 104 210
---------- ---------- ------------
17,826 22,559 34,935
---------- ---------- ------------
Operating income (loss)...................... 6,670 (9,020) (3,451)
Interest expense................................... (75) (584) (300)
---------- ---------- ------------
Net income (loss)............................ $ 6,595 $ (9,604) $ (3,751)
---------- ---------- ------------
---------- ---------- ------------
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
INFOHIWAY, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
-------- ---------- ------------ -------
<S> <C> <C> <C> <C>
Balance at January 1, 1997................................... 1 13,099 (7,566) 5,534
Net loss..................................................... -- -- (3,751) (3,751)
-- ---------- ------------ -------
Balance at December 31, 1997................................. 1 13,099 (11,317) 1,783
Net loss (unaudited)......................................... -- -- (9,604) (9,604)
Common stock issued to shareholder........................... -- 10,000 -- 10,000
-- ---------- ------------ -------
Balance at June 5, 1998 (unaudited).......................... 1 23,099 (20,921) 2,179
-- ---------- ------------ -------
-- ---------- ------------ -------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
INFOHIWAY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS PERIOD YEAR
ENDED ENDED ENDED
JUNE 30, JUNE 5, DECEMBER 31,
1997 1998 1997
----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)..................................... $ 6,595 $ (9,604) $ (3,751)
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
Depreciation and amortization....................... 2,924 2,122 5,897
Changes in operating assets and liabilities:
Receivables....................................... (7,255) (271) (206)
Accounts payable and accrued liabilities.......... 683 511 (1,969)
----------- ----------- -----------
Net cash used in operating activities........... 2,947 (7,242) (29)
----------- ----------- -----------
Net cash used in investing activities--
Capital expended for property and equipment........... -- -- (322)
----------- ----------- -----------
Cash flows from financing activities--
Proceeds from shareholder note........................ 2,000 -- 4,194
Repayments of notes payable........................... (2,600) (3,500) (3,600)
Issuance of common stock.............................. -- 10,000
----------- ----------- -----------
Net cash used in financing activities........... (600) 6,500 594
----------- ----------- -----------
Net increase (decrease) in cash................. 2,347 (742) 243
Cash at beginning of period..................... 499 742 499
----------- ----------- -----------
Cash at end of period........................... $ 2,846 $ 0 $ 742
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
INFOHIWAY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(INFORMATION AS OF AND FOR THE PERIODS ENDED
JUNE 30, 1997 AND JUNE 5, 1998 IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Infohiway, Inc. (the Company), formed in April of 1996, is a privately held
company located in Denver, CO which maintains their acquired world wide web
search engine and advertises for customers on their web page. In addition to
advertising revenue, the Company receives commissions on sales of third party
products over the internet and also sells their own software. The Company is
dependent upon its shareholders for financial support and support of its
operations.
The shareholders, who are also employees of the Company are not paid an
annual salary.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Computer equipment and software is
depreciated over five years using the double declining balance method.
INTANGIBLE ASSETS
The Company recorded $1,048 of organizational costs in 1996. These costs are
amortized over a five year period using the straight-line method.
REVENUE RECOGNITION
The Company primarily derives revenue from advertisements on their web page,
software sales and commissions from third parties related to sales over the
internet. Advertising agreements are negotiated individually and vary as to
length of time and amounts charged. The Company records accounts receivable and
revenue as services are rendered. The Company sells their software over the
internet and records revenue as customers "download" the software after
remitting payment.
INCOME TAXES
The Company has elected treatment as a "Subchapter S" corporation for state
and federal income tax purposes. Accordingly, all income taxes are paid by its
shareholders.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
INTERIM FINANCIAL INFORMATION
The accompanying interim financial statements as of June 30, 1997 and the
period ended June 5, 1998 (the acquisition date) and for the six-month period
ended on June 30, 1997 and the period ended June 5, 1998 are unaudited but, in
the opinion of management, reflect all adjustments (consisting of normal
recurring accruals) necessary for fair presentation of the
F-7
<PAGE>
INFOHIWAY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(INFORMATION AS OF AND FOR THE PERIODS ENDED
JUNE 30, 1997 AND JUNE 5, 1998 IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
results for such periods. The results of any interim period are not necessarily
indicative of results for the full year.
FAIR VALUE
The Company's financial instruments included in current assets and
liabilities approximate fair value due to their short term maturities.
(2) DEBT
As of January 1, 1997, the Company was indebted to three non-shareholders in
the amount of $4,600. During 1997, two of these notes were paid in full. The
remaining liability of $1,000 plus accrued interest of $584 which is recorded in
accounts payable and accrued liabilities was paid in April of 1998. The interest
rates on these loans varied from 12 to 24% over the term of the loans.
The Company also has a note payable due to the principal shareholder of $8,094
as of December 31, 1997. During the second quarter of 1998 the shareholder made
additional loans to the Company in the amount of $7,500. In addition, $10,000
of the note payable was then convected into Common Stock.
(3) SUBSEQUENT EVENT
On June 5, 1998, the Company's shareholder's sold all of the Company's
outstanding stock to Rocky Mountain Internet, Inc. (RMI) in exchange for 150,000
shares of RMI common stock. In connection with the closing of this transaction,
the Company became a wholly owned subsidiary of RMI.
F-8
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Application Methods, Inc./
E-SELL Commerce Systems, Inc.
Seattle, Washington
We have audited the accompanying combined balance sheet of Application
Methods, Inc. and E-SELL Commerce Systems, Inc. as of December 31, 1997, and the
related combined statements of operations and retained earnings, and combined
cash flows for the year then ended. These combined financial statements are the
responsibility of the Companies' management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Application
Methods, Inc. and E-SELL Commerce Systems, Inc. as of December 31, 1997, and the
results of its combined operations and its combined cash flows for the year then
ended in conformity with generally accepted accounting principles.
/s/ PETERSON SULLIVAN PLLC
May 14, 1998
Seattle, Washington
F-9
<PAGE>
APPLICATION METHODS, INC./E-SELL COMMERCE SYSTEMS, INC.
COMBINED BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Current Assets
Cash............................................................................ $ 30,636
Accounts receivable............................................................. 78,107
Advances to shareholder......................................................... 42,201
---------
Total current assets........................................................ 150,944
Furniture and Equipment, at cost, less accumulated depreciation of $50,610........ 8,275
---------
$ 159,219
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable................................................................ $ 63,778
Notes payable................................................................... 81,022
---------
Total current liabilities................................................... 144,800
Stockholders' Equity
Common stock, $.10 par value; 60,000 shares authorized (50,000 for Application
Methods, Inc. and 10,000 for E-SELL Commerce Systems, Inc.), 2,000 shares
issued and outstanding (1,000 for each Company)............................... 200
Retained earnings............................................................... 14,219
---------
14,419
---------
$ 159,219
---------
---------
</TABLE>
See Notes to Combined Financial Statements
F-10
<PAGE>
APPLICATION METHODS, INC./E-SELL COMMERCE SYSTEMS, INC.
COMBINED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Revenues
Sales and service revenue..................................................... $ 962,895
Other income.................................................................. 21,061
---------
983,956
Expenses
Labor and benefits............................................................ 653,670
Selling, general and administrative........................................... 434,935
---------
1,088,605
---------
Loss before interest expense.............................................. (104,649)
Interest expense................................................................ (12,016)
---------
Loss before deferred income taxes......................................... (116,665)
Recovery of deferred income taxes............................................... 14,742
---------
Net loss.................................................................. (101,923)
Retained earnings, beginning of year............................................ 116,142
---------
Retained earnings, end of year.................................................. $ 14,219
---------
---------
</TABLE>
See Notes to Combined Financial Statements
F-11
<PAGE>
APPLICATION METHODS, INC./E-SELL COMMERCE SYSTEMS, INC.
COMBINED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Cash Flows From Operating Activities
Net loss....................................................................... $(101,923)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization................................................ 5,495
Changes in operating assets and liabilities
Accounts receivable........................................................ 58,533
Accounts payable........................................................... 47,521
Deferred income tax........................................................ (14,742)
---------
Cash used in operating activities........................................ (5,116)
Cash Flows From Financing Activities
Increase in notes payable...................................................... 16,022
Issuance of common stock (1,000 shares of E-SELL issued in December 1997)...... 100
---------
Cash provided by financing activities.................................... 16,122
---------
Net increase in cash..................................................... 11,006
Cash, beginning of year.......................................................... 19,630
---------
Cash, end of year................................................................ $ 30,636
---------
---------
</TABLE>
See Notes to Combined Financial Statements
F-12
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Application Methods, Inc. ("Application Methods") develops computer software
for its clients on a custom basis. In addition, it sells certain computer
software products it internally develops. During 1997, sales and service revenue
from one customer accounted for 13% of total sales and service revenue. Accounts
receivable for three customers account for 50% of total accounts receivable.
E-SELL Commerce Systems, Inc. ("E-SELL") was established to sell certain
software created by Application Methods. At December 31, 1997, there had been no
sales and no other operations.
These financial statements are the combination of these two companies ("the
Companies"). Combination is appropriate because the two companies have the same
stock ownership.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Accordingly, actual results could differ from the estimates that were
used.
ADVERTISING COSTS
Advertising costs are expensed as incurred and totaled $6,787 for the year
ended December 31, 1997.
SOFTWARE DEVELOPMENT COSTS
Software development costs are expensed as incurred.
CASH
Cash includes cash balances held at a bank. Cash balances are occasionally
in excess of amounts insured by the Federal Deposit Insurance Corporation.
Cash payments for interest were $12,016 during the year ended December 31,
1997. No cash payments for income taxes were made during the year ended December
31, 1997.
ACCOUNTS RECEIVABLE
The Companies use the allowance method for recognizing bad debts. Management
believes no allowance is necessary at December 31, 1997.
FURNITURE AND EQUIPMENT
Furniture and equipment are depreciated using accelerated methods over the
estimated useful lives of the related assets.
TAXES ON INCOME
The Companies account for income taxes under an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for
expected future tax consequences of events that have been recognized in
financial statements or tax returns. In estimating future tax consequences, the
Companies generally consider all expected future events other than enactments of
changes in the tax laws or rates.
F-13
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. NOTES PAYABLE
<TABLE>
<S> <C>
Note payable to bank bearing interest at 11.5% due November 20,
1998, secured by receivables..................................... $ 65,000
Note payable--revolving line of credit agreement with a bank
bearing interest at 15.4%, unsecured. Maximum borrowings under
the line of credit are $25,000................................... 8,481
Note payable--revolving line of credit agreement with a bank
bearing interest at 13.25%, unsecured. Maximum borrowings under
the line of credit are $11,000................................... 7,541
---------
$ 81,022
---------
---------
</TABLE>
NOTE 3. LEASES
The Companies lease an office under an operating lease expiring January 31,
2002. In addition, the Companies lease certain computer equipment. The following
are the future minimum rental payments required under the lease for the years
ending December 31:
<TABLE>
<S> <C>
1998.............................................................. $ 125,723
1999.............................................................. 99,394
2000.............................................................. 98,764
2001.............................................................. 92,434
2002.............................................................. 7,703
---------
Total............................................................. $ 424,018
---------
---------
</TABLE>
Rent expense was $84,605 for the year ended December 31, 1997.
NOTE 4. DEFERRED INCOME TAXES
The temporary differences causing the deferred tax effects results from
using the cash basis of accounting for income tax purposes and the accrual basis
for financial reporting purposes.
Application Methods has an unused net operating tax loss of $15,100 which
expires in 2012. An asset of $2,265 was established for this net operating tax
loss which has been fully reserved.
NOTE 5. CONTRACTS
Application Methods has contracts for consulting with customers totaling
$90,169 at December 31, 1997. These contracts start in 1998. These amounts have
not been recorded on the balance sheet or included in revenue.
NOTE 6. SUBSEQUENT EVENT
Subsequent to December 31, 1997, Application Methods and E-SELL signed a
letter of intent to sell the Companies to a company that is an internet service
provider. The value of the assets and liabilities have not been adjusted for
this anticipated sale.
F-14
<PAGE>
APPLICATION METHODS, INC.
(COMBINED WITH E-SELL COMMERCE SYSTEMS, INC. AT JUNE 30, 1998)
BALANCE SHEETS
June 30, 1998 and 1997
<TABLE>
<CAPTION>
ASSETS
1998 1997
-------- --------
<S> <C> <C>
Current Assets
Cash $ 6,512 $ 19,985
Accounts receivable 192,083 181,889
Refundable income tax 4,943
Advances to shareholder 45,323
-------- --------
Total current assets 243,918 206,817
Furniture and Equipment, at cost, less accumulated
depreciation of $52,731 at June 30, 1998, and
$47,774 at June 30, 1997 6,066 11,023
-------- --------
$249,984 $217,840
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 33,475 $ 26,303
Notes payable 132,166 97,500
Loan from shareholder 7,738
Deferred income taxes 10,952 8,039
-------- --------
Total current liabilities 176,593 139,580
Stockholders' Equity
Common stock, $.10 par value; 60,000 shares
authorized, (50,000 for Application Methods, Inc.
and 10,000 for e-SELL Commerce Systems, Inc.)
2,000 shares issued and outstanding at June 30, 1998
(1,000 for each company); 50,000 shares authorized,
1,000 shares issued and outstanding at June 30, 1997 200 100
Retained earnings 73,191 78,160
-------- --------
73,391 78,260
-------- --------
$249,984 $217,840
-------- --------
-------- --------
</TABLE>
See Notes to Financial Statements
F-15
<PAGE>
APPLICATION METHODS, INC.
(COMBINED WITH E-SELL COMMERCE SYSTEMS, INC. FOR
THE SIX MONTHS ENDED JUNE 30, 1998)
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
Six Months Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Revenues
Sales and service revenue $679,672 $437,948
Other income 41,345 8,188
-------- --------
721,017 446,136
Expenses
Labor and benefits 407,336 349,873
Selling, general and administrative 235,473 135,968
-------- --------
642,809 485,841
-------- --------
Income (loss) before interest expense and income tax 78,208 (39,705)
Interest expense 8,284 4,981
-------- --------
Income (loss) before income tax 69,924 (44,686)
Deferred income tax expense (recovery) 10,952 (6,703)
-------- --------
Net income (loss) 58,972 (37,983)
Retained earnings, beginning of period 14,219 116,143
-------- --------
Retained earnings, end of period $ 73,191 $ 78,160
-------- --------
-------- --------
</TABLE>
See Notes to Financial Statements
F-16
<PAGE>
APPLICATION METHODS, INC.
(COMBINED WITH E-SELL COMMERCE SYSTEMS, INC. FOR
THE SIX MONTHS ENDED JUNE 30, 1998)
STATEMENT OF CASH FLOWS
Six Months Ended June 30, 1998
<TABLE>
<CAPTION>
1998 1997
--------- --------
<S> <C> <C>
Cash Flows From Operating Activities
Net income (loss) $ 58,972 $(37,983)
Adjustments to reconcile net income (loss) to net cash
used in operating activities
Depreciation and amortization 2,209 2,748
Changes in operating assets and liabilities
Receivables (113,976) (67,353)
Advances to and from shareholder (3,122) 67,100
Accounts payable (30,303) 10,046
Deferred income taxes 10,952 (6,703)
--------- --------
Cash used in operating activities (75,268) (32,145)
Cash Flows From Financing Activities
Increase in notes payable 51,144 32,500
--------- --------
Net increase (decrease) in cash (24,124) 355
Cash, beginning of period 30,636 19,630
--------- --------
Cash, end of period $ 6,512 $ 19,985
--------- --------
--------- --------
</TABLE>
See Notes to Financial Statements
F-17
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Note 1. Organization and Significant Accounting Policies
ORGANIZATION
Application Methods, Inc. ("Application Methods") develops computer software for
its clients on a custom basis. In addition, it sells certain computer software
products it internally develops.
e-SELL Commerce Systems, Inc. ("e-SELL") was established in late 1997 to sell
certain software created by Application Methods.
As of June 30, 1998, these financial statements are the combination of these two
companies. Combination is appropriate because the two companies have the same
stock ownership.
During the six months ended June 30, 1998, sales and service revenue from three
customers accounted for 31% of total sales and service revenue. Accounts
receivable for five customers accounted for 58% of total accounts receivable at
June 30, 1998. During the six months ended June 30, 1997, sales and service
revenue from one customer accounted for 11% of total sales and service revenue.
Accounts receivable for five customers accounted for 65% of total accounts
receivable at June 30, 1997.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Accordingly, actual results could differ from the estimates that were used.
SOFTWARE DEVELOPMENT COSTS
Software development costs are expensed as incurred.
F-18
<PAGE>
Note 1. (Continued)
CASH
Cash includes cash balances held at a bank. Cash balances are occasionally in
excess of amounts insured by the Federal Deposit Insurance Corporation.
Cash payments for interest were $8,284 and $4,981 during the six months ended
June 30, 1998 and 1997, respectively. No cash payments for income taxes were
made during the six months ended June 30, 1998 or 1997.
ACCOUNTS RECEIVABLE
Application Methods and e-SELL use the allowance method for recognizing bad
debts. Management believes no allowance is necessary at June 30, 1998 or 1997.
FURNITURE AND EQUIPMENT
Furniture and equipment are depreciated using accelerated methods over the
estimated useful lives of the related assets.
TAXES ON INCOME
Application Methods and e-SELL account for income taxes under an asset and
liability approach that requires the recognition of deferred tax assets and
liabilities for expected future tax consequences of events that have been
recognized in the financial statements or tax returns. In estimating future tax
consequences, Application Methods and e-SELL generally consider all expected
future events other than enactments of changes in the tax laws or rates.
Note 2. Notes Payable
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
Line of credit to a bank, bearing interest at 11.5%,
due November 20, 1998, secured by receivables $ 95,000 $65,000
Other 37,166 32,500
-------- -------
$132,166 $97,500
-------- -------
-------- -------
</TABLE>
F-19
<PAGE>
Note 3. Leases
Application Methods and e-SELL lease an office under an operating lease expiring
January 31, 2002. In addition, Application Methods leases certain computer
equipment. The following are the future minimum rental payments required under
the lease for the years ending December 31:
<TABLE>
<CAPTION>
<S> <C>
1998 $125,723
1999 99,394
2000 98,764
2001 92,434
2002 7,703
--------
Total $424,018
--------
--------
</TABLE>
Rent expense was $65,086 and $38,856 for the six months ended June 30, 1998 and
1997, respectively.
Note 4. Deferred Income Taxes
The temporary differences causing the deferred tax effects results from using
the cash basis of accounting for income tax purposes and the accrual basis for
financial reporting purposes.
At June 30, 1998, Application Methods and e-SELL have unused net operating tax
losses of $66,150 which expire through 2013. An asset of $9,920 was established
for this net operating tax loss which has been used to offset the deferred tax
liability. At June 30, 1997, unused net operating tax losses resulted in an
asset of $15,300 which was also used to reduce the deferred tax liability.
Each of the Companies files their own separate income tax returns. This does
not have a material effect on the income tax provision.
Note 5. Subsequent Event
Effective July 1, 1998, Application Methods and e-SELL agreed to sell the
Companies to a company that is an internet service provider. The value of the
assets and liabilities have not been adjusted for this anticipated sale.
F-20
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following selected unaudited pro forma combined financial information
presented below has been derived from the unaudited and audited historical
financial statements of Rocky Mountain Internet, Inc. ("RMI"), Internet
Communications Corporation ("ICC"), Infohiway, Inc. ("Infohiway") , and
Application Methods, Incorporated ("Application Methods") and reflect
management's present estimate of pro forma adjustments, including a
preliminary estimate of purchase price allocations, which ultimately may be
different. The unaudited and audited historical financial statements of
Infohiway and Application Methods, for the relevant periods are included
elsewhere herein. The unaudited and audited historical financial statements
of RMI and ICC, for the relevant periods have been filed separately by each
of those entities in their respective annual report on Form 10-K and interim
report on Form 10-Q. The pro forma financial data give effect to the
acquisition of ICC by RMI (the "ICC Acquisition") (anticipated to close in
the third quarter of 1998) and the acquisitions of Infohiway (closed June 5,
1998) and Application Methods (closed July 1, 1998), as well as, the
Acquisition Financing (as defined below).
The acquisitions are being accounted for using the purchase method of
accounting. Accordingly, assets acquired and liabilities assumed are recorded at
their estimated fair values, which are subject to further adjustment based upon
appraisals and other analyses, with appropriate recognition given to the effect
of RMI's borrowing rates and income tax rates.
The unaudited pro forma combined statement of operations for the year ended
December 31, 1997 gives effect to the acquisitions as if they had been
consummated at the beginning of such year. This pro forma statement of
operations combines the historical consolidated statement of operations for the
year ended December 31, 1997 for RMI, the historical consolidated statement of
operations for the eleven months ended December 31, 1997 for ICC, the historical
combined statement of operations for the year ended December 31, 1997 for
Application Methods and the historical statement of operations for the year
ended December 31, 1997 for Infohiway.
The unaudited pro forma condensed combined statement of operations for
the six months ended June 30, 1998 for ICC and Application Methods and the
period from January 1, 1998 to June 5, 1998 (the acquisition date) for
Infohiway, gives effect to the acquisitions as if they had been consummated
at January 1, 1997. This pro forma statement of operations combines the
historical operations for RMI, ICC, Application Methods and Infohiway for the
six month period ended June 30, 1998.
The unaudited pro forma condensed combined balance sheet as of June 30,
1998 gives effect to the acquisitions as if they had been consummated on that
date. This pro forma balance sheet combines the historical consolidated
balance sheet at that date for RMI and the historical balance sheets at such
date for ICC and Application Methods.
RMI has contractual rights under the merger agreement with ICC, to effect
the ICC Acquisition and expects to complete the transaction as soon as
possible after the ICC shareholders' meeting, scheduled for the third quarter
of 1998. Consummation of the Private Placement Offering (as defined below) is
conditioned upon the prior consummation of the ICC Acquisition.
RMI currently intends, subject to market and other conditions, including
the consummation of the ICC Acquisition, to complete a private placement
offering to raise approximately $175.0 million in a private placement of high
yield securities pursuant to Rule 144A adopted under the Securities Act (the
Private Placement Offering). The securities to be offered in the Private
Placement Offering will consist of senior notes (and may include other
securities) and will not be registered under the Securities Act or applicable
state securities laws. The Private Placement Offering will be made only by
means of an offering memorandum. RMI has obtained a bridge loan
commitment from lenders to fund the ICC Acquisition if the Private Placement
Offering is not completed. The Acquisition Financing, referred to above,
represents that portion of the financing from the Private Placement Offering
or the Bridge Loan Commitment, if required, which is necessary to complete the
ICC Acquisition.
The unaudited pro forma condensed combined financial statements may not be
indicative of the results that actually would have occurred if the transactions
described above had been completed and in effect for the periods indicated or
the results that may be obtained in the future. The actual purchase accounting
adjustments may be revised upon completion of the ICC Acquisition. The unaudited
pro forma condensed combined financial data presented below should be read in
conjunction with the audited and unaudited historical financial statements and
related notes thereto of RMI, ICC, Application Methods and Infohiway.
F-21
<PAGE>
PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 1998
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------
ROCKY
MOUNTAIN APPLICATION PRO FORMA
INTERNET, INC. METHODS ADJUSTMENTS
-------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 762 7 -
Trade receivables 635 192 -
Inventory 61 - -
Costs and estimated earnings in excess of billings - - -
Other 112 45 -
-------------------------------------------------------
Total Current Assets 1,570 244 -
-------------------------------------------------------
Property and equipment, net 2,612 6 -
Goodwill, net 1,324 - 3,325 (3)
Customer lists, net 413 - -
Net assets of discontinued operations - - -
Other assets, net 324 - -
Long-term restricted investment
-------------------------------------------------------
Total Assets $ 6,243 250 3,325
-------------------------------------------------------
-------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable $ - 132 -
Current maturities of long-term debt and capital
lease obligations 675 - -
Accounts payable and accrued expenses 2,147 45 -
Billings in excess of costs and estimated billings 315 - -
Unearned income and deposits - - -
-------------------------------------------------------
Total Current Liabilities 3,137 177 0
-------------------------------------------------------
Long-term debt and capital lease obligations 629 - -
Notes
Other long-term obligations - - -
Stockholders' Equity
Preferred stock - - -
Common Stock 11,257 - 3,398 (3)
Accumulated deficit (8,780) 73 (73) (5)
Stockholders' notes - - -
Unearned compensation - - -
-------------------------------------------------------
Total Stockholders' Equity 2,477 73 3,325
-------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 6,243 250 3,325
-------------------------------------------------------
-------------------------------------------------------
</TABLE>
F-22
<PAGE>
<TABLE>
<CAPTION>
HISTORICAL
--------------
INTERNET TOTAL
PRO FORMA COMMUNICATIONS PRO FORMA PRO FORMA
COMBINED CORPORATION ADJUSTMENTS COMBINED
-----------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents 769 422 42,000 (1) 1,191
(42,000) (1)
Trade receivables 827 7,238 - 8,065
Inventory 61 3,563 - 3,624
Costs and estimated earnings in excess of billings - 543 - 543
Other 157 933 - 1,090
-----------------------------------------------------------
Total Current Assets 1,814 12,699 - 14,513
-----------------------------------------------------------
Property and equipment, net 2,618 1,642 - 4,260
Goodwill, net 4,649 2,126 38,954 (4) 45,729
Customer lists, net 413 - - 413
Net assets of discontinued operations - 496 - 496
Other assets, net 324 1,284 1,758 (1) 2,316
(1,050)(7)
Long-term restricted investment
-----------------------------------------------------------
Total Assets 9,818 18,247 39,662 67,727
-----------------------------------------------------------
-----------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable 132 6,135 - 6,267
Current maturities of long-term debt and capital
lease obligations 675 - - 675
Accounts payable and accrued expenses 2,192 6,441 1,758 (1) 10,391
Billings in excess of costs and estimated billings 315 1,047 - 1,362
Unearned income and deposits - 1,069 - 1,069
-----------------------------------------------------------
Total Current Liabilities 3,314 14,692 1,758 19,764
-----------------------------------------------------------
Long-term debt and capital lease obligations 629 364 - 993
Notes 42,000 (1) 42,000
Other long-term obligations - 167 - 167
Stockholders' Equity
Preferred stock - - - -
Common Stock 14,655 14,758 (14,758) (5) 17,455
2,800 (7)
Accumulated deficit (8,780) (11,712) 11,712 (5) (12,630)
(3,850) (7)
Stockholders' notes - (22) - (22)
Unearned compensation - - - -
-----------------------------------------------------------
Total Stockholders' Equity 5,875 3,024 (4,096) 4,803
-----------------------------------------------------------
Total Liabilities and Stockholders' Equity 9,818 18,247 39,662 67,727
-----------------------------------------------------------
-----------------------------------------------------------
</TABLE>
F-23
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------------
ROCKY
MOUNTAIN INFOHIWAY APPLICATION PRO FORMA
INTERNET, INC. INC. METHODS ADJUSTMENTS
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue
Internet access and services $ 3,748 13 721 -
Network services - - - -
Network integration 193 - - -
--------------------------------------------------------------
Total sales 3,941 13 721 -
Cost of sales 1,384 21 - -
--------------------------------------------------------------
Gross margin 2,557 (8) 721 -
--------------------------------------------------------------
Operating expenses:
Selling, general and administrative 3,972 - 643 -
Depreciation and amortization 489 2 - 466 (6)
--------------------------------------------------------------
Total operating expenses 4,461 2 643 466
--------------------------------------------------------------
Other income (expense):
Interest expense, net (129) - (8) -
Other income (expense), net - - (11) -
--------------------------------------------------------------
(129) - (19) -
--------------------------------------------------------------
Income (loss) from continuing operations (2,033) (10) 59 (466)
--------------------------------------------------------------
--------------------------------------------------------------
Basic and Diluted loss per share from
continuing operations $ (0.29)
-----------
-----------
Average number of common shares
outstanding 7,012
-----------
-----------
</TABLE>
F-24
<PAGE>
<TABLE>
<CAPTION>
HISTORICAL
------------------
INTERNET TOTAL
PRO FORMA COMMUNICATIONS PRO FORMA PRO FORMA
COMBINED CORPORATION ADJUSTMENTS COMBINED
----------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue
Internet access and services 4,482 - - 4,482
Network services - 7,579 - 7,579
Network integration 193 9,176 - 9,369
----------------------------------------------------------
Total sales 4,675 16,755 - 21,430
Cost of sales 1,405 11,898 - 13,303
----------------------------------------------------------
Gross margin 3,270 4,857 - 8,127
----------------------------------------------------------
Operating expenses:
Selling, general and administrative 4,615 7,533 - 12,148
Depreciation and amortization 957 352 1,948 (6) 3,257
----------------------------------------------------------
Total operating expenses 5,572 7,885 1,948 15,405
----------------------------------------------------------
Other income (expense):
Interest expense, net (137) (291) (3,591) (2) (4,019)
Other income (expense), net (11) - - (11)
---------------------------------------------------------
(148) (291) (3,591) (4,030)
---------------------------------------------------------
Income (loss) from continuing operations (2,450) (3,319) (5,539) (11,308)
---------------------------------------------------------
---------------------------------------------------------
Basic and Diluted loss per share from
continuing operations (1.52)
----------
----------
Average number of common shares
outstanding 7,448
----------
----------
</TABLE>
F-25
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE PERIODS ENDED DECEMBER 31, 1997
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------------
ROCKY
MOUNTAIN INFOHIWAY APPLICATION PRO FORMA
INTERNET, Inc. INC. METHODS ADJUSTMENTS
------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue
Internet access and services $ 5,740 31 984 -
Network services - - - -
Network integration 387 - - -
------------------------------------------------------------
Total sales 6,127 31 984 -
Cost of sales 2,060 13 - -
------------------------------------------------------------
Gross Margin 4,067 18 984 -
------------------------------------------------------------
Operating expenses:
Selling, general and administrative 6,981 16 1,084 -
Depreciation and amortization 887 6 5 929 (6)
------------------------------------------------------------
Total operating expenses 7,868 22 1,089 929
------------------------------------------------------------
Other income (expense):
Interest expense, net (347) - (12) -
Other income (expense), net (5) - 15 -
------------------------------------------------------------
(352) - 3 -
------------------------------------------------------------
Income (loss) from continuing operations (4,153) (4) (102) (929)
------------------------------------------------------------
------------------------------------------------------------
Basic and Diluted loss per share from
continuing operations $ (0.79)
--------------
--------------
Average number of common shares
outstanding 5,268
--------------
--------------
</TABLE>
F-26
<PAGE>
<TABLE>
<CAPTION>
HISTORICAL
----------------
INTERNET TOTAL
PRO FORMA COMMUNICATIONS PRO FORMA PRO FORMA
COMBINED CORPORATION ADJUSTMENTS COMBINED
--------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue
Internet access and services 6,755 305 - 7,060
Network services - 12,064 - 12,064
Network integration 387 20,744 - 21,131
--------------------------------------------------------
-
Total sales 7,142 33,113 - 40,255
-
Cost of sales 2,073 23,693 - 25,766
--------------------------------------------------------
Gross Margin 5,069 9,420 - 14,489
--------------------------------------------------------
Operating expenses:
Selling, general and administrative 8,081 10,901 - 18,982
Depreciation and amortization 1,827 1,469 3,895 (6) 7,191
--------------------------------------------------------
Total operating expenses 9,908 12,370 3,895 26,173
--------------------------------------------------------
Other income (expense):
Interest expense, net (359) (400) (7,182)(2) (7,941)
Other income (expense), net 10 - - 10
--------------------------------------------------------
(349) (400) (7,182) (7,931)
--------------------------------------------------------
Income (loss) from continuing operations (5,188) (3,350) (11,077) (19,615)
--------------------------------------------------------
--------------------------------------------------------
Basic and Diluted loss per share from
continuing operations (3.44)
------------
------------
Average number of common shares
outstanding 5,704
------------
------------
</TABLE>
F-27
<PAGE>
NOTES TO THE PRO FORMA CONDENSED
COMBINED FINANCIAL DATA
(UNAUDITED)
(A) BASIS OF PRESENTATION
The accompanying unaudited pro forma condensed combined balance sheet is
presented as of June 30, 1998. The accompanying unaudited pro forma condensed
combined statements of operations are presented for the six month period ended
June 30, 1998 and for the year ended December 31, 1997, except for ICC for
which the eleven month period ended December 31, 1997 is presented.
(B) PRO FORMA ADJUSTMENTS
The following pro forma adjustments have been made to the unaudited
condensed combined balance sheet as of June 30, 1998 and the unaudited
condensed combined statements of operations for the periods ended June 30, 1998
and December 31, 1997:
(1) To adjust for the effects of the issuance of the $42.0 million of
Acquisition Financing, assuming a pro forma interest rate of 11% on the
face value of the Private Placement Offering. Approximately $57.8 million
of the proceeds from the Private Placement Offering will be restricted cash,
and invested in U.S. Government Securities to be held in an Interest Reserve
Account. Applying the interest related to the gross amount of the notes to
the proceeds net of the interest reserve account results in an assumed pro
forma effective interest rate of approximately 16.5%. This rate has been
used to calculate the pro forma interest expense related to the issuance of
the $42,000,000 of Acquisition Financing. The final interest rate has not
been determined at this date. The pro forma effects are as follows (in
thousands):
<TABLE>
<S> <C>
CASH AND CASH EQUIVALENTS
-------------------------
Proceeds from interim Acquisition Financing................ $ 42,000
---------
---------
OTHER ASSETS:
-------------
Deferred financing costs................................... $ 1,758
---------
---------
DEBT:
-----
Principal amount of Acquisition Financing.................. $ 42,000
---------
---------
</TABLE>
(2) To increase interest expense to reflect the issuance of $42,000,000 of the
Acquisition Financing and the amortization of the net debt issuance costs
estimated at $1,758,000 as if transaction had been in effect for the entire
period, presented as follows (in thousands):
<TABLE>
<CAPTION>
12-31-97 6-30-98
--------- ---------
<S> <C> <C>
Record estimated interest expense on the Acquisition Financing....... $ 6,930 $ 3,465
Record amortization expense of new debt issuance costs............... 252 126
--------- ---------
$ 7,182 $ 3,591
--------- ---------
--------- ---------
</TABLE>
For each 1/8 percent change (or 0.125%) in the interest rate, interest
expense and pro forma income from continuing operations would
change $52,500.
F-28
<PAGE>
NOTES TO THE PRO FORMA CONDENSED
COMBINED FINANCIAL DATA
(UNAUDITED)
(3) COMPLETED ACQUISITION: To reflect the 436,369 shares of RMI Common Stock
valued at $4,574,000 which is the approximate number of shares issued in
connection with acquisitions of Application Methods and Infohiway. The
excess purchase prices over the fair value of net assets acquired has been
allocated to goodwill. The pro forma adjustment reflects the incremental
goodwill, in excess of existing goodwill in the amount of $4,649,000.
Shares of common stock issued for acquisitions were recorded at fair value
as determined by RMI's board of directors and based on the then current
market price of RMI's publicly traded stock. The final allocation of the
purchase price will be made after the appropriate appraisals or other
analyses are performed. Upon completion of the appraisals and in
accordance with the terms thereof, the excess purchase price currently
allocated to goodwill will be allocated to the appropriate asset
classifications, including customer lists and goodwill. While the
goodwill is being amortized over periods ranging from 5-10 years, customer
lists or other identified intangibles may be amortized over shorter periods,
which would therefore increase amortization expense.
Summary information regarding the completed acquisitions is as follows (in
thousands):
<TABLE>
<CAPTION>
ENTITY DATE CLOSED CASH STOCK TOTAL
------ ----------- ---- ----- -----
<S> <C> <C> <C> <C>
COMPLETED ACQUISITION
Infohiway June 5, 1998 $ 0 $ 1,335 $ 1,335
Application Methods June 30, 1998 $ 0 $ 3,239 $ 3,239
Total Consideration $ 0 $ 4,574 $ 4,574
------- ------- -------
------- ------- -------
</TABLE>
(4) ANTICIPATED ACQUISITION: To reflect the $ 42,000,000 in cash to be paid
as the $39,400,000 purchase price plus $2,600,000 of estimated transaction
costs for the ICC Acquisition. The excess purchase prices over the fair
value of net assets acquired has been allocated to goodwill. The pro
forma adjustment reflects the incremental goodwill, in excess of existing
goodwill in the amount of $41,080,000. The final allocation of the purchase
price will be made after the appropriate appraisals or other analyses are
performed. Upon completion of the appraisals and in accordance with the
terms thereof, the excess purchase price currently allocated to goodwill
will be allocated to the appropriate asset classifications, including
customer lists and goodwill. While the goodwill is being amortized over
periods ranging from 5-10 years, customer lists or other identified
intangibles may be amortized over shorter periods, which would therefore
increase amortization expense.
F-29
<PAGE>
NOTES TO THE PRO FORMA CONDENSED
COMBINED FINANCIAL DATA
(UNAUDITED)
Summary information regarding the anticipated acquisition is as follows (in
thousands):
<TABLE>
<CAPTION>
ENTITY DATE CLOSED CASH STOCK TOTAL
------ ----------- ---- ----- -----
<S> <C> <C> <C> <C>
ANTICIPATED ACQUISITION
ICC ** $ 42,000 $ 0 $42,000
----------------------------------
Total Consideration $ 42,000 $ 0 $42,000
--------- ------- -------
--------- ------- -------
</TABLE>
** This transaction is anticipated to close in the third quarter of 1998,
however no assurances can be given that it will close at that time, if at all.
(5) To eliminate the equity accounts of the acquisitions.
(6) To adjust amortization expense due to the increase in carrying value of
goodwill, using lives ranging from five to ten years, as if such
acquisitions had been completed as of January 1, 1997.
(7) In connection with a loan facility provided to RMI, RMI agreed to pay the
lenders and the arranger of such facility an aggregate approximate amount of
$1,050,000 and agreed to issue warrants to the lenders and the arranger to
acquire a total of 560,000 shares of RMI Common Stock. Warrants to acquire
220,833 shares have an exercise price of approximately $9.01 per share and
warrants to acquire the remaining 339,167 shares have an exercise price of
$.01. Upon completion of the Offering, RMI will record an aggregate expense
related to these warrants of at least $2,800,000. Prior to recording
this expense, an independent valuation of these warrants will be obtained.
To the extent it is determined that the value of the warrants differ from
these amounts, further adjustments in such expense may be made.
Additionally, upon completion of the Offering, RMI will record an expense of
approximately $1,050,000 in connection with the loan facility's origination
fee.
(C) OTHER CONSIDERATIONS
(1) Income tax expense or benefit has not been reflected in the pro forma
condensed combined financial statements due to consolidated net operating
losses for the periods ended March 31, 1998 and December 31, 1997.
(2) In addition to the purchase consideration described in Note B above, RMI
has a commitment to pay contingent purchase consideration to the former
shareholders of Application Methods in the form of shares of Common Stock
not to exceed a market value of $2,500,000. This contingent consideration
will be computed by determining the number of shares of RMI Common Stock
whose fair value equals 30% of the net income before taxes of Application
Methods as a stand alone subsidiary of RMI. Any RMI Common Stock to be
issued as contingent consideration will be valued based on the average
closing price for the twenty consecutive trading days preceding the end of
the six month performance interval. The performance intervals are each of
the 6 month periods (6 periods) in the three year period following the
acquisition. In the event the contingent consideration is payable in
future periods, it will result in an increase to goodwill which will be
amortized over the remaining amortization period of the initial goodwill.
It is anticipated the goodwill related to Application Methods will be
amortized over a five year period.
F-30
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed by its behalf by the
undersigned hereunto duly authorized.
Rocky Mountain Internet, Inc.
----------------------------------------
(Registrant)
Date: August 21, 1998 By: /s/ Peter J. Kushar
-------------- -----------------------------------
Peter J. Kushar, Secretary,
Treasurer, and Chief Financial
Officer
