<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(AMENDMENT NO. 1)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
--------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------- ---------------
Commission file number 001-12063
-----------
RMI.NET, INC.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 84-1322326
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
999 EIGHTEENTH STREET, SUITE 2201
DENVER, COLORADO 80202
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(303) 672-0700
--------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports, and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Shares Outstanding as of May 3, 2000
------------------------------ ------------------------------------
Common Stock, $0.001 par value 21,682,985
<PAGE> 2
Explanatory Note: The registrant hereby amends the disclosure in Part I, Item 1
and Part I, Item 2 to reflect a decrease of approximately $434,000 in revenues
and accounts receivable. This change is due to billing adjustments made to
customer accounts that were discovered during the second quarter of 2000
relating to the first quarter of 2000 and were inadvertently excluded due to a
billing system conversion.
CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS
This amended Quarterly Report on Form 10-Q/A and the information
incorporated by reference may include "forward-looking statements" within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. In particular, your attention is directed to Part I, Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operation. We
intend the disclosure in this section and throughout the amended Quarterly
Report on Form 10-Q/A to be covered by the safe harbor provisions for
forward-looking statements. All statements regarding our expected financial
position and operating results, our business strategy, our financing plans and
the outcome of any contingencies are forward-looking statements. These
statements can sometimes be identified by our use of forward-looking words such
as "may," "believe," "plan," "will," "anticipate," "estimate," "expect,"
"intend" and other phrases of similar meaning. Known and unknown risks,
uncertainties and other factors could cause the actual results to differ
materially from those contemplated by the statements. The forward-looking
information is based on various factors and was derived using numerous
assumptions.
Although we believe that the expectations expressed in these
forward-looking statements are reasonable, our expectations may not turn out to
be correct. Actual results could be materially different from our expectations,
including the following:
o we may lose subscribers or fail to grow our customer base;
o we may not be able to sustain our current growth or to
successfully integrate new customers or assets obtained
through acquisitions;
o we may fail to compete with existing and new competitors;
o we may not adequately respond to technological developments
impacting the Internet;
o we may fail to implement proper security measures to protect
our network from inappropriate use, which could overload our
network's capacity and cause us to experience a major system
failure;
o we may issue a substantial number of shares of our common
stock upon exercise of Class B Warrants, especially if the
market value of our stock declines, thereby causing
significant dilution in the value of your investment;
o we may fail to settle outstanding litigation; and
o we may not be able to find needed financing.
This list is intended to identify some of the principal factors that could cause
actual results to differ materially from those described in the forward-looking
statements included elsewhere in this report. These factors are not intended to
represent a complete list of all risks and uncertainties inherent in our
business, and should be read in conjunction with the more detailed cautionary
statements included in our Annual Report on Form 10-K for the fiscal year ended
December 31, 1999 under the caption "Item 1. Business - Risk Factors" and in our
other SEC filings and our press releases.
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RMI.NET, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Consolidated Balance Sheets as of March 31, 2000
and December 31, 1999........................................................................... 1
Consolidated Statements of Operations for the Three Months Ended
March 31, 2000 and 1999......................................................................... 2
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2000 and 1999......................................................................... 3
Notes to Consolidated Financial Statements......................................................... 4
</TABLE>
<PAGE> 4
RMI.NET, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
------------- -------------
(unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents ........................................................ $ 3,256,566 $ 11,238,188
Trade receivables, net of allowance for doubtful accounts ........................ 4,412,636 3,931,983
Other ............................................................................ 946,092 885,191
------------- -------------
Total current assets ......................................................... $ 8,615,294 $ 16,055,362
------------- -------------
PROPERTY AND EQUIPMENT, NET ......................................................... 10,110,840 10,746,914
GOODWILL, NET ....................................................................... 41,598,967 43,648,461
OTHER, NET .......................................................................... 4,593,377 268,293
------------- -------------
Total assets ................................................................. $ 64,918,478 $ 70,719,030
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................................................................. $ 2,239,259 $ 3,312,576
Current maturities of long-term debt and capital lease obligations ............... 1,869,482 1,952,597
Deferred revenue ................................................................. 2,361,584 2,497,632
Accrued payroll and related taxes ................................................ 730,729 1,030,019
Accrued expenses ................................................................. 4,581,590 5,258,488
------------- -------------
Total current liabilities .................................................... 11,782,644 14,051,312
------------- -------------
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS ........................................ 1,906,363 2,222,373
------------- -------------
Total liabilities ............................................................ 13,689,007 16,273,685
------------- -------------
REDEEMABLE, CONVERTIBLE PREFERRED STOCK:
Series B, $.001 par value; 9,600 shares authorized, 0 shares issued or
outstanding .................................................................... -- --
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Series A Preferred Stock, $.001 par value; 750,000 shares authorized, 0
issued or outstanding .......................................................... -- --
Common stock, $.001 par value; 100,000,000 shares authorized, 21,729,797
and 21,125,172 issued, respectively, 21,677,477 and 21,069,355
outstanding, respectively ...................................................... 21,677 21,069
Additional paid-in capital ....................................................... 101,713,390 97,101,828
Accumulated deficit .............................................................. (50,422,263) (42,583,802)
Unearned compensation ............................................................ (83,333) (93,750)
------------- -------------
Total stockholders' equity ................................................... 51,229,471 54,445,345
------------- -------------
$ 64,918,478 $ 70,719,030
============= =============
</TABLE>
See Notes to Consolidated Financial Statements
1
<PAGE> 5
3
RMI.NET, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
2000 1999
------------- -------------
(unaudited)
<S> <C> <C>
Revenue
Communication services ............................. $ 9,842,062 $ 4,339,246
Web solutions ...................................... 2,111,243 923,754
------------- -------------
11,953,305 5,263,000
------------- -------------
Costs and expenses
Operating expenses ................................. 7,831,594 2,769,614
Selling expenses ................................... 1,579,333 856,538
General and administrative expenses ................ 6,549,191 3,617,994
Depreciation and amortization ...................... 3,852,974 1,143,103
------------- -------------
Total costs and expenses ....................... 19,813,092 8,387,249
------------- -------------
Operating loss ............................... (7,859,787) (3,124,249)
Other income (expense)
Interest expense ................................... (63,956) (85,439)
Interest income .................................... 74,433 22,500
Other income, net .................................. 10,848 --
------------- -------------
Net loss .............................................. (7,838,462) (3,187,188)
Preferred stock dividends ............................. -- 99,000
------------- -------------
Net loss applicable to common stockholders ............ $ (7,838,462) $ (3,286,188)
============= =============
Basic and diluted loss per common share ............... (0.37) (0.34)
============= =============
Weighted average common shares outstanding ............ 21,019,000 9,767,000
============= =============
</TABLE>
See Notes to Consolidated Financial Statements
2
<PAGE> 6
RMI.NET, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
2000 1999
------------- -------------
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ......................................................................... $ (7,838,462) $ (3,187,188)
Items not requiring cash:
Depreciation ................................................................... 1,124,119 172,748
Amortization ................................................................... 2,728,855 970,355
Stock contribution to pension plan ............................................. 36,877 26,398
Stock option compensation and stock bonus ...................................... 45,417 --
Changes in operating assets and liabilities net of effects from acquired
interests:
Trade receivables .............................................................. (532,657) 173,081
Prepaid expenses and other assets .............................................. (121,945) (244,469)
Accounts payable ............................................................... (1,073,317) 1,598,183
Deferred revenue ............................................................... (136,048) 112,706
Accrued payroll and related taxes .............................................. (299,290) 55,265
Accrued expenses ............................................................... (676,898) (177,416)
------------- -------------
Net cash used in operating activities ........................................ (6,743,349) (500,337)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures ............................................................. (804,745) (1,232,368)
Cash paid for investments and acquisitions ....................................... (200,000) --
Net cash used in investing activities ........................................ (1,004,745) (1,232,368)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of common stock options and warrants ...................... 278,097 528,313
Increase in deferred investment costs ............................................ (112,500) --
------------- -------------
Payments on long-term debt and capital lease obligations ......................... (399,125) (485,802)
------------- -------------
Net cash (used in) provided by financing activities .......................... (233,528) 42,511
------------- -------------
DECREASE IN CASH AND CASH EQUIVALENTS ............................................... (7,981,622) (1,690,194)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ...................................... 11,238,188 5,729,346
------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ............................................ $ 3,256,566 $ 4,039,152
============= =============
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The interim financial data are unaudited; however, in the opinion of
management, the interim data include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair statement of the results for the
interim periods. The financial statements included herein have been prepared by
RMI.NET, Inc. (hereinafter, "the Company") pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that the
disclosures included herein are adequate to make the information presented not
misleading.
RECLASSIFICATIONS
Certain amounts in the prior year financial statements have been
reclassified to conform to the current year presentation.
NOTE 2. NET LOSS PER SHARE
The Company follows the provisions of SFAS No. 128, "Earnings Per
Share." SFAS No. 128 provides for the calculation of "Basic" and "Diluted"
earnings per share. Basic loss per share includes no dilution and is computed by
dividing income available to common stockholders by the weighted average number
of common shares outstanding for the period. Diluted loss per share reflects the
potential dilution of securities that could share in the earnings of an entity.
As all of the Company's stock options and warrants are antidilutive, basic and
diluted loss per share is the same for all periods presented herein.
NOTE 3. ACQUISITIONS
On March 16, 2000, the Company issued 11,809 shares of common stock
(valued at approximately $117,000) in the acquisition of the assets of B&B
Computers, headquartered in Burlington, Colorado.
On March 17, 2000, the Company entered into definitive agreements to
acquire Internet Communications Corp. ("ICC"), a company that is traded on the
Nasdaq SmallCap Market under the symbol "INCC." The acquisition is subject to
approval by the shareholders of ICC. ICC is a telecommunications integration and
network services company that specializes in the design, implementation,
maintenance, and monitoring of premise and network-based communications for
wide-area networks. ICC is headquartered in Greenwood Village, Colorado and
markets its products and services to Colorado-based businesses. Subject to
certain conditions, and assuming a market value of $10.00 per share for the
Company's common stock, the Company agreed to issue approximately 2.8 million
shares of common stock to ICC's shareholders which, assuming a market value of
$10.00 per share for the Company's common stock, the 2.8 million shares would be
valued at approximately $28 million. The Company also agreed to issue warrants
to purchase approximately 3.1 million shares of common stock at $11.50 per share
to the shareholders of ICC. In the event the market value of the Company's
common stock was less than $10.00 per share the Company agreed it would issue
additional shares of common stock. The total number of shares to be issued by
the Company to ICC shareholders may be greater or less than 2.8 million,
depending on the RMI.NET share price at the time of closing. The number of
shares issued by RMI.NET is subject to a collar that ranges from a maximum
RMI.NET share price of $12.89 and a minimum RMI.NET share price of $6.19. Under
the terms of the agreement, the number of shares issued may range between 2.2
million and 4.5 million.
4
<PAGE> 8
On March 31, 2000, the Company issued 484,000 shares of common stock
(valued at approximately $3.6 million) in the acquisition of a 19.9% interest in
ENGINENUMBER9.COM. ENGINENUMBER9.COM is a vertical market applications services
provider ("ASP") and developer of "Private Label" virtual desktops for business
and associations. The investment in ENGINENUMBER9.COM is accounted for on the
cost method.
NOTE 4. SEGMENT INFORMATION
The Company's management regularly evaluates the performance of the
Company by reviewing the operating results of its two segments: Web Solutions
and Communications Services. The Company considers each division to be an
operating segment as they have separate management teams, offer different
products and services, and utilize different marketing strategies to target
different types of customers. Web Solutions provides web site production,
hosting, marketing, and data center co-location services. Communication services
consist of dedicated and dial-up Internet services and long distance and related
services. The Company believes that all telecommunications services within this
segment should be aggregated as the services contained therein are offered to
the same class of customer.
In making operating decisions and allocating resources, the Company's
management specifically focuses on the revenues and operating costs generated by
each operating segment, as summarized in the following tables. Certain shared
costs of the segments have been allocated to each segment based upon its share
of the consolidated revenues for the period reported.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
2000 1999
------------- -------------
(unaudited)
<S> <C> <C>
NET SALES:
Communication Services .................... $ 9,842,062 $ 4,339,246
Web Solutions ............................. 2,111,243 923,754
------------- -------------
$ 11,953,305 $ 5,263,000
============= =============
OPERATING EXPENSES:
Communication Services .................... $ 7,310,708 $ 2,547,887
Web Solutions ............................. 520,886 221,727
------------- -------------
$ 7,831,594 $ 2,769,614
============= =============
SG&A:
Communication Services .................... $ 7,198,355 $ 3,232,541
Web Solutions ............................. 930,169 1,241,991
------------- -------------
$ 8,128,524 $ 4,474,532
============= =============
OPERATING INCOME/(LOSS) BEFORE
DEPRECIATION AND AMORTIZATION:
Communication Services .................... $ (4,667,001) $ (1,441,182)
Web Solutions ............................. 660,188 (539,964)
------------- -------------
$ (4,006,813) $ (1,981,146)
============= =============
</TABLE>
5
<PAGE> 9
NOTE 5. COMMITMENTS AND CONTINGENCIES
MINIMUM PURCHASE COMMITMENTS
The Company has several agreements with its service providers whereby
it is granted certain discounts on services based on anticipated volume over
specified periods with monthly minimums.
The Company has a service agreement with Global Crossing Bandwidth,
Inc. for Dedicated Carrier Termination, Carrier Toll Free, NOS Switched and
Dedicated, Inbound and Outbound, Calling Card, 800 PIN, and International
Services through January 18, 2005. The service agreement was assumed as part of
the Company's purchase of Idealdial Corporation and was renegotiated as of
September 29, 1999. The terms of the amended agreement currently provide for an
aggregate minimum commitment of approximately $30 million subject to certain
monthly minimums. The Company's minimum monthly usage was $250,000 through
December 1999, then escalates each month to $500,000 per month in September
2000. The minimum monthly usage charge then increases to $550,000 in December
2001 until the earlier of the expiration of the agreement or when the Company
has paid an aggregate of $29.8 million in usage charges. Historically, the
Company has not met its monthly minimums and the service provider has not yet
billed the Company for its minimum amounts. The service provider has waived the
minimum commitments through March 31, 2000. The Company is currently in
negotiation with Global Crossing and believes it will be able to renegotiate the
commitment whereby past deficiencies will be offset by broadening the scope of
services under the commitment along with future increases in its commitment.
The Company has a service agreement with MCI/Worldcom for certain
network data services through August 2002. The service agreement was assumed as
part of the Company's purchase of DataXchange. The terms of the agreement
currently provide for a remaining aggregate minimum commitment of approximately
$2.4 million subject to a monthly minimum of $75,000. Historically, the Company
has met its monthly minimums.
NOTE 6. COMMON STOCK TRANSACTIONS
The increase in the Company's common stock issued and outstanding as of
March 31, 2000 is primarily a result of:
o On January 18, 2000, the Company issued an additional 58,065 shares of
common stock (valued at approximately $495,000) pursuant to the earn
out provisions of the June 1998 acquisition of Application Methods,
Inc.
o On March 16, 2000, the Company issued 11,809 shares of common stock
(valued at approximately $117,000) in the acquisition of the assets of
B&B Computers, headquartered in Burlington, Colorado.
o On March 27, 2000, the Company issued 2,689 shares of common stock
(valued at approximately $35,000) pursuant to an employment agreement
with two employees.
o On March 31, 2000, the Company issued 484,000 shares of common stock
(valued at approximately $3.6 million) in the acquisition of a 19.9%
interest in ENGINENUMBER9.COM.
NOTE 7. RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission Staff released
Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition." SAB 101 provides
interpretive guidance on the recognition, presentation, and disclosure of
revenue in financial statements. SAB 101 must be applied to financial statements
no later than the
6
<PAGE> 10
second fiscal quarter of 2000. The Company does not believe that the adoption of
SAB 101 will have a material impact on its financial position or results of
operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The following discussion of the results of operations and financial
condition of RMI.NET, Inc. (the "Company") should be read in conjunction with
the Company's Consolidated Financial Statements and the Notes thereto included
elsewhere in this amended Quarterly Report.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED WITH THREE MONTHS ENDED
MARCH 31, 1999
TOTAL REVENUE
The Company's total revenues grew 127%, from $5,263,000 for the three
months ended March 31, 1999, to $11,953,000 for the three months ended March 31,
2000. Revenue growth performance is attributable to an increase in the number of
the Company's customers, which were added primarily through acquisitions. During
the year ended December 31, 1999, the Company completed 16 acquisitions, 14 of
which occurred in the second, third, and fourth quarters. In addition, the
Company intensified its sales and marketing efforts by launching a national
advertising campaign in September 1999 and by increasing the size of the sales
force.
COMMUNICATION SERVICES
Communication Services is comprised predominately of dial-up, dedicated
access, and telecommunication services. The Company offers a broad range of
connectivity options to its customers including dedicated, Digital Subscriber
Line ("DSL"), Integrated Services Digital Network ("ISDN"), and dial-up
connections as well as long distance voice services. Connectivity customers
typically pay fixed, monthly recurring service charges. The charges vary
depending on the type of service, the length of the contract, and local market
conditions. Amounts billed relating to future periods are recorded as deferred
revenue and amortized monthly as the services are rendered.
Communication Services revenue increased 127%, from $4,339,000 for the
three months ended March 31, 1999, to $9,842,000 for the comparable three month
period in 2000. This revenue included a one-time equipment sale in the amount of
$525,000. Acquisitions completed in the last three quarters of 1999 contributed
significantly to this increase.
WEB SOLUTIONS
Web Solutions revenues are comprised of three major products: Web site
hosting and co-location, Web site production, and Web site marketing. Web
hosting customers typically pay fixed, recurring monthly service charges.
Revenue from Web site production and Web marketing customers is recognized as
the service is provided.
Web Solutions revenue grew 129%, from $924,000 for the three months
ended March 31, 1999, to $2,111,000 for the comparable three month period in
2000. Web site hosting and co-location revenue accounted for $340,000 of revenue
in 1999 and $842,000 in 2000, for an increase of 148%. This increase is due to
an increase in the number of hosted Web sites as a result of acquisitions. Web
site production increased from $656,000 in 1999 to $1,119,000 in 2000, for an
increase of 71%. The increase in Web production revenue is primarily due to Web
production revenue contributed through the acquired companies.
7
<PAGE> 11
OPERATING EXPENSES
Operating expenses related to Communication Services customers consist
primarily of costs for circuit and local line charges to provide service to our
customers. The operating expenses related to Web solutions customers consist
primarily of payroll expense related to Web-site design services and
sub-contracting costs.
Operating expenses increased 183%, from $2,770,000 for the three months
ended March 31, 1999, to $7,832,000 for the comparable period in 2000, primarily
due to acquisitions. In addition, the operating expenses as a percent of revenue
increased from 53% in 1999 to 63% in 2000. Operating expenses as a percent of
revenues increased for the three months ended March 31, 2000 relative to the
comparable period of 1999, due to increased telephony operations which typically
have lower margins and increased costs directly related to production services
within the Web Solutions line of business due to acquisitions.
SELLING EXPENSES
Selling expenses consist primarily of salaries, commission,
advertising, and marketing. Selling expenses increased 84%, from $857,000 for
the three months ended March 31, 1999, to $1,579,000 for the comparable period
in 2000. The increase in selling expenses is due primarily to the addition of
sales personnel related to the 1999 acquisitions
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses ("G & A") consist primarily of
salaries and related benefits, and include the expenses of general management,
engineering, customer service, technical support, accounting, billing, and
office facilities. G & A expenses increased 81%, from $3,618,000 for the three
months ended March 31, 1999, to $6,549,000 for the comparable period in 2000.
This increase was partially the result of higher payroll costs and benefits
primarily related to the acquisitions during 1999. Payroll and benefits cost
increased 99%, from $1,760,000 in 1999, to $3,500,000 in 2000, as a result of
increasing the Company's headcount.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization is provided for over the estimated useful
lives of assets ranging from three to seven years using the straight-line
method. The excess of cost over the fair value of net assets acquired, or
goodwill, is amortized using the straight-line method over a five-year period.
Depreciation and amortization increased 237%, from $1,143,000 for the three
months ended March 31, 1999, to $3,853,000 for the comparable period in 2000.
The increase was due to higher goodwill amortization associated with the
Company's acquisitions during 1999. Additional acquisitions and investments are
likely to cause depreciation and goodwill amortization to increase in the
future.
EFFECTS OF INFLATION
Historically, inflation has not had a material effect on the Company.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 31, 2000, the Company used $6,743,000
in operations, as compared to $500,000 for the three months ended March 31,
1999. The increase in cash used in operations resulted primarily from a net loss
of $7,838,000 million. In addition, the accounts payable balance was reduced by
$1,073,000 and accrued liabilities decreased $677,000 due to payments made on
existing balances. The trade receivable balance increased $533,000, primarily
due to Web Solutions
8
<PAGE> 12
revenue to one customer of $625,000. The Company expects to continue to have
operating cash flow deficiencies for the near future as it develops and expands
its business.
For the three months ended March 31, 2000, the Company used $1,005,000
in investing activities, as compared to $1,232,000 for the three months ended
March 31, 1999. The funds were primarily used for capital expenditures of
$805,000.
For the three months ended March 31, 2000, the Company used $234,000 in
financing activities, as compared to cash provided of $43,000 for the three
months ended March 31, 1999. This was primarily the result of a decrease in the
stock options exercised in 2000 compared to 1999.
Since its inception, the Company has funded its operations and working
capital needs primarily through the public and private placement of the
Company's equity securities. In addition, a significant portion of the Company's
capital expenditures have been financed through capital lease obligations
payable to finance companies.
In the Company's December 1999 private placement, the Company sold the
following securities to two institutional investors, Advantage Fund II Ltd. and
Koch Investment Group Limited, for aggregate consideration of $10 million:
o 761,610 shares of common stock;
o Class A Warrants to purchase 182,786 shares of common stock;
and
o Class B Warrants to purchase a potentially unlimited number of
shares of common stock.
The outstanding Class B Warrants carry certain risks, including the potential
for:
o substantial dilution;
o a detrimental effect on the Company's ability to raise
additional funds; and
o a decline in the market value of the Company's common stock as
a result of the exercise of the Class B Warrants and
subsequent sales of the common stock.
The number of shares that the Company may issue to holders of RMI.NET's
Class B Warrants is based on the market price of the Company's common stock from
May 2000 through November 2002. In effect, the holders of the Class B Warrants
have the opportunity to profit from a rise in the market price of the Company's
common stock, if any, without assuming the risk of loss from a decline in the
stock price. If the market price of the Company's common stock decreases, the
Company may issue a greater number of shares upon conversion of the Class B
Warrants. There is theoretically no limit on the number of shares of common
stock that the Company may be required to issue upon conversion of the Class B
Warrants. A stockholder's percentage ownership could be diluted substantially.
Moreover, because the exercise price of the Class B Warrants is only $0.01 per
share, the Company will not receive material cash proceeds from the exercise of
the Class B Warrants.
The Company has cash and cash equivalents of $3,257,000 at March 31,
2000. Management estimates that, based upon its current expectations for growth,
the Company will require additional funding of up to $5 million through the end
of 2000 for the execution of its current business plan, including the financing
of its anticipated capital expenditures and operating losses. In addition to
increased cash flow from operations, the Company intends to obtain this funding
from one or more of the following sources:
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<PAGE> 13
1. a commitment from one of the institutional investors who
purchased common stock and warrants in December 1999 to
purchase an additional $7.5 million of common stock and
warrants.
2. a private placement of common or preferred stock.
3. establishing a credit facility to finance working capital and
capital expenditures for up to $20 million.
Management believes its current operating funds, along with those additional
financing sources, will be sufficient to fund its cash requirements for at least
the next twelve months.
The sale of additional equity or convertible debt securities could
result in additional dilution to the Company's stockholders. In addition, the
Company will, from time to time, consider the acquisition of or investment in
complementary businesses, products, services, and technologies, and the
repurchase and retirement of debt, which might impact the Company's liquidity
requirements or cause the Company to issue additional equity or debt securities.
There can be no assurance that financing will be available in amounts or on
terms acceptable to the Company, if at all. Should the Company be unsuccessful
in its efforts to raise capital, it may be required to modify or curtail its
plans for growth.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: August 14, 2000.
RMI.NET, INC.
a Delaware corporation
By: /s/ Douglas H. Hanson
-------------------------------------
Name: Douglas H. Hanson
Title: Chairman of the Board, Chief
Executive Officer and Director
(Principal Executive Officer)
By: /s/ Michael D. Dingman, Jr.
-----------------------------------
Name: Michael D. Dingman, Jr.
Title: Treasurer (Principal Financial
and Accounting Officer)
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