<PAGE>
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: November 12, 1999
(Date of earliest event reported: September 2, 1999)
CAIS INTERNET, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 000-26103 52-2066769
(State or other jurisdiction (Commission File Number) (IRS Employer Identification
of incorporation) No.)
</TABLE>
<TABLE>
<S> <C>
1255 22/nd/ Street, N.W., Washington, D.C. 20037
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
(202) 715-1300
(Registrant's telephone number, including area code)
Not applicable.
(Former name or former address, if changed since last report)
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
On September 16, 1999, CAIS Internet, Inc. filed with the Securities and
Exchange Commission a Current Report on Form 8-K (the "Form 8-K") with respect
to the acquisition of Atcom, Inc. on September 2, 1999. This amendment is being
filed for the purpose of including financial statements and pro forma financial
information and should be read in conjunction with the Form 8-K.
(a) Financial Statements of Atcom, Inc.
The historical financial statements of Atcom, Inc. required by this item are
set forth in Exhibit 99.1 to this Current Report on Form 8-K/A and are
incorporated herein by reference.
(b) Pro Forma Financial Information.
The pro forma financial information required by this item is set forth in
Exhibit 99.2 to this Current Report on Form 8-K/A and is incorporated herein by
reference.
(c) Exhibits
99.1 Financial Statements of Atcom, Inc.
99.2 Pro Forma Financial Information.
<PAGE>
SIGNATURES
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.
CAIS INTERNET, INC.
By: /s/ Ulysses G. Auger, II
-----------------------------
Ulysses G. Auger, II
Chief Executive Officer and
Chairman
Date: November 12, 1999
<PAGE>
CAIS INTERNET, INC.
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
99.1 Financial Statements of Atcom, Inc.
99.2 Unaudited Pro Forma Condensed Combined Financial Information.
<PAGE>
Exhibit 99.1
FINANCIAL STATEMENTS OF ATCOM, INC.
INDEX
Page Number
Independent Auditors Report 1
Balance Sheets as of December 31, 1998 and 1997 2
Statements of Operations for the years ended
December 31, 1998 and 1997 3
Statements of Changes in Shareholders' (Deficit)
Equity for the years ended December 31, 1998 and 1997 4-5
Statements of Cash Flows for the years ended
December 31, 1998 and 1997 6
Notes to Financial Statements 7-12
Unaudited Condensed Balance Sheet as of
June 30, 1999 13
Unaudited Condensed Statements of Operations
for the six months ended June 30, 1999 and 1998 14
Unaudited Condensed Statements of Cash Flows
for the six months ended June 30, 1999 and 1998 15
Notes to Unaudited Condensed Financial Statements 16
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
ATCOM, Inc.:
We have audited the accompanying balance sheets of ATCOM, Inc. as of
December 31, 1998 and 1997, and the related statements of operations,
shareholders' equity (deficit), and cash flows for the years 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 audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of ATCOM, Inc. as of December 31, 1998 and
1997, and the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
As described in Note 1, on September 2, 1999, the Company was acquired by CAIS
Internet, Inc.
/s/ Deloitte & Touche LLP
October 22, 1999
San Diego, California
- 1 -
<PAGE>
ATCOM, INC
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------
1998 1997
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,241,910 $ 507,288
Accounts receivable, net of allowance for doubtful accounts of
$12,000 in 1998 and 1997 243,973 146,593
Inventories 83,360 166,214
Other current assets 33,754 58,694
----------- -----------
Total current assets 2,602,997 878,789
EQUIPMENT, FURNITURE AND FIXTURES AND
LEASEHOLD IMPROVEMENTS, net 597,518 377,228
OTHER ASSETS 82,627 73,849
----------- -----------
TOTAL $ 3,283,142 $ 1,329,866
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 303,318 $ 283,700
Customer deposits 84,119 139,520
Accrued compensation and benefits 77,605 86,804
Note payable to bank and line of credit 178,681
----------- -----------
Total current liabilities 465,042 688,705
NOTE PAYABLE TO RELATED PARTY 90,000 90,000
NOTE PAYABLE TO BANK, net of current portion 26,029
SERIES D REDEEMABLE CONVERTIBLE PREFERRED STOCK,
no par value, 3,000,000 shares authorized; 2,639,685 shares issued
and outstanding (liquidation preference of $4,777,830) 4,685,698
COMMITMENTS AND CONTINGENCIES (Note 6)
SHAREHOLDERS' EQUITY (DEFICIT):
Series A Convertible Preferred Stock, no par value; authorized, issued
and outstanding shares - 725,849 (liquidation preference of
$914,570) 907,071 907,071
Series B Convertible Preferred Stock, no par value; authorized, issued
and outstanding shares - 265,819 (liquidation preference of
$731,002) 725,003 725,003
Series C Convertible Preferred Stock, no par value; 1,000,000 shares
authorized; 482,360 and 409,126 shares issued and outstanding,
respectively, (liquidation preference of $1,379,550 and $1,170,100,
respectively) 1,362,887 1,153,437
Common stock, no par value; 10,000,000 shares authorized;
2,303,708 and 2,240,000 shares issued and outstanding, respectively 27,597 11,100
Warrants 14,650 7,500
Note receivable from shareholder (75,000) (75,000)
Accumulated deficit (4,919,806) (2,203,979)
----------- -----------
Total shareholders' equity (deficit) (1,957,598) 525,132
----------- -----------
TOTAL $ 3,283,142 $ 1,329,866
=========== ===========
</TABLE>
See notes to financial statements.
- 2 -
<PAGE>
ATCOM, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
1998 1997
<S> <C> <C>
NET SALES $ 1,797,257 $1,921,392
COST OF SALES 954,934 1,146,026
----------- ----------
Gross profit 842,323 775,366
----------- ----------
OPERATING EXPENSES:
Sales and marketing 823,801 431,237
Engineering and research and development 1,323,640 648,276
General and administrative 1,472,131 669,972
----------- ----------
Total operating expenses 3,619,572 1,749,485
----------- ----------
LOSS FROM OPERATIONS (2,777,249) (974,119)
INTEREST INCOME - net 61,422 5,703
----------- ----------
NET LOSS $(2,715,827) $ (968,416)
=========== ==========
</TABLE>
See notes to financial statements.
- 3 -
<PAGE>
ATCOM, INC
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SERIES A SERIES B SERIES C
CONVERTIBLE CONVERTIBLE CONVERTIBLE
PREFERRED PREFERRED PREFERRED
STOCK STOCK STOCK
---------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997 725,849 $907,071 211,274 $575,004
Issuance of Series B convertible preferred stock for cash 54,545 149,999
Issuance of Series C convertible preferred stock for cash,
net of issuance costs of $16,663 409,126 $1,153,437
Exercise of stock options for cash
Issuance of common stock for cash
Issuance of Series C convertible preferred stock warrants
for services
Net loss
-------- --------- --------- --------- -------- ----------
BALANCE, DECEMBER 31, 1997 725,849 907,071 265,819 725,003 409,126 1,153,437
Issuance of Series C convertible
preferred stock for cash 73,234 209,450
Exercise of stock options for cash
Issuance of Series C convertible
preferred stock warrants for
services
Net loss
-------- --------- --------- --------- -------- ----------
BALANCE, DECEMBER 31, 1998 725,849 $907,071 265,819 $725,003 482,360 $1,362,887
======== ========= ========= ========= ======== ==========
(Continued)
</TABLE>
See notes to financial statements
- 4 -
<PAGE>
ATCOM, INC
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Note
Common Stock Receivable Total
----------------- From Accumulated Shareholders'
Shares Amount Warrants Shareholder Deficit Equity (Deficit)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997 2,200,000 $ 3,100 $(75,000) $(1,235,563) $ 174,612
Issuance of Series B convertible preferred stock for cash 149,999
Issuance of Series C convertible preferred stock for cash,
net of issuance costs of $16,663 1,153,437
Exercise of stock options for cash 35,000 6,625 6,625
Issuance of common stock for cash 5,000 1,375 1,375
Issuance of Series C convertible preferred stock warrants
for services $ 7,500 7,500
Net loss (968,416) (968,416)
--------- ------- -------- -------- ---------- ---------
BALANCE, DECEMBER 31, 1997 2,240,000 11,100 7,500 (75,000) (2,203,979) 525,132
Issuance of Series C convertible preferred stock for cash 209,450
Exercise of stock options for cash 63,708 16,497 16,497
Issuance of Series C convertible preferred stock warrants
for services 7,150 7,150
Net loss (2,715,827 (2,715,827)
--------- ------- -------- -------- ---------- ---------
BALANCE, DECEMBER 31, 1998 2,303,708 $27,597 $14,650 $(75,000) $(4,919,806) $(1,957,598)
========= ======= ======== ======== =========== ===========
(Concluded)
</TABLE>
See notes to financial statements
- 5 -
<PAGE>
ATCOM, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Years Ended December 31,
1998 1997
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(2,715,827) $ (968,416)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 248,177 129,914
Loss on disposal of fixed assets 24,711
Provision for doubtful accounts 12,000
Warrants issued for services 7,150 7,500
Changes in operating assets and liabilities:
Accounts receivable (97,380) (138,106)
Inventories 82,854 273,277
Other current assets 24,940 (49,796)
Accounts payable 19,617 (45,070)
Customer deposits (55,401) (234,280)
Accrued compensation and other liabilities (9,198) 19,138
----------- ----------
Net cash used in operating activities (2,470,357) (993,839)
----------- ----------
INVESTING ACTIVITIES:
Purchase of equipment, furniture and fixtures and
leasehold improvements (501,956) (335,530)
----------- ----------
Net cash used in investing activities (501,956) (335,530)
----------- ----------
FINANCING ACTIVITIES:
Proceeds from issuance of Series B Convertible Preferred Stock 149,999
Proceeds from issuance of Series C Convertible Preferred Stock 209,450 1,153,437
Proceeds from issuance of Series D Redeemable Convertible
Preferred Stock 4,685,698
Proceeds from note payable to bank and line of credit 104,710
Payments on note payable to bank and line of credit (204,710)
Proceeds from issuance of common stock 16,497 8,000
----------- ----------
Net cash provided by financing activities 4,706,935 1,416,146
----------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,734,622 86,777
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 507,288 420,511
----------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,241,910 $ 507,288
=========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 8,340 $ 11,480
=========== ==========
NON-CASH TRANSACTIONS:
Stock issued for services $ 7,150 $ 7,500
=========== ==========
</TABLE>
See notes to financial statements.
- 6 -
<PAGE>
ATCOM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ATCOM, Inc. (the "Company") was incorporated in California on February 2,
1996. The Company is engaged in the development and marketing of software
for high-speed public Internet access. On September 2, 1999, the Company
was acquired by CAIS Internet, Inc.
Cash Equivalents - The Company considers investments in highly liquid debt
securities with remaining maturities of three months or less when acquired
to be cash equivalents.
Concentration of Credit Risk - The Company invests its excess cash in money
market accounts managed by financial institutions with strong credit
ratings and has not experienced any losses on its investments.
The Company provides credit, in the normal course of business, to
commercial entities with strong credit ratings. Terms of the Company's
sales normally require a significant cash deposit at the time the order is
received, generally 50% of the total order value. The Company estimates its
potential credit losses on an ongoing basis and provides for these
anticipated losses in the period that the losses became evident.
Two customers collectively accounted for 51% and 80% of net sales for the
years ended December 31, 1998 and 1997, respectively, and a comparable
percentage of accounts receivable.
Inventories - Inventories consist primarily of hardware and are stated at
the lower of cost or net realizable value.
Depreciation and Amortization - Equipment, furniture and fixtures and
leasehold improvements are stated at cost and are depreciated over their
estimated useful lives (3 to 5 years) using the straight-line method,
except leasehold improvements which are amortized over the lesser of
the estimated useful lives of the assets or the remaining lease term.
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 amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Revenue Recognition - Revenues are derived from contracts for the sale or
lease of public terminals and software licensing. Revenue from public
terminals may include hardware, software, installation and customer
support. Software and/or hardware sales are recognized upon delivery or as
earned over the term of the operating lease. Revenues from custom
programming services are recognized as the services are rendered. Revenues
from maintenance contracts are recognized ratably over the life of the
contract.
- 7 -
<PAGE>
Stock-Based Compensation - In accordance with Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation ("SFAS No. 123"), stock-based
compensation expense is measured using either the intrinsic-value method as
prescribed by Accounting Principles Board Opinion No. 25 ("APB 25") or the
fair-value method described in SFAS No. 123. The Company has elected to
continue accounting for its stock-based compensation for option grants to
employees or directors in accordance with the provisions of APB 25.
The Company accounts for stock option grants and similar equity instruments
granted to non-employees under the fair value method provided for in SFAS
No. 123.
2. EQUIPMENT, FURNITURE AND FIXTURES AND LEASEHOLD IMPROVEMENTS
Equipment, furniture and fixtures and leasehold improvements consist of the
following at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Office furniture, fixtures and equipment $ 41,377 $ 28,050
Leasehold improvements 140,750 68,981
Public terminals 240,842 149,685
Computer equipment 452,410 234,899
Equipment under operating lease 84,624 59,360
--------- ---------
Accumulated depreciation 960,003 540,975
(362,485) (163,747)
--------- ---------
$ 597,518 $ 377,228
========== ==========
</TABLE>
3. NOTES PAYABLE AND LINES OF CREDIT
Note Payable - During 1997 and part of 1998, the Company had a fixed rate
installment note payable to a bank, collateralized by substantially all
assets of the Company and bearing interest at 10.77% per annum. The balance
at December 31, 1997 of $54,710 was repaid in March 1998.
Lines of Credit - During 1997 and through September 1, 1998, the Company
had an agreement with a bank for a line of credit that allowed for maximum
borrowing of $250,000. Borrowings under the line of credit were
collateralized by substantially all assets of the Company and bore interest
at the bank's prime rate plus 1.50%. At December 31, 1997, $150,000 was
outstanding under the line of credit, which was repaid during 1998. The
line of credit expired on September 1, 1998.
In connection with the line of credit, the Company has outstanding warrants
to purchase 9,000 shares of common stock at an exercise price of $2.00 per
share and warrants to purchase 3,000 shares of common stock at an exercise
price of $4.00 per share. The warrants expire on August 1, 2004 and
September 3, 2004, respectively.
- 8 -
<PAGE>
On June 3, 1999, the Company entered into an agreement with a bank for a
line of credit that allows for maximum borrowing of $350,000. Borrowings
under the line of credit are collateralized by substantially all assets of
the Company and bear interest, payable monthly, at the bank's prime rate
plus 1.0%. The line of credit expires on June 2, 2000. In connection with
the line of credit, the Company must maintain certain financial and other
covenants, including a prohibition on dividends. On September 2, 1999, the
Company repaid the entire outstanding balance. In connection with the line
of credit, the bank received from the Company six-year warrants to purchase
7,000 shares of common stock at an exercise price of $3.50 per share.
Convertible Note - On July 14, 1999, the Company borrowed $500,000 from a
shareholder under a convertible subordinated promissory note. The note is
collateralized by substantially all assets of the Company, bears interest
at 9% and matures on April 14, 2000. The note and accrued interest will
automatically convert into other securities of the Company in connection
with the closing of a qualifying financing, defined as a non-debt
financing in which the aggregate net proceeds to the Company exceed
$6,000,000. In connection with the convertible note, the Company granted a
two-year warrant to the lender to purchase 82,873 shares of common stock at
$1.81 per share. In connection with the issuance of the warrant, the
Company will record a discount on the convertible note of approximately
$370,000, which represents the estimated fair value of the warrant at the
date of grant. The discount will be amortized to interest expense over the
life of the convertible note. On September 2, 1999, the Company repaid the
entire outstanding balance.
The fair values of the warrants issued in connection with the lines of
credit were immaterial and therefore not recorded for financial reporting
purposes.
4. RELATED PARTY TRANSACTIONS
The Company has a note receivable from an officer in the amount of $75,000
at December 31, 1998 and 1997. The note receivable is secured by 75,000
shares of the Company's common stock. Interest accrues at the rate of 10%
per annum and is payable quarterly. On September 2, 1999, the entire note
receivable and accrued interest balances were forgiven.
The Company has a note payable to an officer/director/shareholder in the
amount of $90,000 that bears interest at 5.05% per annum. Principal and
accrued interest are payable on the earlier of the effective date of an
initial public offering of the Company, liquidation of the Company, or
February 28, 2001. On September 2, 1999, the Company repaid the entire
outstanding balance.
5. INCOME TAXES
Deferred income taxes reflect the net effects of temporary differences
between the carrying amounts of assets and liabilities for financial
statement reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets as of December
31, 1998 and 1997 are shown below. A valuation allowance for the entire
deferred income tax asset balance has been recognized, as realization of
such asset is unlikely.
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Net operating loss carryforwards $ 1,832,000 $ 770,000
Other 45,000 65,000
----------- -----------
Total deferred tax assests 1,877,000 835,000
Valuation allowance (1,877,000) (835,000)
Net deferred taxes $ - $ -
=========== ===========
</TABLE>
- 9 -
<PAGE>
At December 31, 1998, the Company has federal and California net operating
loss carryforwards of approximately $4,604,000 and $4,565,000,
respectively. The federal and state tax loss carryforwards will begin to
expire in 2011 and 2004, respectively, unless previously utilized.
Pursuant to Internal Revenue Code Section 382, use of the Company's net
operating loss carryforward may be limited if a cumulative change in
ownership of more than 50% occurs within a three-year period.
6. COMMITMENTS AND CONTINGENCIES
Leases - The Company leases its office facilities and certain equipment
under noncancellable operating leases which expire on various dates through
2001.
Annual future minimum lease payments for the years ending December 31
are as follows:
<TABLE>
<S> <C>
1999 $ 110,047
2000 99,862
2001 18,732
---------
$ 228,641
=========
</TABLE>
Rent expense for the years ended December 31, 1998 and 1997 was
approximately $89,700 and $62,600, respectively.
Legal - The Company is party to legal proceedings and claims which arise in
the normal course of business. In the opinion of management, the ultimate
outcome of the claims and legal proceedings will not have a material impact
on the Company's financial position or results of operations.
7. SHAREHOLDERS' EQUITY
Preferred Stock - Each share of Series A, Series B and Series D Convertible
Preferred Stock is convertible at the option of the holder into one share
of common stock; Series C is convertible into 1.15 shares of common stock.
Conversion is automatic upon the closing of a underwritten public offering.
The conversion ratio is subject to certain anti-dilution adjustments, and
the holder of each share of preferred stock is entitled to one vote for
each share of common stock into which it would convert.
Upon dissolution, liquidation or winding up of the Company, before any
distribution or payment of amounts required to the holders of common stock,
the holders of Series A, B, C and D convertible preferred stock are
entitled to receive a liquidation preference of $1.26, $2.75, $2.86 and
$1.81 per share, respectively, and an amount equal to any declared but
unpaid dividends on such shares.
Non-cumulative annual dividends of $0.10 per share of Series A Convertible
Preferred Stock, $0.218 per share of Series B Convertible Preferred Stock,
$0.229 per share of Series C Convertible Preferred Stock, and $0.14 per
share of Series D Convertible Preferred Stock are payable when and if
legally declared by the Board of Directors. These dividends are in
preference to any declaration or payment of dividends on common stock. No
dividends have been declared.
- 10 -
<PAGE>
The Company is required to redeem the Series D Redeemable Convertible
Preferred Stock if after five years subsequent to its issuance date the
Company has not been liquidated or completed a Qualified Initial Public
Offering, as defined. The redemption value is equal to the greater of the
liquidation preference or the fair value per share as determined by the
Board of Directors.
In August 1999, 349,650 shares of Series C Convertible Preferred Stock were
issued to an investor at $2.86 per share for net cash proceeds of $830,000.
These shares were issued at a price less than the estimated fair value of
the underlying common stock into which they are convertible. Upon issuance,
the Company recorded a charge to accumulated deficit of approximately
$537,000 for the difference between the issuance price of the preferred
stock and the estimated fair value of the common stock into which the
preferred stock is convertible.
Stock Option/Stock Issuance Plan - The Company has adopted the 1996 Stock
Option/Stock Issuance Plan (the "Plan") under which 2,500,000 shares of
common stock are reserved for issuance by the Company to employees,
directors and consultants. The terms of any option grant, including vesting
requirements, are determined by the Board of Directors subject to the
provisions of the Plan. In addition, the Company has the option to
repurchase, at the original issue price, the unvested shares. Under the
Plan, shares issued or granted under options generally vest 25% after the
first year of service and the remaining shares vest in equal monthly
installments over the remaining 36 months of service.
Options under the Plan may be either incentive stock options ("ISOs") or
nonstatutory stock options ("NSOs"). The maximum term of options granted
under the Plan is ten years. The exercise price of the ISOs may be no less
than the fair value on the date of grant and the exercise price of the NSOs
may be no less than 85% of the fair value on the date of grant.
The effect of applying the minimum value method of SFAS 123 to options
granted to employees in 1998 and 1997 did not result in a pro forma net
loss that is materially different from the historical reported amount.
Therefore, no such pro forma information is presented herein. The minimum
value method was applied using the following weighted-average assumptions
for 1998 and 1997: risk-free interest rate of 6%, an expected option life
of four years, and no annual dividends. The weighted-average fair value of
the options granted during the years ended December 1, 1998 and 1997 was
$0.06 per share. Future pro forma results of operations under SFAS 123 may
be materially different from actual reported amounts.
A summary of stock option activity is as follows:
<TABLE>
<CAPTION>
1998 1997
-------------------------- ------------------------
Weighted Weighted
Average Average
Options Exercise Options Exercise
Outstanding Price Outstanding Price
<S> <C> <C> <C> <C>
Outstanding at January 1 1,154,500 $ $0.25 737,500 $ $0.23
Granted 760,250 $ $0.46 512,000 $ $0.29
Exercised (63,708) $ $0.24 (35,000) $ $0.28
Canceled (40,625) $ $0.30 (60,000) $ $0.28
--------- ---------
Outstanding at December 31 1,810,417 $ $0.34 1,154,500 $ $0.25
========= =========
</TABLE>
As of December 31, 1998, the exercise price of the outstanding options
ranged from $0.125 to $0.60 per share, all outstanding options were
exercisable and 1,209,044 options were vested.
- 11 -
<PAGE>
Warrants - In 1998, the Company issued a warrant in lieu of payment for
certain services. The warrant allows the holder to purchase 5,000 shares of
Series C convertible preferred stock for $2.86 per share. The warrant may
be exercised at any time between the issuance date and the expiration date
of February 2008. The fair value of the warrant of $7,150 was charged to
general and administrative expense in 1998. In 1997, the Company issued a
warrant in lieu of payment for certain consulting services. The warrant
allows the holder to purchase 5,500 shares of Series C convertible
preferred stock for $2.86 per share. The warrant may be exercised at any
time between the issuance date and the expiration date of October 26, 2007.
The fair value of the warrant of $7,500 was charged to general and
administrative expense in 1997.
At December 31, 1998, a total of 24,500 warrants to purchase common stock
exercisable at prices from $0.275 to $4.00 per share were outstanding.
Shares Reserved for Future Issuance - As of December 31, 1998 and 1997,
7,524,500 and 2,930,794 shares of common stock, respectively, have been
reserved for conversion of preferred stock and exercise of stock options
and warrants.
----------------
- 12 -
<PAGE>
ATCOM, INC.
CONDENSED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, 1999
---------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,079,912
Accounts receivable, net of allowance for doubtful accounts of $44,800 315,748
Inventories 26,288
Other current assets 117,415
------------
Total current assets 1,539,363
EQUIPMENT, FURNITURE AND FIXTURES AND
LEASEHOLD IMPROVEMENTS, net 556,192
OTHER ASSETS 68,176
------------
TOTAL ASSETS $ 2,163,731
============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 465,106
Customer deposits 3,789
Accrued compensation and benefits 518,765
Note payable to bank and line of credit 350,000
------------
Total current liabilities 1,337,660
NOTE PAYABLE TO RELATED PARTY 90,000
SERIES D REDEEMABLE CONVERTIBLE PREFERRED STOCK,
no par value, 3,000,000 shares authorized; 2,639,685 shares issued and
outstanding (liquidation preference of $4,777,830) 4,685,698
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT):
Series A Convertible Preferred Stock, no par value; authorized, issued
and outstanding shares - 725,849 (liquidation preference of $914,570) 907,071
Series B Convertible Preferred Stock, no par value; authorized, issued
and outstanding shares - 265,819 (liquidation preference of $731,002) 725,003
Series C Convertible Preferred Stock, no par value; 1,000,000 shares
authorized; 842,510 shares issued and outstanding,
(liquidation preference of $2,409,579) 1,362,887
Common stock, no par value; 10,000,000 shares authorized;
2,320,583 shares issued and outstanding 31,678
Warrants 14,650
Note receivable from shareholder (75,000)
Accumulated deficit (6,915,916)
------------
Total shareholders' equity (deficit) (3,949,627)
------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $ 2,163,731
============
</TABLE>
See notes to unaudited financial statements.
- 13 -
<PAGE>
<TABLE>
<CAPTION>
ATCOM, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months ended June 30,
1999 1998
------------- ------------
<S> <C> <C>
Net Sales $ 873,755 $ 1,179,617
Cost of Sales 506,288 684,178
------------- ------------
Gross Profit 367,467 495,439
------------- ------------
Operating Expenses
Sales and marketing 634,225 271,312
Engineering and research and development 685,661 412,866
General and administrative 1,065,885 491,022
------------- ------------
Total operating expenses 2,385,771 1,175,200
------------- ------------
Loss from operations (2,018,304) (679,761)
Other income, net 22,194 2,058
------------- ------------
Net Loss $ (1,996,110) $ (677,703)
============= ============
</TABLE>
See notes to unaudited financial statements.
- 14 -
<PAGE>
ATCOM, INC.
Condensed Statements of Cash Flows
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1999 1998
------------ -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (1,996,110) $ (677,703)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 136,222 104,123
Loss on disposal of fixed assets 3,000 30,000
Provision for doubtful accounts 32,800
Warrants issued for services
Changes in operating assets and liabilities:
Accounts receivable (104,575) (152,711)
Inventories 57,072 59,043
Other current assets (83,661) 12,033
Other assets 14,451
Deferred revenue 55,834
Accounts payable 161,788 (14,515)
Customer deposits (80,330) (127,270)
Accrued compensation and other liabilities 441,160 38,192
------------ -----------
Net cash used in operating activities (1,418,183) (672,974)
------------ -----------
INVESTING ACTIVITIES:
Purchase of equipment, furniture and fixtures and
leasehold improvements (97,897) (443,769)
------------ -----------
Net cash used in investing activities (97,897) (443,769)
------------ -----------
FINANCING ACTIVITIES:
Proceeds from issuance of Series B Convertible Preferred Stock
Proceeds from issuance of Series C Convertible Preferred Stock 194,450
Proceeds from issuance of Series D Convertible Preferred Stock 785,073
Proceeds from note payable to bank and line of credit 350,000 100,000
Payments on note payable to bank and line of credit (54,710)
Proceeds from issuance of common stock 4,082 10,588
------------ -----------
Net cash provided by financing activities 354,082 1,035,401
------------ -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,161,998) (81,342)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,241,910 507,288
------------ -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,079,912 $ 425,946
============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest $ 200 $ 6,748
============ ===========
</TABLE>
See notes to unaudited financial statements.
- 15 -
<PAGE>
ATCOM, Inc.
Notes to Unaudited Financial Statements
June 30, 1999
- --------------------------------------------------------------------------------
BASIS OF PRESENTATION
The accompanying financial statements as of June 30, 1999 and for the six months
ended June 30, 1999 and 1998 are unaudited and have been prepared by ATCOM, Inc.
(the "Company"). The Company believes that the financial statements include all
adjustments of a normal and recurring nature necessary to present fairly its
financial position and results of operations for the period presented. These
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Company's audited financial statements for the
years ended December 31, 1998 and 1997. The results for the six months ended
June 30, 1999 are not necessarily indicative of the results expected for the
entire 1999 year.
- 16 -
<PAGE>
Exhibit 99.2
PRO FORMA FINANCIAL INFORMATION
INDEX
PAGE
----
Description of Pro Forma Financial Information P-2
Unaudited Pro Forma Consolidated Condensed Balance
Sheet as of June 30, 1999 P-3
Unaudited Pro Forma Consolidated Condensed Statement of P-4
Operations for the Six Months ended June 30, 1999
Unaudited Pro Forma Consolidated Condensed Statement of P-5
Operations for the Year ended December 31, 1998
Notes to Unaudited Pro Forma Financial Information P-6-7
P-1
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The accompanying pro forma financial information gives effect to the Atcom,
Inc. acquisition as if such transaction had been consummated on June 30, 1999 in
the case of the Unaudited Pro Forma Consolidated Condensed Balance Sheet of CAIS
Internet, Inc., and on January 1, 1998 in the case of the Unaudited Pro Forma
Consolidated Condensed Statements of Operations of CAIS Internet, Inc. The pro
forma consolidated condensed financial information is presented for illustrative
purposes only and is not necessarily indicative of what CAIS Internet, Inc.'s
actual financial position and results of operations would have been had the
above-referenced transaction been consummated as of the above-referenced dates
or of the financial position or results of operations that may be reported by
CAIS Internet, Inc. in the future.
The following data should be read in conjunction with CAIS Internet, Inc.'s
Consolidated Financial Statements and related notes included in CAIS Internet,
Inc.'s Form S-1 and Atcom, Inc.'s Consolidated Financial Statements and related
notes included elsewhere herein.
P-2
<PAGE>
CAIS INTERNET, INC.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
June 30, 1999
-------------------------------------------------------------
Pro Forma Pro Forma
CAIS Internet Atcom Adjustments CAIS Internet
------------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Current Assets
Cash and cash equivalents $ 104,416 $ 1,080 $ (440) (1) $ 105,056
Accounts receivable, net of allowance for doubtful accounts 1,133 316 1,449
Prepaid expense and other current assets 1,543 118 1,661
Inventories - 26 26
------------- ----------- ------------ -------------
Total current assets 107,092 1,540 (440) 108,192
------------- ----------- ------------ ------------
Property and equipment, net 7,736 556 8,292
Deferred debt financing costs, net 1,389 - 1,389
Intangibles and goodwill 1,370 - 41,720 (2) 43,090
Receivable from officer 400 - 400
Other assets - 68 68
------------- ----------- ------------ ------------
Total noncurrent assets 10,895 624 41,720 53,239
------------- ----------- ------------ ------------
Total assets $ 117,987 $ 2,164 $ 41,280 $ 161,431
============= =========== ============ ============
Current liabilities
Accounts payable and accrued expenses $ 8,935 $ 984 $ 1,469 (2) $ 11,388
Notes payable - 350 (350) (1) -
Unearned revenues 619 - 619
Customer deposits - 4 4
------------- ----------- ------------ ------------
Total current liabilities 9,554 1,338 1,119 12,011
------------- ----------- ------------ ------------
Deferred rent, net of current portion 694 - 694
------------- ----------- ------------ ------------
Total liabilities 10,248 1,338 1,119 12,705
Note payable to officer - 90 (90) (1) -
Put Warrants 1,267 1,267
Series D Redeemable Convertible Preferred Stock - 4,686 (4,686) (3) -
Commitments and Contingencies
Stockholders' equity (deficit) -
Series A Convertible Preferred Stock - 907 (907) (3) -
Series B Convertible Preferred Stock - 725 (725) (3) -
Series C Convertible Preferred Stock - 1,363 (1,363) (3) -
Common stock 198 32 25 (2) 223
(32) (3)
Additional paid-in capital 145,716 40,962 (2) 186,678
Warrants outstanding 9,382 14 (14) (3) 9,382
Deferred compensation (4,444) (4,444)
Note receivable from officer - (75) 75 (3) -
Accumulated equity (deficit) (44,380) (6,916) 6,916 (3) (44,380)
------------- ----------- ------------ ------------
Total stockholders' equity (deficit) 106,472 (3,950) 44,937 147,459
------------- ----------- ------------ ------------
Total liabilities and stockholders' equity (deficit) $ 117,987 $ 2,164 $ 41,280 $ 161,431
============= =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these pro forma consolidated
condensed statements.
P-3
<PAGE>
CAIS INTERNET, INC.
Unaudited Pro Forma Consolidated Condensed Statement of Operations
(in thousands except per share amounts)
<TABLE>
<CAPTION>
Six Months Ended June 30, 1999
---------------------------------------------------------------------
Pro Forma Pro Forma
CAIS Internet Atcom Adjustments CAIS Internet
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net revenues $ 3,420 $ 874 $ 4,294
Cost of services 2,568 506 3,074
Operating expenses:
Selling, general and administrative 9,480 2,386 11,866
Depreciation and amortization 747 - $ 6,953 (4) 7,700
Fair value of stock issued to third party for services 723 - 723
Non-cash compensation 3,121 - 3,121
------------- ------------- ------------- -------------
Total operating expenses 14,071 2,386 6,953 23,410
------------- ------------- ------------- -------------
Loss from operations (13,219) (2,018) (6,953) (22,190)
Interest and other income (expense):
Interest income 540 27 567
Interest expense (1,122) (5) (1,127)
Other expense, net (10) - (10)
------------- ------------- ------------- -------------
Total interest and other income (expense) (592) 22 - (570)
------------- ------------- ------------- -------------
Loss from continuing operations before income taxes (13,811) (1,996) (6,953) (22,760)
Provision for income taxes - - -
------------- ------------- ------------- -------------
Loss from continuing operations (13,811) (1,996) (6,953) (22,760)
Loss from discontinued operations (340) - (340)
------------- ------------- ------------- -------------
Loss before extraordinary item (14,151) (1,996) (6,953) (23,100)
Extraordinary item -- early extinguishment of debt (551) - (551)
------------- ------------- ------------- -------------
Net loss (14,702) (1,996) (6,953) (23,651)
Dividends on preferred stock (350) - (350)
------------- ------------- ------------- -------------
Net loss attributable to common stockholders $(15,052) $ (1,996) $ (6,953) $(24,001)
============= ============= ============= =============
Basic and diluted earnings (loss) per share:
Loss attributable to common stockholders
before discontinued operations and
extraordinary item $ (1.17) $ (1.58)
Discontinued operations (0.03) (0.02)
Extraordinary item (0.04) (0.04)
------------- -------------
Total $ (1.24) $ (1.64)
============= =============
Weighted-average common shares outstanding --
basic and diluted 12,139 2,493 (5) 14,632
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these pro forma consolidated
condensed statements.
P-4
<PAGE>
CAIS INTERNET, INC.
Unaudited Pro Forma Consolidated Condensed Statement of Operations
(in thousands except per share amounts)
<TABLE>
<CAPTION>
Twelve Months Ended December 31, 1998
------------------------------------------------------------------------
Pro Forma Pro Forma
CAIS Internet Atcom Adjustments CAIS Internet
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net revenues $ 5,315 $ 1,797 $ (77) (6) $ 7,035
Cost of services 3,118 955 (77) (6) 3,996
Operating expenses:
Selling, general and administrative 10,657 3,619 14,276
Depreciation and amortization 1,270 - 13,907 (4) 15,177
Non-cash compensation 1,426 - 1,426
------------- ------------- ------------- -------------
Total operating expenses 13,353 3,619 13,907 30,879
------------- ------------- ------------- -------------
Loss from operations (11,156) (2,777) (13,907) (27,840)
Interest and other income (expense):
Interest income - 61 61
Interest expense (1,090) - (1,090)
Other expense, net (11) - (11)
------------- ------------- ------------- -------------
Total interest and other income (expense) (1,101) 61 - (1,040)
------------- ------------- ------------- -------------
Loss from continuing operations before income taxes (12,257) (2,716) (13,907) (28,880)
Provision for income taxes - - -
------------- ------------- ------------- -------------
Loss from continuing operations (12,257) (2,716) (13,907) (28,880)
Income (loss) from discontinued operations (671) - (671)
------------- ------------- ------------- -------------
Net loss attributable to common stockholders $(12,928) $ (2,716) $ (13,907) $(29,551)
============= ============= ============= =============
Basic and diluted earnings (loss) per share:
Loss attributable to common stockholders
before discontinued operations $ (1.24) $ (2.34)
Discontinued operations (0.07) (0.05)
------------- -------------
Total $ (1.31) $ (2.39)
============= =============
Weighted-average common shares outstanding --
basic and diluted 9,869 2,493 (5) 12,362
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these pro forma consolidated
condensed statements.
P-5
<PAGE>
NOTES TO PRO FORMA FINANCIAL INFORMATION
The pro forma financial information is based on the following assumptions
and adjustments (in thousands except share and per share amounts):
(1) Reflects the repayment of $440 by Atcom of certain outstanding notes
payable to officers and financial institutions.
(2) Reflects the amounts related to the Atcom transaction:
Total purchase consideration and transactions costs are anticipated to be
as follows:
<TABLE>
<CAPTION>
Amount
-------
<S> <C>
2,493,383 common shares of CAIS Internet issued at $12.375
per share (the three-day average closing price of CAIS
Internet's common stock surrounding and including the
date of the signing and announcement of the Atcom
transaction)............................................. $30,856
838,969 options to purchase common shares of CAIS
Internet at the estimated fair value..................... 10,131
Estimated transaction costs............................... 1,469
-------
$42,456
</TABLE>
The anticipated purchase consideration and transaction costs have been
allocated for pro forma purposes as follows:
<TABLE>
<CAPTION>
Amount
--------
<S> <C>
Cash................................... $ 640
Other current and long-term assets..... 528
Property and equipment, net............ 556
Intangibles and goodwill............... 41,720
Accounts payable and accrued expenses.. (984)
Other current liabilities.............. (4)
--------
$42,456
</TABLE>
The above purchase price allocation is preliminary and may change upon
final determination of the fair value of net assets acquired. The Company has
not specifically identified amounts to assign to other intangibles including
but not limited to existing technology, existing workforce, and installed
customer base. Changes in the amounts allocated to such assets could result
in changes to the amount of goodwill recorded.
An amortization period of three years has been selected and
utilized in the pro forma financial information for goodwill and other
identifiable intangible assets, which is expected in all material respects to
be representative of the amortization expense that will result from the
ultimate allocation to the specific intangible assets.
P-6
<PAGE>
(3) Reflects the conversion of Atcom Series A, B, and C Convertible Preferred
Stock and Series D Redeemable Convertible Preferred Stock into Atcom common
stock prior to the conversion into CAIS Internet common stock, and the
elimination of equity accounts of Atcom, upon consolidation.
(4) Reflects the amortization over a three-year life of the excess of purchase
price of Atcom over the fair market value of net assets acquired.
(5) Reflects common shares issued in connection with the Atcom transaction.
(6) Reflects the elimination of transactions between CAIS Internet and Atcom.
P-7
