<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) November 24, 1999
------------------------------
RMI.NET, Inc.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in charter)
Delaware
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation)
001-12063 84-1322326
- -------------------------------- -------------------------------------
(Commission File Number) (IRS Employee Identification No.)
999 Eighteenth Street, Suite 2201, 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> 2
ITEM 5. OTHER EVENTS.
On December 9, 1999, the Registrant filed a Current Report on Form 8-K
(the "Western Regional Initial Report") describing the acquisition of the assets
of Western Regional Networks, Inc. This Current Report on Form 8-K/A amends the
Western Regional Initial Report by including with this Form 8-K/A the financial
statements and pro forma financial information prescribed by Item 7 of Form 8-K.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Western Regional Networks, Inc. - Financial Statements:
Independent Auditor's Report - McGladrey & Pullen, LLP
Balance Sheets as of June 30, 1999 and September 30, 1999
Statements of Income for the Year Ended June 30, 1999 and Three
Months Ended September 30, 1998 and 1999
Statements of Stockholders' Deficit for the Year Ended June 30,
1999 and Three Months Ended September 30, 1999
Statements of Cash Flows for the Year Ended June 30, 1999 and
Three Months Ended September 30, 1998 and 1999
Notes to Financial Statements
(b) Pro Forma Financial Information:
Pro Forma Condensed Combined Balance Sheet as of September 30,
1999
Pro Forma Condensed Combined Statement of Operations for the Year
Ended December 31, 1998
Pro Forma Condensed Combined Statement of Operations for the Nine
Months Ended September 30, 1999
(c) Exhibits:
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C>
10.1 Asset Purchase Agreement by and among RMI.NET, Inc., and Western
Regional Networks, Inc. et al. *
20.1 News Release dated December 1, 1999 announcing the Western Regional
Networks asset acquisition. *
</TABLE>
- ----------
* Previously filed.
<PAGE> 3
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
RMI.NET, Inc.
---------------------------------------
(Registrant)
Date: February 2, 2000 By: /s/ CHRISTOPHER J. MELCHER
-----------------------------------
Christopher J. Melcher
Vice President, General Counsel
and Corporate Secretary
<PAGE> 4
WESTERN REGIONAL NETWORKS, INC.
FINANCIAL REPORT
JUNE 30, 1999
<PAGE> 5
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
- --------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT 1
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
Balance sheets 2
Statements of income 3
Statements of stockholders' deficit 4
Statements of cash flows 5 and 6
Notes to financial statements 7 - 11
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 6
[MCGLADREY & PULLEN, LLP LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Western Regional Networks, Inc.
La Junta, Colorado
We have audited the accompanying balance sheet of Western Regional Networks,
Inc. as of June 30, 1999, and the related statements of income, stockholders'
deficit, and cash flows for the year then ended. These financial statements are
the responsibility of the Company'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 Western Regional Networks, Inc.
as of June 30, 1999, and the results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
/s/ MCGLADREY & PULLEN, LLP
Cheyenne, Wyoming
January 7, 2000
1
<PAGE> 7
WESTERN REGIONAL NETWORKS, INC.
BALANCE SHEETS
JUNE 30, 1999 AND
SEPTEMBER 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
September 30,
JUNE 30, 1999
ASSETS 1999 (Unaudited)
- ------ ---------- -------------
<S> <C> <C>
Current Assets
Cash $ 9,195 $ 5,993
Trade receivables, less allowance for doubtful accounts
June 30 $20,000; September 30 $7,215 123,211 155,083
Inventory 15,768 11,353
---------- ----------
TOTAL CURRENT ASSETS 148,174 172,429
Property and Equipment, net (Note 4) 264,640 248,975
Goodwill, net of accumulated amortization (Note 2) 252,000 236,250
---------- ----------
TOTAL ASSETS $ 664,814 $ 657,654
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Note payable (Note 5) $ 23,452 $ 22,392
Notes payable, related parties (Note 5) 41,227 55,898
Current maturities of capital lease
obligation (Note 5) 64,084 60,665
Accounts payable 207,303 253,296
Deferred revenue 206,601 219,792
Accrued expenses 55,689 81,464
Deferred wages 74,190 88,819
---------- ----------
TOTAL CURRENT LIABILITIES 672,546 782,326
Liability under Capital Leases, net of current
maturities (Note 5) 76,795 67,962
---------- ----------
TOTAL LIABILITIES 749,341 850,288
---------- ----------
Stockholders' Deficit
Common stock, no par, authorized 1,000,000 shares,
issued and outstanding 187,410 shares (Notes 2 and 7) 387,600 387,600
Retained deficit (472,127) (580,234)
---------- ----------
TOTAL STOCKHOLDERS' DEFICIT (84,527) (192,634)
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $664,814 $ 657,654
========== ==========
</TABLE>
See Notes to Financial Statements.
2
<PAGE> 8
WESTERN REGIONAL NETWORKS, INC.
STATEMENTS OF INCOME
FOR THE YEAR ENDED JUNE 30, 1999 AND
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
September 30,
JUNE 30, 1998 1999
1999 (Unaudited) (Unaudited)
------------ ------------ ------------
<S> <C> <C> <C>
Revenue $ 1,373,459 $ 262,391 $ 433,966
Cost of revenue earned 984,118 215,586 353,488
------------ ------------ ------------
GROSS PROFIT 389,341 46,805 80,478
General and administrative expenses 884,402 302,792 178,967
------------ ------------ ------------
OPERATING (LOSS) (495,061) (255,987) (98,489)
------------ ------------ ------------
Financial income (expense):
Interest income 1,257 746 16
Interest expense (29,690) (4,905) (9,634)
------------ ------------ ------------
(28,433) (4,159) (9,618)
------------ ------------ ------------
(LOSS) BEFORE INCOME TAXES (523,494) (260,146) (108,107)
Income tax expense (Note 6) -- -- --
------------ ------------ ------------
NET (LOSS) $ (523,494) $ (260,146) $ (108,107)
============ ============ ============
(Loss) per common share, basic
and diluted $ (2.79) $ (1.39) $ (0.58)
============ ============ ============
</TABLE>
See Notes to Financial Statements.
3
<PAGE> 9
WESTERN REGIONAL NETWORKS, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEAR ENDED JUNE 30, 1999 AND
THREE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Retained
Common Earnings
Stock (Deficit) Total
---------- ---------- ----------
<S> <C> <C> <C>
Balance, July 1, 1998 $ 14,800 $ 51,367 $ 66,167
51,725 shares of common stock issued
to acquire INFO 2000, Inc. (Note 2) 289,000 -- 289,000
14,993 shares of common stock issued
in exchange for services rendered
(Note 7) 83,800 -- 83,800
Net (loss) -- (523,494) (523,494)
---------- ---------- ----------
Balance, June 30, 1999 387,600 (472,127) (84,527)
Net (loss) (unaudited) -- (108,107) (108,107)
---------- ---------- ----------
Balance, September 30, 1999 (unaudited) $ 387,600 $ (580,234) $ (192,634)
========== ========== ==========
</TABLE>
See Notes to Financial Statements.
4
<PAGE> 10
WESTERN REGIONAL NETWORKS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1999 AND
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
September 30,
JUNE 30, 1998 1999
1999 (Unaudited) (Unaudited)
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net (loss) $ (523,494) $ (260,146) $ (108,107)
Adjustments to reconcile net (loss) to net
cash (used in) operating activities:
Depreciation 68,995 14,540 20,080
Amortization 63,000 15,750 15,750
Provision for doubtful accounts 20,000 5,000 5,000
Stock-based compensation 83,800 83,800 --
Change in working capital components,
net of effects from acquisition of
INFO 2000, Inc.:
(Increase) decrease in:
Trade receivables (16,228) 2,660 (36,872)
Inventory (3,603) -- 4,415
Increase (decrease) in:
Accounts payable 144,276 107,717 45,993
Accrued expenses 37,503 19,712 25,775
Deferred wages 74,190 25,093 14,629
Deferred revenue 14,947 (16,841) 13,191
------------ ------------ ------------
NET CASH (USED IN) OPERATING ACTIVITIES (36,614) (2,715) (146)
------------ ------------ ------------
Cash Flows from Investing Activities
Purchase of property and equipment -- -- (4,415)
Acquisition of INFO 2000, Inc. net of
cash acquired 2,723 2,723 --
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 2,723 2,723 (4,415)
------------ ------------ ------------
Cash Flows from Financing Activities
Net borrowings (payments) from notes payable 23,452 (958) (1,060)
Net proceeds from notes payable, related
parties 12,942 -- 14,671
Principal payments on capital lease obligations (40,111) (3,905) (12,252)
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (3,717) (4,863) 1,359
------------ ------------ ------------
(DECREASE) IN CASH (37,608) (4,855) (3,202)
Cash:
Beginning 46,803 46,803 9,195
------------ ------------ ------------
Ending $ 9,195 $ 41,948 $ 5,993
============ ============ ============
</TABLE>
Continued
5
<PAGE> 11
WESTERN REGIONAL NETWORKS, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEAR ENDED JUNE 30, 1999 AND
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
September 30,
JUNE 30, 1998 1999
1999 (Unaudited) (Unaudited)
--------- ----------- -----------
<S> <C> <C> <C>
Supplemental Schedule of Cash Flow Information
Cash payments for interest $ 19,669 $ 3,659 $ 9,311
========= ========= =========
Supplemental Schedule of Noncash Investing and
Financing Activities
Acquisition of INFO 2000, Inc.:
Goodwill $ 315,000 $ 315,000 $ --
Working capital acquired, net of cash $2,733 (87,197) (87,197) --
Fair value of other assets acquired, principally
property and equipment 77,576 77,576 --
Long-term debt assumed (19,102) (19,102) --
Fair value of stock issued (289,000) (289,000) --
--------- --------- ---------
NET CASH RECEIVED $ (2,723) $ (2,723) $ --
========= ========= =========
Stock issued as compensation $ 83,800 $ 83,800 $ --
========= ========= =========
Capital lease obligations incurred for use
of equipment $ 108,449 $ -- $ --
========= ========= =========
</TABLE>
See Notes to Financial Statements.
6
<PAGE> 12
WESTERN REGIONAL NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS
INFORMATION AS OF AND FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998 IS UNAUDITED
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business: Western Regional Networks, Inc.'s operations consist
principally of providing comprehensive Internet services to residential and
business customers in central and eastern Colorado. The Company provides
Internet services through Internet points of presence (POPs) and third-party
providers.
A summary of the Company's significant accounting policies follows:
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
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. Actual results could differ from those estimates.
Financial instruments: Financial instruments, which potentially subject the
Company to concentrations of credit risk consist primarily of cash and trade
accounts receivable.
The carrying amounts of financial instruments including cash, accounts
receivable, accounts payable, accrued expenses, notes payable, and capital lease
obligations, approximated fair value because of the immediate or short-term
maturity of these instruments.
Revenue recognition: The Company charges customers (subscribers) monthly access
fees to the Internet and recognizes the revenue over the period access is
provided. For certain subscribers billed in advance, the Company recognizes the
revenue over the period the billing covers. Revenue for other services provided,
including setup fees charged to customers when their accounts are activated, or
equipment sales, is recognized as the service is performed or the equipment is
delivered to the customer.
Inventories: Inventories consist of Internet access equipment and are valued at
the lower of cost or market. Cost is determined using the first-in, first-out
(FIFO) method.
Property and equipment: Depreciation and amortization of property and equipment
are computed using the straight-line method over the estimated useful lives of
the assets, ranging from five to seven years. Certain equipment obtained through
capital lease obligations are amortized over the life of the lease. Improvements
to leased property are amortized over the lesser of the life of the lease or
life of the improvements.
Long-lived assets: Long-lived assets will be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Any impairment loss will be measured by the difference
between the fair value of an asset and its carrying amount, and will be
recognized in the period that the recognition criteria are first applied and
met.
7
<PAGE> 13
WESTERN REGIONAL NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS
INFORMATION AS OF AND FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998 IS UNAUDITED
- --------------------------------------------------------------------------------
Earnings per common share: Earnings per common share has been computed on the
basis of the weighted-average number of common shares outstanding during the
period presented.
Income taxes: Deferred taxes are provided on a liability method whereby deferred
tax assets are recognized for deductible temporary differences and operating
loss and tax credit carryforwards and deferred tax liabilities are recognized
for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment.
Unaudited financial information: The unaudited information reflects all
adjustments, consisting of normal recurring accruals, which are, in the opinion
of management, necessary to a fair presentation of the financial position as of
September 30, 1999 and the results of operations and cash flows for the three
months ended September 30, 1999 and 1998. The results of the three month periods
are not necessarily indicative of the results which may be expected for the
entire year.
NOTE 2. BUSINESS COMBINATION
Western Regional Networks, Inc. was formed on July 1, 1998 (merger date) to
effect the business combination of Rural Internet Access, Inc. (Rural) of La
Junta, Colorado, INFO 2000, Inc. (INFO 2000) of Ft. Collins, Colorado and
Western Network Management, Inc. of Grand Junction, Colorado. On December 29,
1998, the merger with Western Network Management, Inc. was rescinded and the
assets, liabilities and operations of the Grand Junction location were spun-out
of the Company as if the merger never occurred and are not included in the
accompanying financial statements.
The merger of Rural and INFO 2000 has been accounted for as a purchase. The
former shareholders of Rural received a larger portion of the voting stock of
the Company and Rural has therefore been identified as the acquiring company in
the business combination. Therefore, the assets and liabilities of Rural were
recorded at their historical carrying value. INFO 2000 was accounted for as the
acquired company and its assets and liabilities were recorded at the fair value
at the merger date. The Company issued 51,725 shares of common stock valued at
$289,000 to acquire INFO 2000. The excess of purchase price over the fair value
of identifiable net assets acquired of $315,000 was allocated to goodwill and is
being amortized on a straight-line basis over five years. Amortization expense
for the periods ended June 30, 1999 and September 30, 1998 and 1999 was $63,000,
$15,750 (unaudited) and $15,750 (unaudited), respectively.
8
<PAGE> 14
WESTERN REGIONAL NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS
INFORMATION AS OF AND FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998 IS UNAUDITED
- --------------------------------------------------------------------------------
NOTE 3. RELATED-PARTY TRANSACTIONS
During the year ended June 30, 1999 and three months ended September 30, 1998
and 1999, the Company purchased inventory and reimbursed expenses incurred on
the Company's behalf with affiliated companies in the amount of $18,652, $1,380
(unaudited) and $1,525 (unaudited), respectively. At June 30, 1999 and September
30, 1999, the Company had accounts payable to affiliated companies in the amount
of $6,352 and $7,877 (unaudited), respectively. The Company also had notes
payable with shareholders and affiliated companies which are discussed in Note
5.
NOTE 4. PROPERTY AND EQUIPMENT
At June 30, 1999, property and equipment consisted of the following:
<TABLE>
<S> <C>
Equipment, production infrastructure $ 345,603
Equipment, support 26,337
Computer software 1,744
------------
373,684
Less accumulated depreciation 109,044
------------
$ 264,640
============
</TABLE>
Equipment being acquired under capital lease obligations had a cost of $194,165
and accumulated depreciation of $33,606 at June 30, 1999.
NOTE 5. NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS
Notes payable and capital lease obligations at June 30, 1999 and September 30,
1999, consisted of the following:
Notes payable: The Company has a $25,000 unsecured line of credit with the bank,
of which $23,452 and $22,392 (unaudited) were outstanding at June 30, 1999 and
September 30, 1999, respectively. The line of credit bears interest at 11.4% and
periodic payments vary according to the outstanding balance.
The Company has three unsecured notes payable with shareholders or other related
parties. Two of the notes require that the accrued interest is converted into
principal at June 30 of each year. The third note requires that interest is
accrued and paid quarterly. The notes bear interest at 8% to 9% and are due on
April 1, 2000. The total outstanding balances on the notes were $41,227 and
$55,898 (unaudited) at June 30, 1999 and September 30, 1999, respectively.
9
<PAGE> 15
WESTERN REGIONAL NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS
INFORMATION AS OF AND FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998 IS UNAUDITED
- --------------------------------------------------------------------------------
Capital lease obligations: The Company has leased equipment under various
noncancelable agreements, which expire between November, 1999 and January, 2002.
These leases include interest ranging from 15% to 28% and require various
minimum monthly payments. Certain shareholders of the Company have guaranteed
certain of these leases.
The total minimum commitment under capital leases at June 30, 1999 is due as
follows:
<TABLE>
<CAPTION>
Year ending June 30:
<S> <C>
2000 $ 87,162
2001 62,823
2002 26,543
-----------
TOTAL MINIMUM LEASE PAYMENTS 176,528
Less the amount representing interest 35,649
-----------
PRESENT VALUE OF NET MINIMUM LEASE PAYMENTS $ 140,879
===========
</TABLE>
NOTE 6. INCOME TAXES
Net deferred tax assets consist of the following components as of June 30, 1999:
<TABLE>
<S> <C>
Deferred tax assets:
Receivable allowances $ 7,800
Accrued expenses 37,000
Net operating loss carryforwards 115,000
Tax method revenue recognition 27,600
---------
187,400
Less valuation allowance (166,600)
---------
20,800
Deferred tax liability, property and equipment (20,800)
---------
$ --
=========
</TABLE>
During the year ended June 30, 1999, the Company recorded a valuation allowance
of $166,600 on the deferred tax assets to reduce the total to an amount that
management believes will ultimately be realized. Realization of deferred tax
assets is dependent upon sufficient future taxable income during the period that
deductible temporary differences and carryforwards are expected to be available
to reduce taxable income. There was no other activity in the valuation allowance
during 1999.
Loss carryforwards for tax purposes as of June 30, 1999 are approximately
$295,000 and expire in years 2017 through 2019.
10
<PAGE> 16
WESTERN REGIONAL NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS
INFORMATION AS OF AND FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998 IS UNAUDITED
- --------------------------------------------------------------------------------
The income tax provision differs from the amount of income tax determined by
applying the U.S. Federal income tax rate to pretax (loss) for the year ended
June 30, 1999 due to the following:
<TABLE>
<S> <C>
Computed "expected" tax expense $ (183,200)
Increase (decrease) in income taxes resulting from:
Nondeductible amortization of goodwill 22,000
Stock based compensation valuation for income tax purposes 24,000
Valuation allowance 131,200
Taxable income of Western Network Management, Inc. (Note 2) 19,100
Effect of state income tax rate (13,100)
---------
$ --
=========
</TABLE>
NOTE 7. STOCK-BASED COMPENSATION
The Company issued 14,993 shares of stock to the Company president as
compensation during the year ended June 30, 1999. The Company accounted for the
value of the shares issued under FASB Statement No. 123, Accounting for
Stock-Based Compensation. The compensation cost charged to income was $83,800
for the year ended June 30, 1999.
NOTE 8. SUBSEQUENT EVENT
On November 24, 1999, the Company sold substantially all of its assets to
RMI.NET, a publicly traded entity, in exchange for 324,324 shares of RMI.NET
common stock. 45% of the shares received are subject to distribution
restrictions of 6 to 18 months from the transaction date.
11
<PAGE> 17
SELECTIVE UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following selected unaudited pro forma combined financial information
presented below has been derived from the unaudited or audited historical
financial statements of the Company, Western Regional Networks, Inc.,
Networld.com, Inc., AIS Network Corporation, Wolfe Internet Access L.L.C., ACES
Research, Inc., Triad Resources L.L.C. (d/b/a WebZone), IdealDial Corporation
and August 5th Corporation (d/b/a Dave's World) and reflects management's
present estimate of pro forma adjustments, including a preliminary estimate of
the purchase price allocations, which ultimately may be different.
The acquisition is being accounted for using the purchase method of accounting.
Accordingly, assets acquired and liabilities assumed are recorded at their
estimated fair values, which are subject to further adjustment based upon
appraisals or other analyses, with appropriate recognition given to the effect
of the Company's borrowing rates and income tax rates.
The unaudited pro forma combined statements of operations for the nine months
ended September 30, 1999 and the year ended December 31, 1998 give effect to the
acquisitions as if they had been consummated at the beginning of each period.
These pro forma statements of operations combine the historical consolidated
statements of operations for the periods reported for the Company, Western
Regional Networks, Inc., Networld.com, Inc., AIS Network Corporation, Wolfe
Internet Access L.L.C., ACES Research, Inc., Triad Resources L.L.C. (d/b/a
WebZone), IdealDial Corporation and August 5th Corporation (d/b/a Dave's World).
The unaudited pro forma condensed combined balance sheet as of September 30,
1999 gives effect to the acquisitions as if they had been consummated on that
date. The pro forma balance sheet combines the historical consolidated balance
sheet at that date for the Company, Western Regional Networks, Inc.,
Networld.com, Inc., and AIS Network Corporation.
The unaudited pro forma condensed combined financial statements may not be
indicative of the results that actually would have occurred if the transaction
described above had been completed and in effect for the periods indicated or
the results that may be obtained in the future. The unaudited pro forma
condensed combined financial data presented below should be read in conjunction
with the audited and unaudited historical financial statements and related notes
thereto of the Company and the financial statements and notes of the acquired
companies.
<PAGE> 18
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
Previously Western
Reported Regional Pro Forma Pro Forma Pro Forma
RMI.NET, Inc. Acquisitions(A) Networks, Inc. Subtotal Adjustments(B) Combined
------------- --------------- -------------- --------- -------------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 6,213 $ 285 $ 6 $ 6,504 $ -- $ 6,504
Trade receivables less allowance for
doubtful accounts 4,681 134 155 4,970 -- 4,970
Inventories 223 -- 11 234 -- 234
Other 1,123 85 -- 1,208 -- 1,208
-------- -------- -------- -------- -------- --------
Total Current Assets 12,240 504 172 12,916 -- 12,916
-------- -------- -------- -------- -------- --------
PROPERTY AND EQUIPMENT, net 9,881 768 249 10,898 -- 10,898
Goodwill, net 35,451 357 237 36,045 8,638 (1) 44,683
Other 548 -- -- 548 -- 548
-------- -------- -------- -------- -------- --------
Total Assets $ 58,120 $ 1,629 $ 658 $ 60,407 $ 8,638 $ 69,045
======== ======== ======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 3,480 $ 539 $ 253 $ 4,272 $ -- $ 4,272
Current maturities of long term
debt and capital lease obligations 2,465 124 139 2,728 -- 2,728
Deferred revenue 2,184 51 220 2,455 -- 2,455
Accrued payroll & related taxes 657 20 89 766 -- 766
Accrued expenses & other 1,931 22 81 2,034 -- 2,034
-------- -------- -------- -------- -------- --------
Total Current Liabilities 10,717 756 782 12,255 -- 12,255
-------- -------- -------- -------- -------- --------
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS 2,742 202 68 3,012 -- 3,012
-------- -------- -------- -------- -------- --------
Total liabilities 13,459 958 850 15,267 -- 15,267
REDEEMABLE CONVERTIBLE PREFERRED STOCK 1,928 -- -- 1,928 -- 1,928
STOCKHOLDERS' EQUITY
Common Stock 18 1 388 407 (389)(2) 18
Additional paid in capital 73,048 36 -- 73,084 (36)(2) 73,048
9,117 (1) 9,117
Accumulated deficit (30,333) 634 (580) (30,279) (54)(2) (30,333)
-------- -------- -------- -------- -------- --------
42,733 671 (192) 43,212 8,638 51,850
-------- -------- -------- -------- -------- --------
Total Liabilities and Stockholders'
Equity $ 58,120 $ 1,629 $ 658 $ 60,407 $ 8,638 $ 69,045
======== ======== ======== ======== ======== ========
</TABLE>
<PAGE> 19
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Historical
--------------------------------------------------------------------------------------
Previously Western
Reported Regional Pro Forma Pro Forma Pro Forma
RMI.NET, Inc. Acquisitions(A) Networks, Inc. Subtotal Adjustments(B) Combined
------------- --------------- -------------- --------- -------------- ---------
(Amount in Thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C> <C>
Revenue
Communication Services $ 7,974 $ 19,913 $ 1,189 $ 29,076 $ -- $ 29,076
Web Solutions 2,113 -- -- 2,113 -- 2,113
-------- -------- -------- -------- -------- --------
10,087 19,913 1,189 31,189 -- 31,189
-------- -------- -------- -------- -------- --------
Cost of revenue earned
Communication Services 3,471 12,484 676 16,631 -- 16,631
Web Solutions 50 -- -- 50 -- 50
-------- -------- -------- -------- -------- --------
3,521 12,484 676 16,681 -- 16,681
-------- -------- -------- -------- -------- --------
Gross profit 6,566 7,429 513 14,508 -- 14,508
-------- -------- -------- -------- -------- --------
General, selling and administrative
expenses 9,184 8,152 744 18,170 -- 18,170
Cost related to unsuccessful
merger attempt 6,071 -- -- 6,071 -- 6,071
Depreciation and amortization 1,789 3,242 90 5,031 5,430(3) 10,461
-------- -------- -------- -------- -------- --------
Operating income (loss) (10,478) (3,965) (321) (14,764) (5,430) (20,194)
-------- -------- -------- -------- -------- --------
Other income (expense)
Interest expense (320) (167) (18) (505) -- (505)
Interest Income 51 7 1 59 -- 59
Other income (expense), net 78 212 -- 290 -- 290
-------- -------- -------- -------- -------- --------
(191) 52 (17) (156) -- (156)
-------- -------- -------- -------- -------- --------
Net loss $(10,669) $ (3,913) $ (338) $(14,920) $ (5,430) $(20,350)
======== ======== ======== ======== ======== ========
Preferred stock dividends $ 33 $ 33
Net loss applicable to common
Stockholders $(10,702) $(20,383)
======== ========
Basic and Diluted loss per share
from continuing operations(4) $ (1.39) $ (1.92)
======== ========
Average number of common shares
outstanding(4) 7,690 2,577 324 10,591
======== ======== ======== ========
</TABLE>
<PAGE> 20
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Historical
--------------------------------------------------------------------------------------
Previously Western
Reported Regional Pro Forma Pro Forma Pro Forma
RMI.NET, Inc. Acquisitions(A) Networks, Inc. Subtotal Adjustments(B) Combined
------------- --------------- -------------- --------- -------------- ---------
(Amount in Thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C> <C>
Revenue
Communication Services $ 17,859 $ 9,264 $ 1,210 $ 28,333 $ -- $ 28,333
Web Solutions 2,924 -- -- 2,924 -- 2,924
-------- -------- -------- -------- -------- --------
20,783 9,264 1,210 31,257 -- 31,257
-------- -------- -------- -------- -------- --------
Cost of revenue earned
Communication Services 9,969 5,490 994 16,453 -- 16,453
Web Solutions 873 -- -- 873 -- 873
-------- -------- -------- -------- -------- --------
10,842 5,490 994 17,326 -- 17,326
-------- -------- -------- -------- -------- --------
Gross profit 9,941 3,774 216 13,931 -- 13,931
-------- -------- -------- -------- -------- --------
General, selling and administrative
expenses 17,497 4,404 390 22,398 -- 22,398
Depreciation and amortization 4,880 1,435 107 6,315 2,760 (3) 9,075
-------- -------- -------- -------- -------- --------
Operating income (loss) (12,436) (2,065) (281) (14,782) (2,760) (17,542)
-------- -------- -------- -------- -------- --------
Other income (expense)
Interest expense (369) (65) (28) (462) -- (462)
Interest Income 121 13 -- 134 -- 134
Other income (expense), net -- 58 -- 58 -- 58
-------- -------- -------- -------- -------- --------
(248) 6 (28) (270) -- (270)
-------- -------- -------- -------- -------- --------
Net loss $(12,684) $ (2,059) $ (309) $(15,052) $ (2,760) $(17,812)
======== ======== ======== ======== ======== ========
Preferred stock dividends $ 199 $ 199
======== ========
Net loss applicable to common
Stockholders $(12,883) $(18,011)
======== ========
Basic and Diluted loss per share
from continuing operations(4) $ (1.09) $ (1.21)
======== ========
Average number of common shares
outstanding(4) 11,806 2,577 324 14,707
======== ======== ======== ========
</TABLE>
<PAGE> 21
NOTES TO THE PRO FORMA CONDENSED
COMBINED FINANCIAL DATA
(UNAUDITED)
BASIS OF PRESENTATION
The accompanying unaudited pro forma condensed combined balance sheet is
presented as of September 30, 1999. The accompanying unaudited pro forma
condensed combined statements of operations are presented for the nine months
ended September 30, 1999 and the year ended December 31, 1998.
(A) PREVIOUSLY REPORTED ACQUISITIONS: The accompanying unaudited pro forma
condensed combined balance sheet presented as of September 30, 1999
includes the balance sheet as of September 30, 1999 of Networld.com, Inc.
and AIS Network Corporation. The accompanying unaudited pro forma condensed
combined statements of operations presented for the nine months ended
September 30, 1999 and the year ended December 31, 1998 include the
condensed statements of operations for the respective periods ended for the
previously reported companies as follows: Networld.com, Inc., AIS Network
Corporation, Wolfe Internet Access L.L.C., ACES Research, Inc., Triad
Resources L.L.C. (d/b/a WebZone), IdealDial Corporation and August 5th
Corporation (d/b/a Dave's World).
(B) PRO FORMA ADJUSTMENTS: The following pro forma adjustments have been made
to the unaudited condensed combined balance sheet as of September 30, 1999
and the unaudited condensed combined statements of operations for the nine
months ended September 30, 1999 and the year ended December 31, 1998.
(1) To reflect the issuance of 324,324 shares of RMI stock valued at $2.7
million, in connection with the acquisition of Western Regional
Networks, Inc., the issuance of 353,519 shares of RMI stock valued at
$2.8 million, in connection with the acquisition of Networld.com, Inc.,
and the issuance of 425,967 shares of RMI stock valued at $3.7 million,
in connection with the acquisition of AIS Network Corporation. The $8.6
million excess of the purchase price over the fair value of the assets
acquired has been allocated to goodwill. Shares of Common Stock issued
in the acquisitions were recorded at fair market value as based on the
current market price of RMI's publicly traded stock. The final
allocation of the purchase price will be made after the appropriate
appraisals or other analyses are performed. Upon completion of the
appraisals or other analyses and in accordance with the terms thereof,
the excess purchase price currently allocated to goodwill may be
reallocated to the appropriate asset classifications, including
customer list and goodwill. While goodwill will be amortized over a
period of five years, customer list or other identified intangibles may
be amortized over shorter periods, which would therefore increase
amortization expense.
(2) To eliminate the equity accounts of the acquired companies.
(3) To adjust amortization expense for the increase in goodwill, using a
life of five years, as if such acquisitions had been completed as of
the beginning of such periods.
(4) The Basic and Diluted loss per share from continuing operations and the
average number of common shares outstanding for the pro forma combined
amounts gives effect to the results as if Western Regional Networks,
Inc., Networld.com, Inc., AIS Network Corporation, Wolfe Internet
Access L.L.C., ACES Research, Inc., Triad Resources L.L.C. (d/b/a
WebZone), IdealDial Corporation and August 5th Corporation (d/b/a
Dave's World) had been completed at the beginning of such periods.
