EXHIBIT 99.2
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS OF RAPID LINK,
INCORPORATED AND TELNATIONAL COMMUNICATIONS, INC.
The following unaudited pro forma condensed combined financial statements
give effect to the acquisition of Telenational Communications, Inc.
(Telenational) by Rapid Link, Incorporated (Rapid Link) under the purchase
method of accounting. The following unaudited pro forma condensed combined
balance sheet of Rapid Link and Telenational as of January 31, 2006 and
March 31, 2006, respectively, is based on historical balance sheets and has
been prepared to reflect the acquisition as if it had been consummated on
January 31, 2006. Such pro forma information is based upon the historical
consolidated balance sheet data of Rapid Link and the historical balance
sheet data of Telenational as of January 31, 2006 and March 31, 2006,
respectively. The following unaudited pro forma condensed combined
statement of operations combines Rapid Link's historical statement of
operations for the year ended October 31, 2005 with Telenational's
historical statement of operations for the year ended December 31, 2005
as if the acquisition were consummated on November 1, 2004. The following
unaudited pro forma condensed combined statement of operations combines
Rapid Link's consolidated statement of operations for the three months ended
January 31, 2006 with Telenational's statement of operations for the three
months ended March 31, 2006, assuming the acquisition were consummated on
November 1, 2004.
Under the purchase method of accounting, the aggregate consideration paid
is allocated to the tangible and identified intangible asset acquired and
liabilities assumed on the basis of their fair values on the transaction
date. Any excess purchase price is recorded as goodwill.
These unaudited pro forma condensed combined financial statements have been
prepared based on preliminary estimates of fair values. The actual amounts
recorded as of the completion of the acquisition may differ materially from
the information presented in these unaudited pro forma condensed combined
financial statements. In addition, the impact of ongoing integration
activities could cause material differences in the information presented.
These unaudited pro forma condensed combined financial statements should
be read in conjunction with the historical financial statements and
accompanying notes of Rapid Link, as well as the sections entitled,
"Management Discussion and Analysis or Plan of Operations" and "Risk
Factors" included in the historical consolidated financial statements and
accompanying notes of Rapid Link contained in Rapid Link's annual report
on Form 10-KSB for the year ended October 31, 2005, and the unaudited
consolidated condensed financial statements contained in Rapid Link's
Quarterly Report on Form 10-QSB for the quarter ended January 31, 2006
incorporated by reference herein, together with the audited financial
statements of Telenational for the year ended December 31, 2005 included
as exhibit 99.1 herein. The unaudited pro forma condensed combined
consolidated financial statements are not necessarily indicative of the
consolidated results of operations or financial condition of the combined
company that would have been reported had the acquisition been completed
as of the dates presented, and are not necessarily representative of future
consolidated results of operations or financial condition of the combined
company.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF JANUARY 31, 2006
ASSETS
------
Historical
--------------------------------
Rapid Telenational * Pro Forma
Link, Inc. Communications, Inc. Adjustments Pro Forma
-------------------------------- -------------------------
CURRENT ASSETS
Cash and cash equivalents $ 106,009 $ 563,074 $ - $ 669,083
Trade accounts receivable, net
of allowance for doubtful accounts 668,049 820,252 1,488,301
Prepaid expenses and other current assets 217,737 56,592 274,329
-------------------------------- -------------------------
Total current assets 991,795 1,439,918 - 2,431,713
-------------------------------- -------------------------
PROPERTY AND EQUIPMENT, net 267,848 202,951 470,799
NON-CURRENT ACCOUNTS RECEIVABLE - 12,712 12,712
GOODWILL, net 1,796,917 - (a) 634,984 2,431,901
CUSTOMER LIST - - (b) 3,500,000 3,500,000
OTHER ASSETS, net 200,017 18,665 218,682
-------------------------------- -------------------------
TOTAL ASSETS $ 3,256,577 $ 1,674,246 $ 4,134,984 $ 9,065,807
================================ =========================
* Telenational as of March 31, 2006
The accompanying notes are an integral part of this unaudited pro forma
condensed financial statement.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF JANUARY 31, 2006
(continued)
LIABILITIES AND SHAREHOLDERS' DEFICIT
-------------------------------------
Historical
--------------------------------
Rapid Telenational * Pro Forma
Link, Inc. Communications, Inc. Adjustments Pro Forma
-------------------------------- -------------------------
CURRENT LIABILITIES
Capital lease obligation $ 126,196 $ - $ - $ 126,196
Trade accounts payable 3,407,804 660,527 4,068,331
Accrued liabilities 848,210 85,101 (c) 50,000 983,311
Advances from shareholder 500,000 - 500,000
Accrued interest (including $926,934
to related parties) 1,079,019 - 1,079,019
Deferred revenue 396,773 - 396,773
Contingent payment per purchase agreement - - (d) 500,000 500,000
Deposits and other payables 418,109 16,183 434,292
Due to shareholder - - (k) 237,669 237,669
Convertible debentures, current portion 1,064,981 - 1,064,981
Net current liabilities from
discontinued operations 1,162,000 - 1,162,000
-------------------------------- -------------------------
Total current liabilities 9,003,092 761,811 787,669 10,552,572
-------------------------------- -------------------------
CONVERTIBLE DEBENTURES, net of current
portion and net of debt discount 303,031 - 303,031
CONVERTIBLE NOTES PAYABLE TO RELATED PARTIES,
net of debt discount 934,454 - 934,454
NOTE PAYABLE - - (e) 1,000,000 1,000,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIT
Preferred stock - - -
Common stock 29,298 1 (f)(g) 19,174 48,473
Additional paid-in capital 42,858,862 999 (f)(g) 3,239,576 46,099,437
Accumulated earnings (deficit) (49,817,290) 911,435 (g) (911,435) (49,817,290)
Treasury stock, 12,022 common shares
at cost (54,870) - (54,870)
-------------------------------- -------------------------
Total shareholders' equity (deficit) (6,984,000) 912,435 2,347,315 (3,724,250)
-------------------------------- -------------------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT) $ 3,256,577 $ 1,674,246 $ 4,134,984 $ 9,065,807
================================ =========================
* Telenational as of March 31, 2006
The accompanying notes are an integral part of this unaudited pro forma
condensed financial statement.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENT OF OPERATIONS FOR
THE YEAR ENDED OCTOBER 31, 2005
Historical
--------------------------------
Rapid Telenational * Pro Forma
Link, Inc. Communications, Inc. Adjustments Pro Forma
-------------------------------- -------------------------
REVENUES $ 9,827,049 $10,907,141 $ - $20,734,190
COSTS AND EXPENSES
Costs of revenues 7,713,349 7,159,393 14,872,742
Sales and marketing 205,973 1,235,777 1,441,750
General and administrative 3,227,609 1,980,911 5,208,520
Depreciation and amortization 557,131 56,616 (h) 700,000 1,313,747
Gain on sale of equipment (8,800) - (8,800)
Gain on settlement of
liabilities/legal settlement (225,000) - (225,000)
-------------------------------- -------------------------
Total costs and expenses 11,470,262 10,432,697 700,000 22,602,959
-------------------------------- -------------------------
Operating income (loss) (1,643,213) 474,444 (700,000) (1,868,769)
OTHER INCOME (EXPENSE)
Interest expense and financing costs (651,253) - (i) (80,000) (731,253)
Related party interest expense and
financing costs (219,362) - - (219,362)
Foreign currency exchange gains 10,486 - - 10,486
Other - 9,095 - 9,095
-------------------------------- -------------------------
Total other income (expense), net (860,129) 9,095 (80,000) (940,129)
-------------------------------- -------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS $(2,503,342) $ 483,539 $ (780,000) $(2,808,898)
================================ =========================
NET INCOME (LOSS) PER SHARE:
Basic and diluted net income (loss)
per share
Continuing operations $ (0.11) $ N/A $ (0.04) $ (0.07)
================================ =========================
WEIGHTED AVERAGE SHARES USED IN THE
CALCULATION OF PER SHARE AMOUNTS:
Basic and diluted 23,790,407 N/A (j) 19,175,000 42,965,407
================================ =========================
* Telenational year ended December 31, 2005
The accompanying notes are an integral part of this unaudited pro forma
condensed financial statement.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENT OF OPERATIONS FOR
THE THREE MONTHS ENDED JANUARY 31, 2006
Historical
--------------------------------
Rapid Telenational * Pro Forma
Link, Inc. Communications, Inc. Adjustments Pro Forma
-------------------------------- -------------------------
REVENUES $ 1,986,112 $ 2,722,025 $ - $ 4,708,137
COSTS AND EXPENSES
Costs of revenues 1,528,115 1,870,491 3,398,606
Sales and marketing 142,382 296,549 438,931
General and administrative 657,424 450,817 1,108,241
Depreciation and amortization 104,212 16,766 (h) 175,000 295,978
Gain on sale of equipment - - -
Gain on settlement of
liabilities/legal settlement - - -
-------------------------------- -------------------------
Total costs and expenses 2,432,133 2,634,623 175,000 5,241,756
-------------------------------- -------------------------
Operating income (loss) (446,021) 87,402 (175,000) (533,619)
OTHER INCOME (EXPENSE)
Interest expense and financing costs (248,381) - (i) (20,000) (268,381)
Related party interest expense and
financing costs (33,057) - (33,057)
Foreign currency exchange gains 22,283 - 22,283
-------------------------------- -------------------------
Total other income (expense), net (259,155) - (20,000) (279,155)
-------------------------------- -------------------------
NET INCOME (LOSS) $ (705,176) $ 87,402 $ (195,000) $ (812,774)
================================ =========================
NET INCOME (LOSS) PER SHARE:
Basic and diluted net income (loss)
per share $ (0.02) $ N/A $ (0.01) $ (0.02)
================================ =========================
WEIGHTED AVERAGE SHARES USED IN THE
CALCULATION OF PER SHARE AMOUNTS:
Basic and diluted 29,285,161 - (j) 19,175,000 48,460,161
================================ =========================
* Telenational quarter ended March 31, 2006
The accompanying notes are an integral part of this unaudited pro forma
condensed financial statement.
1. Purchase price calculation
The Company's original purchase agreement required an initial payment of
9,587,500 shares of stock and included a contingent payment of 9,587,500
common shares. Following the closing, the Company amended the original
purchase agreement to change the contingent payment of shares to a second
payment of 9,587,500 shares payable immediately. The contingent cash
payment is based on certain milestones which management has determined
are probable of occurring. The note payable accrues interest at 8%,
and all unpaid interest and principle is due within 18 months. The
acquisition costs is management's estimate of the total direct costs
incurred as a result of the acquisition of Telenational.
Purchase price
-------------------------------------------
Shares Price per Share Value
---------- --------------- -----------
Initial common shares 9,587,500 $ 0.18 $ 1,725,750
2nd portion of common shares 9,587,500 0.16 1,534,000
Contingent cash pmt (full
realization probable) 500,000
Note payable 1,000,000
Acquisition costs 50,000
---------- -----------
Total purchase price 19,175,000 $ 4,809,750
---------- -----------
The initial common shares were granted on May 5, 2006. The 3 day average
price before and after the grant date was $0.18 per share. The second
portion of common shares was granted on June 5, 2006. The closing stock
price on the grant date was $0.16 per share for the second portion of
common shares.
2. Purchase price allocation
The Company's purchase price allocation was based on total consideration
of $4,809,750. Customer list will be amortized over its estimated useful
life of five years. The purchase price allocated to customer list was
determined by management's estimate. Goodwill was recorded for the
excess of consideration given over the fair value of assets acquired.
Value
-----------
Total Telenational assets acquired $ 1,362,950
Telenational liabilities assumed 688,184
-----------
Telenational equity acquired as of 4/30/06 674,766
Customer list 3,500,000
Goodwill 634,984
-----------
Total purchase price $ 4,809,750
===========
3. Pro forma adjustments
The unaudited pro forma condensed combined financial statements give
effect to the transaction described in item 2.01 as if had occurred
on January 31, 2006 for purposes of the pro forma condensed combined
balance sheet and November 1, 2004 for the purposes of the pro forma
condensed combined statements of operations for the year ended October
31, 2005 and for the first quarter ended January 31, 2006. The
pro forma statements of operations do not include any restructuring
charges that may arise with respect to Rapid Link as a result of the
transaction described in item 2.01. Adjustments to the unaudited pro
forma condensed combined financial statements as follows:
(a) Adjustment to record goodwill related to the acquisition
(b) Adjustment to record value associated with Telenational's
customer list related to the acquisition
(c) Adjustment to record accrual of costs directly related to
acquisition of Telenational
(d) Adjustment to reflect probable contingent cash payment to Apex
Corporation (the "seller") in accordance with the purchase agreement
(e) Adjustment to record 18-month, $1,000,000 note payable at 8%
due to the seller in accordance with purchase agreement.
(f) Adjustment to reflect fair value of common stock issued for
Telenational, net of adjustments to reflect the elimination of
Telenational's common stock
(g) Adjustment to eliminate Telenational's equity as of March 31, 2006
(h) Adjustment to record amortization expense related to acquired
customer list using the straight line method of amortization over
the estimated useful life of five years
(i) Adjustment to record interest expense related to the 18-month,
$1,000,000 note issued at 8% interest
(j) Adjustment to recognize shares issued to acquire Telenational
(k) Adjustment to reflect amounts due to shareholder for the activity
for the period subsequent to March 31, 2006 through the date of the
initial closing of the acquisition