SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
April 17, 2000
Date of Report (Date of earliest event reported):
VOYAGER.NET, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 000-26661 38-3431501
(State or other jurisdiction (Commission File (I.R.S. Employer
of incorporation) Number) Identification No.)
4660 S. HAGADORN ROAD, SUITE 320
EAST LANSING, MI 48823
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code:
(517) 324-8940
Item 5. Other Events.
Voyager.net, Inc., a Delaware corporation (the "Registrant"), files this
Form 8-K report that contains financial information consistent with Regulation
S-X, Rule 3-05(b)(2)(i) for businesses acquired since the date of the
Registrant's most recent audited balance sheet.
On September 8, 1999, Voyager Information Networks, Inc., a Michigan
corporation ("Voyager") and wholly-owned subsidiary of the Registrant, entered
into an Asset Purchase Agreement (the "Agreement") to purchase substantially all
of the assets of Net Direct, Inc., an Indiana corporation ("Net Direct").
Pursuant to the Agreement, the consideration for the sale by Net Direct to
Voyager of substantially all of its internet service-related assets was
$4,550,000, subject to certain adjustments (the "Purchase Price"). The Purchase
Price was determined through negotiation.
In order to fund this acquisition, the Registrant used proceeds from its
July 21, 1999 initial public offering of Common Stock, and drew-down from its
$60,000,000 revolving senior credit facility with Fleet National Bank, as agent,
and certain additional lenders.
Net Direct is an Internet connectivity and web-hosting business (the
"Business"). The assets of Net Direct, include equipment used in the Business.
Voyager intends to continue to use the acquired equipment for the purpose of its
Internet connectivity and web-hosting business.
- --------------------------------------------------------------------------------
On September 14, 1999, Voyager entered into an Asset Purchase Agreement
(the "Agreement") to purchase substantially all of the assets of Raex Internet,
Inc., a Ohio corporation, Raex Communications, Inc., an Ohio corporation and
Raex Corporation, an Ohio corporation (collectively "Raex").
Pursuant to the Agreement, the consideration for the sale by Raex to
Voyager of substantially all of its internet service-related assets was
$4,600,000, subject to certain adjustments (the "Purchase Price"). The Purchase
Price was determined through negotiation.
In order to fund this acquisition, the Registrant used proceeds from its
July 21, 1999 initial public offering of Common Stock, and drew-down from its
$60,000,000 revolving senior credit facility with Fleet National Bank, as agent,
and certain additional lenders.
Raex is an Internet connectivity and web-hosting business (the "Business").
The assets of Raex, include equipment used in the Business. Voyager intends to
continue to use the acquired equipment for the purpose of its Internet
connectivity and web-hosting business.
- --------------------------------------------------------------------------------
On September 30, 1999, Voyager entered into an Asset Purchase Agreement,
effective on October 7, 1999, (the "Agreement") to purchase substantially all of
the assets of ChoiceDotNet, L.L.C. ("Choicedotnet").
2
Pursuant to the Agreement, the consideration for the sale by Choicedotnet
to Voyager of substantially all of its internet service-related assets was
$1,800,000, subject to certain adjustments (the "Purchase Price"). The Purchase
Price was determined through negotiation.
In order to fund this acquisition, the Registrant used proceeds from its
July 21, 1999 initial public offering of Common Stock, and drew-down from its
$60,000,000 revolving senior credit facility with Fleet National Bank, as agent,
and certain additional lenders.
Choicedotnet is an Internet connectivity and web-hosting business (the
"Business"). The assets of Choicedotnet, include equipment used in the
Business. Voyager intends to continue to use the acquired equipment for the
purpose of its Internet connectivity and web-hosting business.
- -----------------------------------------------------------------------------
On December 10, 1999, Voyager entered into an Asset Purchase Agreement (the
"Agreement") to purchase substantially all of the assets of Wholesale ISP, Inc.,
an Ohio corporation("Wholesale").
Pursuant to the Agreement, the consideration for the sale by Wholesale to
Voyager of substantially all of its internet service-related assets was
$5,000,000, subject to certain adjustments (the "Purchase Price"). The Purchase
Price was determined through negotiation.
In order to fund this acquisition, the Registrant used proceeds from its
July 21, 1999 initial public offering of Common Stock, and drew-down from its
$60,000,000 revolving senior credit facility with Fleet National Bank, as agent,
and certain additional lenders.
Wholesale is an Internet connectivity and web-hosting business (the
"Business"). The assets of Wholesale, include equipment used in the Business.
Voyager intends to continue to use the acquired equipment for the purpose of its
Internet connectivity and web-hosting business.
3
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Businesses Acquired.
The Financial Statements of the acquired businesses required by this
Item are attached hereto.
(b) Pro Forma Financial Information.
The Pro Forma Financial Information required by this Item is attached
hereto.
(c) Exhibits
*2.1 Asset Purchase Agreement, entered into on September 8, 1999, by
and between Voyager Information Networks, Inc., a Michigan corporation, Net
Direct, Inc., an Indiana corporation, and certain principals.
*2.2 Asset Purchase Agreement, entered into on September 14, 1999, by
and between Voyager Information Networks, Inc., a Michigan corporation, Raex
Internet, Inc., an Ohio corporation, Raex Communications, Inc., an Ohio
corporation and Raex Corporation, an Ohio corporation, and certain principals.
*2.3 Asset Purchase Agreement, entered into on September 30, 1999, and
effective on October 7, 1999 by and between Voyager Information Networks, Inc.,
a Michigan corporation, ChoiceDotNet, L.L.C., an Ohio limited liability company,
Choice.Net, Inc., an Ohio corporation, Dotnet, Ltd., an Ohio limited liability
company, and certain principals.
*2.4 Asset Purchase Agreement, entered into on December 10, 1999, by
and between Voyager Information Networks, Inc., a Michigan corporation,
Wholesale ISP, Inc., an Ohio corporation and certain principals.
- ----------
* Filed herewith.
4
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be filed on its behalf by the
undersigned thereunto duly authorized
VOYAGER.NET, INC.
Dated: April 17, 2000 By: /s/ Christopher Torto
----------------------------
Christopher Torto
Chief Executive Officer
5
Voyager.net, Inc.
Index to Financial Statements
- --------------------------------------------------------------------------------
PAGES
Net Direct, Inc. - Statement of Operations and Cash Flows:
Report of Independent Accountants............................................... F-2
Statement of Operations for the Period From January 1, 1999 to
September 7, 1999............................................................... F-3
Statement of Cash Flows for the Period From January 1, 1999 to
September 7, 1999............................................................... F-4
Notes to Statement of Operations and Cash Flows................................. F-5
Raex Corporation - Statement of Operations and Cash Flows:
Report of Independent Accountants............................................... F-7
Statement of Operations for the Year Ended December 31, 1998.................... F-8
Statement of Cash Flows for the Year Ended December 31, 1998.................... F-9
Notes to Statement of Operations and Cash Flows................................. F-10
Choice Dot Net, LLC - Statement of Operations and Cash Flows:
Report of Independent Accountants............................................... F-12
Statement of Operations for the Period From January 1, 1999 to
October 6, 1999................................................................. F-13
Statement of Cash Flows for the Period From January 1, 1999 to
October 6, 1999................................................................. F-14
Notes to Statement of Operations and Cash Flows................................. F-15
Wholesale ISP, Inc. - Statement of Operations and Cash Flows:
Report of Independent Accountants............................................... F-16
Statement of Operations for the Eleven Months Ended November 30, 1999........... F-17
Statement of Cash Flows for the Eleven Months Ended November 30, 1999........... F-18
Notes to Statement of Operations and Cash Flows................................. F-19
Pro Forma Condensed Consolidated Financial Statements (Unaudited):
Pro Forma Condensed Consolidated Statement of Operations for the Year Ended
December 31, 1999 (Unaudited)................................................ F-22
Notes to Pro Forma Condensed Consolidated Financial Statements (Unaudited)...... F-23
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and the Stockholders of
Voyager.net, Inc.:
In our opinion, the accompanying statement of operations and cash flows present
fairly, in all material respects, the results of operations and cash flows of
Net Direct, Inc. (the "Company") for the period from January 1, 1999 to
September 7, 1999, in conformity with accounting principles generally accepted
in the United States. These statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these statements
based on our audit. We conducted our audit of these statements in accordance
with auditing standards generally accepted in the United States, which require
that we plan and perform the audit to obtain reasonable assurance about whether
the statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of these
statements. We believe that our audit provides a reasonable basis for our
opinion.
PricewaterhouseCoopers LLP
Grand Rapids, Michigan
April 7, 2000
F-2
Net Direct, Inc.
Statement of Operations
For the Period From January 1, 1999 to September 7, 1999
- --------------------------------------------------------------------------------
Revenue, Internet access service $ 1,642,916
------------
Operating expenses:
Internet access service costs 647,774
Sales and marketing 220,163
General and administrative 685,977
Depreciation 129,034
------------
Total operating expenses 1,682,948
------------
Loss from operations before other expense (40,032)
------------
Other expense (20,237)
------------
Net loss $ (60,269)
============
Per share data:
Basic and diluted net loss per share applicable to common
stockholders $ (60.27)
============
Weighted average common shares outstanding:
Basic and diluted 1,000
============
The accompanying notes are an integral part of the statement of operations and
cash flows.
F-3
Net Direct, Inc.
Statement of Cash Flows
For the Period From January 1, 1999 to September 7, 1999
- --------------------------------------------------------------------------------
Cash flows from operating activities:
Net loss $ (60,269)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 129,034
Changes in assets and liabilities:
Accounts receivable (17,653)
Accounts payable 60,697
Other liabilities 23,764
Deferred revenue 39,450
----------
Net cash provided by operating activities 175,023
Cash flows used in investing activities, purchase of property
and equipment (159,504)
----------
Cash flows from financing activities:
Borrowings on line of credit 84,000
Payments on line of credit (15,000)
Payments on capital leases (10,023)
Payments on notes payable, related party (39,424)
----------
Net cash provided by financing activities 19,553
----------
Net increase in cash and cash equivalents 35,072
Cash and cash equivalents at beginning of period 83,297
----------
Cash and cash equivalents at end of period $ 118,369
==========
The accompanying notes are an integral part of the statement of operations and
cash flows.
F-4
Net Direct, Inc.
Notes to Statement Operations and of Cash Flows
For the Period From January 1, 1999 to September 7, 1999
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and basis of presentation
Net Direct, Inc. (the "Company") provides full service access to the Internet
for corporate and individual users in Indiana.
Revenue recognition
The Company recognizes revenue when Internet access services are provided.
Advance collections relating to future access services are recorded as
deferred revenue and recognized as revenue when earned.
Cash equivalents
The Company considers all highly liquid investments purchased with an initial
maturity of three months or less to be cash equivalents.
Property and equipment
Property and equipment are depreciated over five years using the straight
line method. Equipment acquired under capital leases are depreciated over
their related lease terms. Costs of repair and maintenance are charged to
expense as incurred. Depreciation expense of approximately $129,000 was
charged to operations in 1999.
Advertising costs
Advertising costs are expensed as incurred. Advertising costs of
approximately $25,000 were charged to operations in 1999.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Income taxes
The Company is taxed as an S-Corporation. Accordingly, the stockholders of
the Company are subject to federal income taxes rather than the Company.
2. OPERATING LEASES
Rent expense under all operating leases of approximately $70,000 was charged
to operations in 1999.
F-5
Net Direct, Inc.
Notes to Statement of Operations and Cash Flows
For the Period From January 1, 1999 to September 7, 1999
- --------------------------------------------------------------------------------
3. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The following is the supplemental cash flow information for the period
presented:
Period From
January 1, 1999
to September 7,
1999
Cash paid during the year for interest $ 20,950
==========
Acquisition of equipment through capital lease $ 74,669
==========
4. RELATED PARTY TRANSACTION
The notes payable, related party, represent principal and interest payable
on October 1, 2001 and on demand to the previous owner of the Company. Interest
on the notes is at rates of 9 percent and zero percent in 1999.
5. SUBSEQUENT EVENT
On September 8, 1999, the assets of the Company were purchased by
Voyager.net, Inc. for approximately $4,519,000, of which approximately
$4,493,000 was paid to the Company and the remainder was used for payment of
certain acquisition costs.
F-6
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Voyager.net, Inc.:
In our opinion, the accompanying statement of operations and cash flows present
fairly, in all material respects, the results of operations and cash flows of
Raex Corporation (the "Company") for the year ended December 31, 1998, in
conformity with accounting practices generally accepted in the United States.
These statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these statements based on our audit.
We conducted our audit of these statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statements, assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of these statements. We believe that our
audit provides a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Grand Rapids, Michigan
April 7, 2000
F-7
Raex Corporation
Consolidated Statement of Operations
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
Revenue:
Internet access service $1,564,099
Other 20,244
-----------
1,584,343
Operating expenses:
Internet access service costs 757,312
Sales and marketing 72,610
General and administrative 798,331
Depreciation 153,304
-----------
Total operating expenses 1,781,557
-----------
Loss from operations before other income and expense (197,214)
-----------
Other income (expense):
Interest expense (78,228)
Gain on sale of assets 31,956
Other income 6,271
-----------
Total other expense (40,001)
-----------
Net loss $ (237,215)
===========
The accompanying notes are an integral part of the consolidated statement of
operations and cash flows.
F-8
Raex Corporation
Consolidated Statement of Cash Flows
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
Cash flows from operating activities:
Net loss $(237,215)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 153,304
Gain on sale of equipment (31,956)
Changes in assets and liabilities:
Accounts receivable 24,999
Other assets (1,745)
Accounts payable 120,188
Other liabilities (784)
Deferred revenue 111,464
----------
Net cash provided by operating activities 138,255
Cash flows from investing activities:
Purchase of property and equipment (61,784)
Proceeds from sale of equipment 33,333
----------
Net cash used in investing activities (28,451)
Cash flows from financing activities:
Payments on capital leases (74,629)
Proceeds from shareholder loans, net 91,681
Decrease in cash overdraft (52,938)
Payments on lines of credit (9,002)
----------
Net cash used in financing activities (44,888)
----------
Net increase in cash and cash equivalents 64,916
Cash and cash equivalents at beginning of period 285
----------
Cash and cash equivalents at end of period $ 65,201
==========
The accompanying notes are an integral part of the consolidated statement of
operations and cash flows.
F-9
Raex Corporation
Notes to Consolidated Statement of Operations and Cash Flows
December 31, 1998
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and basis of presentation
Raex Corporation (the "Company") provides full service access to the internet
for corporate and individual users in the state of Ohio, through its wholly-
owned subsidiary Raex Internet, Inc. Also, Raex Communication, a wholly-
owned subsidiary of the Company, is a competitive local exchange carrier
licensed in Ohio. The consolidated statement of operations and cash flows
include the accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany transactions have been eliminated.
Revenue recognition
The Company recognizes revenue when Internet access services are provided.
Advance collections relating to future access services are recorded as
deferred revenue and recognized as revenue when earned.
Cash equivalents
The Company considers all highly liquid investments purchased with an initial
maturity of three months or less to be cash equivalents.
Property and equipment
Property and equipment are depreciated over their estimated useful lives
using the straight line method as follows:
Depreciable
Life-years
-----------
Computer equipment 3-5
Furniture and fixtures 10
Leasehold improvements 10
Equipment acquired under capital leases are depreciated over their related
lease terms. Costs of repair and maintenance are charged to expense as
incurred. Depreciation expense of approximately $157,000 was charged to
operations in 1998.
Advertising costs
Advertising costs are expensed as incurred. Advertising costs of
approximately $69,000 were charged to operations in 1998.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Income taxes
The Company is taxed as an S-Corporation. Accordingly, the stockholders of
the Company are subject to federal income taxes rather than the Company.
2. OPERATING LEASES
Rent expense under all operating leases of approximately $100,000 was charged
to operations in 1998.
F-10
Raex Corporation
Notes to Consolidated Statement of Operations and Cash Flows
December 31, 1998
- --------------------------------------------------------------------------------
3. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The following is the supplemental cash flow information for the period
presented:
Cash paid during the year for interest $ 78,228
=========
Acquisition of equipment through capital lease $ 58,648
=========
4. RELATED PARTY TRANSACTION
The shareholder loans represent principal and interest payable on demand to
the two shareholders of the Company. Interest on the loans is at rates of 6
percent and 15 percent in 1998.
5. SUBSEQUENT EVENT
On September 14, 1999, the assets of the Company were purchased by
Voyager.net, Inc. for approximately $4,370,000 of which approximately $3,178,000
was paid to the Company and the remainder was used for payment of certain
liabilities and acquisition costs.
F-11
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Voyager.net, Inc.:
In our opinion, the accompanying statement of operations and cash flows present
fairly, in all material respects, the results of operations and cash flows of
Choice Dot Net, LLC (the "Company") for the period from January 1, 1999 to
October 6, 1999, in conformity with accounting practices generally accepted in
the United States. These statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these statements
based on our audit. We conducted our audit of these statements in accordance
with auditing standards generally accepted in the United States, which require
that we plan and perform the audit to obtain reasonable assurance about whether
the statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of these
statements. We believe that our audit provides a reasonable basis for our
opinion.
PricewaterhouseCoopers LLP
Grand Rapids, Michigan
April 7, 2000
F-12
Choice Dot Net, LLC
Statement of Operations
For the Period From January 1, 1999 to October 6, 1999
- --------------------------------------------------------------------------------
Revenue, Internet access service $ 814,801
Operating expenses:
Internet access service costs 427,697
Sales and marketing 26,848
General and administrative 240,263
Depreciation and amortization 20,427
----------
Total operating expenses 715,235
----------
Income from operations before other income 99,566
Other income 4,376
----------
Net income $ 103,942
==========
The accompanying notes are an integral part of the statement operations and
cash flows.
F-13
Choice Dot Net, LLC
Statement of Operations
For the Period From January 1, 1999 to October 6, 1999
- --------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 103,942
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 20,427
Changes in assets and liabilities:
Accounts receivable (10,699)
Prepaid assets 5,819
Accounts payable (7,144)
Other liabilities 168,562
Deferred revenue 12,284
----------
Net cash provided by operating activities 293,191
Cash flows from investing activities:
Purchase of property and equipment (161,112)
Purchase of intangible asset (38,000)
----------
Net cash used in investing activities (199,112)
Cash flows from financing activities:
Distribution to owners (50,000)
Proceeds from note payable, related party 20,850
----------
Net cash used in financing activities (29,150)
----------
Net increase in cash and cash equivalents 64,929
Cash and cash equivalents at beginning of period 51,542
----------
Cash and cash equivalents at end of period $ 116,471
==========
The accompanying notes are an integral part of the statement of operations and
cash flows.
F-14
Choice Dot Net, LLC
Notes to Statement of Operations and Cash Flows
For the Period From January 1, 1999 to October 6, 1999
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
Choice Dot Net, LLC (the "Company") provides full service access to the
internet for corporate and individual users in the states of Ohio and
Kentucky.
Revenue Recognition
The Company recognizes revenue when Internet access services are provided.
Advance collections relating to future access services are recorded as
deferred revenue and recognized as revenue when earned.
Cash Equivalents
The Company considers all highly liquid investments purchased with an initial
maturity of three months or less to be cash equivalents.
Property and Equipment
Property and equipment are depreciated over their estimated useful lives
using the straight line method as follows:
Depreciable
Life-Years
-----------
Computer equipment 5
Office furniture and fixtures 7
Leasehold improvements 39
Costs of repair and maintenance are charged to expense as incurred.
Depreciation expense of approximately $20,000 was charged to operations in
1999.
Intangible Asset
Intangible asset is amortized over the term of the related licensing
agreement.
Advertising Costs
Advertising costs are expensed as incurred. Advertising costs of
approximately $9,000 were charged to operations.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Income Taxes
The Company is a limited liability corporation and the members of the Company
are subject to federal income tax.
2. OPERATING LEASES
Rent expense under all operating leases of approximately $9,000 was charged
to operations in 1999.
3. RELATED PARTY TRANSACTIONS
The note payable, related party, represents principal payable on demand to a
general partner. There is no interest payable on this note.
4. SUBSEQUENT EVENT
On October 7, 1999, the assets of the Company were purchased by Voyager.net,
Inc. for approximately $1,765,000, of which approximately $1,729,000 was paid
to the Company and the remainder was used for payment of certain acquisition
costs.
F-15
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Voyager.net, Inc.:
In our opinion, the accompanying statement of operations and cash flows present
fairly, in all material respects, the results of operations and cash flows of
Wholesale ISP, Inc. (the "Company") for the eleven months ended November 30,
1999, in conformity with accounting practices generally accepted in the United
States. These statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these statements based on our
audit. We conducted our audit of these statements in accordance with auditing
standards generally accepted in the United States, which require that we plan
and perform the audit to obtain reasonable assurance about whether the
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statements,
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of these statements.
We believe that our audit provides a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Grand Rapids, Michigan
April 7, 2000
F-16
Wholesale ISP, Inc.
Statement of Operations
For the Eleven Months Ended November 30,1999
- --------------------------------------------------------------------------------
Revenue, Internet access service $ 2,327,641
------------
Operating expenses:
Internet access service costs 1,123,280
Sales and marketing 104,645
General and administrative 853,520
Depreciation 233,583
------------
Total operating expenses 2,315,028
------------
Income from operations before other income and expense 12,613
------------
Other income (expense):
Interest income 845
Loss on sale of assets (10,699)
Other income 12,255
------------
Total other income 2,401
------------
Net income $ 15,014
============
Per share data:
Basic and diluted net income per share applicable to common
stockholders $ 107.24
============
Weighted average common shares outstanding:
Basic and diluted 140
============
The accompanying notes are an integral part of the statement of operations and
cash flows.
F-17
Wholesale ISP, Inc.
Statement of Cash Flows
For the Eleven Months Ended November 30,1999
- --------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 15,014
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 233,583
Loss on sale of equipment 10,699
Changes in assets and liabilities:
Accounts receivable (238,249)
Other assets 4,290
Accounts payable (50,943)
Other liabilities (11,695)
Deferred revenue 177,513
----------
Net cash provided by operating activities 140,212
Cash flows used in investing activities, purchase of
property and equipment (79,531)
----------
Cash flows from financing activities:
Payments on capital leases (76,309)
Proceeds from notes receivable, related party 13,580
----------
Net cash used in financing activities (62,729)
----------
Net decrease in cash and cash equivalents (2,048)
Cash and cash equivalents at beginning of period 21,666
----------
Cash and cash equivalents at end of period $ 19,618
==========
The accompanying notes are an integral part of the statement of operations and
cash flows.
F-18
Wholesale ISP, Inc.
Notes to Statement of Operations and Cash Flows
November 30,1999
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
Wholesale ISP, Inc.'s (the "Company") name was changed from GlassCity
Internet, Inc. on December 10, 1999. The Company provides full service
access to the internet for corporate and individual users in the state of
Ohio.
Revenue Recognition
The Company recognizes revenue when Internet access services are provided.
Advance collections relating to future access services are recorded as
deferred revenue and recognized as revenue when earned.
Cash Equivalents
The Company considers all highly liquid investments purchased with an initial
maturity of three months or less to be cash equivalents.
Property and Equipment
Property and equipment are depreciated over their estimated useful lives
using the straight line method as follows:
Depreciable
Life-Years
-----------
Computer equipment 3-5
Leasehold improvements 39
Equipment acquired under capital leases are depreciated over their related
lease terms. Costs of repair and maintenance are charged to expense as
incurred. Depreciation expense of approximately $234,000 was charged to
operations in 1999.
Advertising Costs
Advertising costs are expensed as incurred. Advertising costs of
approximately $99,000 were charged to operations in 1999.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Income Taxes
The Company is taxed as an S-Corporation. Accordingly, the stockholders of
the Company are subject to federal income taxes rather than the Company.
2. OPERATING LEASES
Rent expense under all operating leases of approximately $65,000 was charged
to operations in 1999.
F-19
Wholesale ISP, Inc.
Notes to Statement of Operations and Cash Flows
November 30, 1999
- --------------------------------------------------------------------------------
3. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The following is the supplemental cash flow information for the period
presented.
Eleven Months
Ended
November 30,
1999
Cash paid during the year for interest $ 25,553
==========
Acquisition of equipment through capital lease $ 53,234
==========
4. RELATED PARTY TRANSACTION
The notes receivable, related party, represents principal and interest
receivable on October 31, 2003 from shareholders of the Company. Interest on
the notes is at 4.42 percent.
5. SUBSEQUENT EVENT
On December 10, 1999, the assets of the Company were purchased by Voyager.
net, Inc. for approximately $4,693,000, of which approximately $4,462,000 was
paid to the Company and the remainder was used for payment of certain
liabilities and acquisition costs.
F-20
VOYAGER.NET, INC.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited pro forma condensed consolidated financial statements
give effect to the acquisitions by Voyager.net, Inc. (the "Company") of the
following four businesses in 1999:
Acquired entity Date
--------------- ----
NetDirect, Inc. ............................... 9/8/99
Raex Corporation .............................. 9/14/99
Choice Dot Net, LLC ........................... 10/7/99
Wholesale ISP, Inc. ........................... 12/10/99
These acquisitions were accounted for using the purchase method of accounting.
Accordingly, the purchase prices were allocated to assets acquired and
liabilities assumed based upon their estimated fair values at the dates of
acquisitions.
The unaudited pro forma statement of operations is based on the statement of
operations of the Company and the historical results of the acquired entities
listed above from January 1, 1999 through the dates of acquisition and combine
the results of operations of the Company and of the acquired entities for the
year ended December 31, 1999 as if the acquisitions occurred on January 1, 1999.
The unaudited pro forma condensed consolidated statement of operation is not
necessarily indicative of operating results that would have been achieved had
the combination been consummated as of the beginning of the period presented and
should not be construed as representative of future operations.
These unaudited pro forma condensed consolidated financial statements should
be read in conjunction with the historical consolidated financial statements and
the related notes thereto of Voyager, which are included in Voyager.net's Annual
Report on Form 10-K, and the historical statement of operations and cash flows
and the related notes thereto of the acquired entities listed above included
herein.
F-21
VOYAGER.NET, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended December 31, 1999
(UNAUDITED)
Pre-aquisition Results
---------------------------------------------------------------
GDR
Voyager.net Enterprises, Net Raex Choice Dot
Inc. Inc. Direct, Inc. Corporation Net, LLC
------------- ------------ ----------- ------------- ------------
Revenue:
Internet access service $ 47,423,462 $ 1,528,411 $1,642,916 $1,512,851 $ 814,801
Other 1,074,173 - - 19,458 -
------------- ------------ ----------- ------------- ------------
Total revenue 48,497,635 1,528,411 1,642,916 1,532,309 814,801
------------- ------------ ----------- ------------- ------------
Internet access service costs 15,933,377 426,057 647,774 609,257 427,697
Sales and marketing 6,401,810 101,678 220,163 68,320 26,848
General and administrative 14,150,924 565,492 685,977 812,784 240,263
Depreciation and amortization 23,836,385 231,590 129,034 123,480 20,427
Compensation charge for issuance of
common stock and options 2,563,311 - - - -
------------- ------------ ----------- ------------- ------------
Total operating expenses 62,885,807 1,324,817 1,682,948 1,613,841 715,235
------------- ------------ ----------- ------------- ------------
Total operating income (loss) (14,388,172) 203,594 (40,032) (81,532) 99,566
Other income (expense) (1,740,777) (73,718) (20,237) (1,206) 4,376
------------- ------------ ----------- ------------- ------------
Net income (loss) (16,128,949) 129,876 (60,269) (82,738) 103,942
Preferred stock dividends (367,265) - - - -
------------- ------------ ----------- ------------- ------------
Net income (loss) applicable to
common stockholders $(16,496,214) $ 129,876 $ (60,269) $ (82,738) $ 103,942
============= ============ =========== ============= ============
Basic and diluted earnings
per share $ (.61)
=============
Basic and diluted weighted
average shares 27,238,084
=============
Pre-aquisition Results
---------------------------------
Other
Wholesale Acquired
ISP, Inc. Entities Adjustments Total
------------ ------------- ---------------- ---------------
Revenue:
Internet access service $ 2,327,641 $ 6,798,421 $ 62,048,503
Other - - 1,093,631
----------- ----------- ------------- -------------
Total revenue 2,327,641 6,798,421 63,142,134
----------- ----------- ------------- -------------
Internet access service costs 1,123,280 2,558,202 21,725,644
Sales and marketing 104,645 169,084 7,092,548
General and administrative 853,520 2,581,786 19,890,746
Depreciation and amortization 233,583 440,533 $ 10,259,109 35,274,141
Compensation charge for issuance of
common stock and options - - 2,563,311
----------- ----------- ------------- -------------
Total operating expenses 2,315,028 5,749,605 10,259,109 86,546,390
----------- ----------- ------------- -------------
Total operating income (loss) 12,613 1,046,816 (10,259,109) (23,404,256)
Other income (expense) 2,401 (1,493) (2,345,222) (4,175,876)
----------- ----------- ------------- -------------
Net income (loss) 15,014 1,047,323 (12,604,331) (27,580,132)
Preferred stock dividends - - (367,265)
----------- ----------- ------------- -------------
Net income (loss) applicable to
common stockholders $ 15,014 $ 1,047,323 $ (12,604,331) $ (27,947,397)
=========== =========== ============= =============
Basic and diluted earnings
per share $ (1.03)
=============
Basic and diluted weighted
average shares 27,238,084
=============
See accompanying notes to condensed consolidated pro forma financial statements.
F-22
VOYAGER.NET, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Pro forma adjustments are as follows:
A. Acquired customer bases in the amount of $54.4 million are being amortized
over a three-year period beginning January 1, 1999 as if the acquisitions had
occurred on that date.
B. Voyager.net utilized $46.8 million of its revolving credit facility to
complete the acquisitions in 1999. Additional interest expense on the related
debt would have been approximately $2.6 million. The assumed interest rates
were 8.5% and 8.25% for the period presented.
F-23