1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 2
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) November 22, 1999
-------------------
Internet America, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Texas 000-25147 86-0778979
- ---------------------------- ------------ -------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
One Dallas Center, 350 N. St. Paul Street, Suite 3000, Dallas, Texas 75201
--------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (214) 861-2500
--------------------
2
Reference is made to the Current Report on Form 8-K filed by Internet
America, Inc. on December 7, 1999 and the Current Report on Form 8-K/A,
Amendment No. 1, filed by Internet America, Inc. on January 19, 2000 (as
amended, the "Form 8-K"). The Form 8-K is hereby amended and restated in its
entirety as follows:
Item 2. Acquisition or Disposition of Assets.
On November 22, 1999, Internet America, Inc., a Texas corporation (the
"Company"), acquired all the issued and outstanding securities of PDQ.Net,
Incorporated, a Texas corporation ("PDQ.Net"), for 2,425,000 shares of Internet
America common stock. The Company also issued options to purchase 352,917 shares
of the Company's common stock with a weighted average exercise price of $1.62
per share in replacement of all of PDQ.Net's outstanding stock options. As a
result of the purchase, PDQ.Net became a wholly owned subsidiary of the Company.
The Company became the indirect owner of all of the assets of PDQ.Net, which
include approximately 40,000 individual and corporate internet access accounts
and the computer equipment used to service those accounts. The Company intends
to continue to use these assets to provide Internet access to customers. The
acquisition was effected pursuant to an Agreement and Plan of Merger dated
September 12, 1999, by and among PDQ.Net, certain of its shareholders
("Shareholders") and the Company. The acquisition will be accounted for as a
purchase.
To the best knowledge of the Company, at the time of the acquisition
there was no material relationship between (i) PDQ.Net and the Shareholders on
the one hand and (ii) the Company, or any of its affiliates, any director or
officer of the Company, or any associate of such director or officer on the
other hand.
The consideration paid by the Company was 2,425,000 shares of Internet
America common stock. The consideration was determined by arms-length
negotiations between the parties to the Agreement and Plan of Merger.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of business acquired PAGE
----
(i) Report of certified public accountants F-1
(ii) Balance Sheets at September 30, 1999
(unaudited) and December 31, 1998 and 1997 F-2
(iii) Statements of Operations for the nine months
ended September 30, 1999 and 1998 (unaudited)
and for the years ended December 31, 1998 and 1997 F-3
(iv) Statement of Stockholders' Deficit for the nine months
ended September 30, 1999 (unaudited) and for the years
ended December 31, 1998 and 1997 F-4
3
(v) Statements of Cash Flows for the nine months ended
September 30, 1999 and 1998 (unaudited) and for the years
ended December 31, 1998 and 1997 F-5
(vi) Notes to Financial Statements F-6
(b) Proforma financial information (unaudited)
(i) Pro Forma Condensed Balance Sheet as of
September 30, 1999 F-13
(ii) Pro Forma Condensed Statement of Operations
for the year ended June 30, 1999 F-14
(iii) Pro Forma Condensed Statement of Operations
for the three months ended September 30, 1999 F-15
(c) Exhibits.
The following is a list of exhibits filed as part of this Current
Report on Form 8-K:
Exhibit No. Description
2.1 Agreement and Plan of Merger, dated September 12, 1999, among
Internet America Inc., GEEK Houston II, Inc., PDQ.Net, Incorporated
and certain shareholders of PDQ.Net, Incorporated. (1)
23.1 Consent of Grant Thornton, LLP *
99.1 Press Release of Internet America, Inc. dated November 22, 1999. (2)
- --------------------
* Filed herewith.
(1) Incorporated by reference to Exhibit A to the Company's preliminary
proxy statement and definitive proxy statement filed with the
Securities and Exchange Commission on October 7, 1999 and October 19,
1999, respectively (File No. 000-25147).
(2) Previously filed as an Exhibit to the Form 8-K filed on December 7,
1999.
4
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors
PDQ.Net, Incorporated
We have audited the accompanying balance sheets of PDQ.Net,
Incorporated (a Texas corporation) as of December 31, 1998 and 1997 and the
related statements of operations, stockholders' 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, the financial statements referred to above present
fairly, in all material respects, the financial position of PDQ.Net,
Incorporated 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.
Grant Thornton, LLP
Houston, Texas
August 25, 1999
F-1
5
PDQ.NET, INCORPORATED
BALANCE SHEETS
DECEMBER 31,
SEPTEMBER 30, ------------------------------
1999 1998 1997
------------- ------------ ------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 366,445 $ 1,108,364 $ 59,996
Accounts receivable 266,836 9,234 1,457
------------ ------------ ------------
Total current assets 633,281 1,117,598 61,453
PROPERTY AND EQUIPMENT - net 795,288 386,540 154,429
OTHER ASSETS:
Prepaid expenses and deposits 177,282 92,771 19,526
Identifiable intangibles 258,999 -- --
Goodwill, net 22,130 17,333 18,667
------------ ------------ ------------
Total other assets 458,411 110,104 38,193
------------ ------------ ------------
$ 1,886,980 $ 1,614,242 $ 254,075
============ ============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 745,714 $ 336,462 $ 158,354
Current maturities of long-term debt 59,474 20,888 13,079
Current maturities of capital lease obligations 95,946 65,709 --
Deferred revenue 1,688,736 1,178,639 573,032
------------ ------------ ------------
Total current liabilities 2,589,870 1,601,698 744,465
LONG-TERM DEBT, net of current portion 50,074 30,417 23,932
CAPITAL LEASE OBLIGATIONS, net of current portion 94,222 56,199 --
COMMITMENTS AND CONTINGENCIES -- -- --
STOCKHOLDERS' DEFICIT:
Preferred stock, $10 par value, 1,000,000 shares
authorized, no shares issued or outstanding -- -- --
Common stock, $.01 par value, 8,000,000 shares
authorized; 5,768,454 and 3,555,534 shares
issued and outstanding in 1998 and 1997 65,180 57,685 35,555
Additional paid-in capital 2,292,848 1,888,135 800,669
Accumulated deficit (3,205,214) (2,019,892) (1,350,546)
------------ ------------ ------------
Total stockholders' deficit (847,186) (74,072) (514,322)
------------ ------------ ------------
$ 1,886,980 $ 1,614,242 $ 254,075
============ ============ ============
The accompanying notes are an integral part of these statements.
F-2
6
PDQ.NET, INCORPORATED
STATEMENTS OF OPERATIONS
NINE MONTHS
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------------------ ------------------------------
1999 1998 1998 1997
------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
Revenues
Consumer connectivity $ 5,061,451 $ 2,867,892 $ 4,337,921 $ 1,081,902
Business connectivity 1,493,284 106,657 185,906 197,386
Other 42,698 -- -- --
------------ ------------ ------------ ------------
6,597,433 2,974,549 4,523,827 1,279,288
------------ ------------ ------------ ------------
Operating costs and expenses
Connectivity and operations 3,800,287 1,690,242 2,490,665 1,012,798
Sales and marketing 1,507,308 796,066 1,180,252 820,661
General and administrative 2,124,907 996,836 1,390,051 775,525
Depreciation and amortization 322,086 65,658 113,896 27,337
------------ ------------ ------------ ------------
7,754,588 3,548,802 5,174,864 2,636,321
------------ ------------ ------------ ------------
Operating loss (1,157,155) (574,253) (651,037) (1,357,033)
Interest expense (28,167) (11,732) (18,309) --
------------ ------------ ------------ ------------
Net loss $ (1,185,322) $ (585,985) $ (669,346) $ (1,357,033)
============ ============ ============ ============
The accompanying notes are an integral part of these statements.
F-3
7
PDQ.NET, INCORPORATED
STATEMENT OF STOCKHOLDERS' DEFICIT
ADDITIONAL
PREFERRED COMMON PAID-IN ACCUMULATED
STOCK STOCK CAPITAL DEFICIT TOTAL
------------ ------------ ------------ ------------ ------------
Balance at January 1, 1997 $ -- $ 1,016 $ -- $ 6,487 $ 7,503
Sale of stock 34,539 800,669 -- 835,208
Net loss -- -- -- (1,357,033) (1,357,033)
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1997 -- 35,555 800,669 (1,350,546) (514,322)
Sale of stock 22,130 1,087,466 -- 1,109,596
Net loss -- -- -- (669,346) (669,346)
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1998 -- 57,685 1,888,135 (2,019,892) (74,072)
Issuance of common stock in connection
with Entech acquisition (Unaudited) -- 7,495 404,713 -- 412,208
Net loss (Unaudited) -- -- -- (1,185,322) (1,185,322)
------------ ------------ ------------ ------------ ------------
Balance at September 30, 1999 (Unaudited) $ -- $ 65,180 $ 2,292,848 $ (3,205,214) $ (847,186)
============ ============ ============ ============ ============
The accompanying notes are an integral part of this statement.
F-4
8
PDQ.NET, INCORPORATED
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------------------- ----------------------------
1999 1998 1998 1997
------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
Cash flows from operating activities:
Net loss $ (1,185,322) $ (585,985) $ (669,346) $ (1,357,033)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 322,086 65,658 113,896 27,337
Bad debt expense 37,744 -- -- --
Changes in operating assets and liabilities, net of the
effects resulting from the acquisitions in 1997 and 1999
Increase in accounts receivable (42,540) (5,458) (7,777) (1,457)
Increase in prepaid expenses and deposits (80,986) (64,137) (73,245) (19,526)
Increase in accounts payable and accrued liabilities 324,919 75,097 178,108 158,354
Decrease in bank overdraft -- -- -- (7,466)
Increase in deferred revenue 412,610 539,893 605,607 573,032
------------ ------------ ------------ ------------
Net cash provided by (used in) operating activities (211,489) 25,068 147,243 (626,759)
------------ ------------ ------------ ------------
Cash flows from investing activities:
Net increase (decrease) in cash resulting from acquisition 16,305 -- -- (20,000)
Purchases of property and equipment (406,487) (104,081) (182,855) (128,453)
------------ ------------ ------------ ------------
Net cash used in investing activities (390,182) (104,081) (182,855) (148,453)
------------ ------------ ------------ ------------
Cash flows from financing activities:
Long-term borrowings -- -- 28,760 --
Repayment of long-term debt (74,983) (10,256) (14,466) --
Payments of capital lease obligations (65,265) (16,080) (39,910) --
Proceeds from sale of common stock -- 223,206 1,109,596 835,208
------------ ------------ ------------ ------------
Net cash provided by (used in) financing activities (140,248) 196,870 1,083,980 835,208
------------ ------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents (741,919) 117,857 1,048,368 59,996
Cash and cash equivalents at beginning of period 1,108,364 59,996 59,996 --
------------ ------------ ------------ ------------
Cash and cash equivalents at end of period $ 366,445 $ 177,853 $ 1,108,364 $ 59,996
============ ============ ============ ============
Supplemental schedule of noncash investing and financing activities:
Equipment acquired under capital leases $ 133,525 $ 89,855 $ 161,818 $ --
Acquisitions of property plant and equipment with debt $ -- $ 16,982 $ -- $ 37,011
Issuance of common stock in connection with Entech acquisition $ 412,208 $ -- $ -- $ --
Cash paid for interest $ 28,167 $ 11,732 $ 18,309 $ --
The accompanying notes are an integral part of these statements.
F-5
9
PDQ.NET, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PDQ.Net, Incorporated (the Company) was incorporated on December 11,
1996. The Company's primary service is to provide internet connections to
customers in the Houston area.
A summary of significant accounting policies applied in the preparation
of the accompanying financial statements follows.
1. CASH AND CASH EQUIVALENTS
The Company's liquid debt instruments with a maturity of three months or
less at the date of purchase are deemed cash equivalents.
The Company maintains cash balances at a financial institution which are
insured by the Federal Deposit Insurance Corporation up to $100,000. At December
31, 1998, uninsured amounts held at this financial institution total $957,458.
The Company has not experienced any losses in such accounts and believes it is
not exposed to any significant credit risk on cash and cash equivalents.
2. PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, less accumulated depreciation.
Depreciation is provided using the straight-line method over the
estimated service lives of the related assets.
3. REVENUE RECOGNITION
Revenues are derived from monthly subscribers and set-up charges are
recognized as services are provided. The Company bills its subscribers in
advance for direct access to the internet, but defers recognition of these
revenues until the service is provided.
4. GOODWILL
Goodwill was acquired through a business acquisition accounted for as a
purchase in 1997 and is being amortized on a straight-line basis over fifteen
years.
5. INCOME TAXES
The Company made an election under the Subchapter S provisions of the
Internal Revenue Code. Accordingly, the income tax consequences from the
Company's activities are reflected in the individual returns of the shareholders
and no provision for federal income taxes is included in the accompanying
financial statements.
6. ADVERTISING
The Company expenses the production costs of advertising as incurred.
Advertising expense was approximately $677,000 and $518,000 in 1998 and 1997.
F-6
10
PDQ.NET, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. STOCK-BASED COMPENSATION
The Company measures compensation expense for its stock-based employee
compensation plans using the intrinsic method, as prescribed in Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the fair market value of the Company's stock at the date of the grant
over the amount the employee must pay to acquire the stock, and is recognized
over the related vesting period. The Company provides supplemental disclosure of
the effect on net loss as if the provisions of SFAS No. 123, Accounting for
Stock-Based Compensation, had been applied in measuring compensation expense.
8. LONG LIVED ASSETS
The Company reviews the impairment of long-lived assets and certain
identifiable intangibles whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. An impairment loss
would be recognized when estimated future cash flows expected to result from the
use of the asset and its eventual disposition is less than its carrying value
amount. The Company has not identified any such impairment losses.
9. USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
10. RECLASSIFICATIONS
Certain of the 1997 amounts have been reclassified to conform to the 1998
presentation.
11. UNAUDITED INTERIM INFORMATION
The financial information for the nine months ended September 30, 1999
and September 30, 1998 has not been audited by independent accountants. Certain
information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted from the unaudited interim financial information.
In the opinion of management of the Company, the unaudited interim financial
information includes all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation. Results of operations for the
interim periods are not necessarily indicative of the results of operations for
the respective full fiscal years.
NOTE B - ACQUISITIONS
In 1997, the Company made an acquisition accounted for as a purchase. The
purchase price was allocated based on the fair value of the assets acquired, and
the excess of the cost over the fair value of the assets acquired is being
amortized over fifteen years using the straight-line method. The Company made
two acquisitions in 1998 accounted for as purchases, which in the aggregate are
not material.
F-7
11
PDQ.NET, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE C - PROPERTY AND EQUIPMENT
The following is a summary of property and equipment at December 31,:
1998 1997
---------- ----------
Computer hardware $ 134,342 $ 68,516
Computer software 81,148 17,650
Computer equipment under capital leases 161,818 --
Leasehold improvements 42,135 43,156
Office furniture and equipment 71,583 51,111
Vehicles 34,958 --
---------- ----------
525,984 180,433
Less accumulated depreciation (139,444) (26,004)
---------- ----------
$ 386,540 $ 154,429
========== ==========
The useful lives of property and equipment for purposes of depreciation
are:
Computer hardware.................................. 5 years
Computer software.................................. 3 years
Leasehold improvements............................. 4 years
Office furniture and equipment..................... 7 years
Vehicles........................................... 5 years
Accumulated depreciation for computer equipment under capital leases was
$37,512 at December 31, 1998.
NOTE D - LONG-TERM DEBT
The Company had the following long-term debt as of December 31,:
1998 1997
-------- --------
Non-interest bearing note payable to a company
with an imputed interest rate at 8.5%. The note
is payable in monthly installments of $1,288 which
includes interest. The note matures on June 1, 2001,
and is unsecured .............................................. $ 24,043 $ 37,011
Note payable to a bank bearing interest at 9.0%. The
note is payable in monthly installments of $423
which includes interest. The note matures on
July 14, 2002, and is secured by a van ........................ 15,418 --
Note payable to a bank bearing interest at 8.5%. The
note is payable in monthly installments of $333
which includes interest. The note matures on
May 18, 2002, and is secured by a van ......................... 11,844 --
-------- --------
51,305 37,011
Less current maturities ......................................... (20,888) (13,079)
-------- --------
$ 30,417 $ 23,932
======== ========
F-8
12
PDQ.NET, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Maturities of long-term debt as of December 31, 1998 are as follows:
Year ending
December 31, Amount
- ------------ -------
1999 .............................. $20,888
2000 .............................. 17,681
2001 .............................. 8,273
2002 .............................. 4,463
-------
$51,305
=======
NOTE E - COMMON STOCK
The Board of Directors has authorized a three for one split of common
stock and an increase in the number of shares authorized to 8,000,000.
Ratification of the board's action was obtained by the stockholders in February
1999. Per-share amounts in the accompanying financial statements have been
restated for the stock split.
NOTE F - COMMITMENTS
The Company leases equipment and office space under monthly operating
lease agreements. Rent expense for the years ended December 31, 1998 and 1997
was $622,559 and $289,403.
The minimum rental commitments under operating leases are as follows:
Year ending
December 31, Amount
- ------------ --------
1999 .............................. $628,088
2000 .............................. 820,886
2001 .............................. 703,016
2002 .............................. 289,565
2003 .............................. 12,919
NOTE G - OBLIGATIONS UNDER CAPITAL LEASES
The Company is the lessee of computer equipment under capital leases
expiring in various years through 2001. The assets and liabilities under capital
leases are recorded at the lower of the present value of the minimum lease
payments or the fair value of the asset. The assets are depreciated over the
lower of their related lease terms or their estimated productive lives.
Depreciation of assets under capital leases is included in depreciation expense
for 1998.
Minimum future lease payments under capital leases as of December 31,
1998 for each of the next five years and in the aggregate are:
Year ending
December 31, Amount
- ------------ ---------
1999 ........................................ $ 84,282
2000 ........................................ 58,102
2001 ........................................ 4,566
---------
Total minimum lease payments ................ 146,950
Less: Amount representing interest .......... (25,042)
---------
Present value of minimum lease payments ..... $ 121,908
=========
F-9
13
PDQ.NET, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Interest rates on capitalized leases approximate 20% and are imputed
based on the lower of the Company's incremental borrowing rate at the inception
of each lease or the lessor's implicit rate of return.
NOTE H - STOCK OPTION PLAN
In 1998, the Company adopted an employee stock option plan. Under the
plan, the Company may grant options for up to 1.4 million shares of common
stock. The exercise price of each option is to be equal to or greater than the
market price of the Company's stock on the date of grant. The maximum term of an
option is ten years, and the vesting of each option is 25% after the first
anniversary of the grantee's date of employment and the remainder vests at a
rate of 1/12th of such amount at the end of each three month period thereafter.
The Company applies APB Opinion 25 in accounting for stock options issued
to employees. Accordingly, no compensation cost has been recognized for the plan
in 1998. Had compensation cost been determined on the basis of fair value
pursuant to FASB Statement No. 123, net loss would have been increased to
$689,360 on a pro forma basis. The fair value of stock options granted was
estimated on the date of grant using the minimum value method. An expected life
of 5 years, risk-free rate of return of 5.5%, and a dividend yield of 0% was
assumed in estimating fair value.
Following is a summary of the status of the options during 1998 and 1997:
Exercise Weighted
Price Average
Number of Range Exercise
Shares Per Share Price
------------ ----------- ------------
Outstanding at January 1, 1997 .... -- -- --
Granted ........................ 210,000 $0.42 $ 0.42
------------
Outstanding at December 31, 1997 .. 210,000 $0.42 $ 0.42
Granted ........................ 379,000 $0.42-$0.55 $ 0.47
------------
Outstanding at December 31, 1998 .. 589,000 $0.42-$0.55 $ 0.46
Exercisable at:
December 31, 1997 ............ 84,600 $ 0.42
December 31, 1998 ............ 386,688 $ 0.44
Following is a summary of the status of options outstanding at December
31, 1998:
Outstanding
----------------------
Weighted
Average
Remaining
Exercise Contractual Exercisable
Price Number Life Number
- -------- ------- ------------ ------------
$0.42 ......... 315,000 5.5 years 262,500
$0.46 ......... 165,000 4.5 years 82,500
$0.55 ......... 109,000 9.8 years 41,688
------- ------------
589,000 386,688
======= ============
F-10
14
PDQ.NET, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE I - SUBSEQUENT EVENTS
Effective January 1, 1999, the Company revoked its election under the
Subchapter S provisions of the Internal Revenue Code and became a C corporation.
In February 1999, the shareholders ratified an increase in the number of
common stock shares authorized to 16,000,000.
On April 2, 1999, the Company acquired Entrepreneurial Technologies, Inc.
(Entech) in a business combination accounted for as a purchase. The purchase
price of $412,208 exceeded the fair value of the net assets of Entech by
$23,385, which will be amortized on the straight-line method over 4 years. The
results of operations of Entech will be included with the results of the Company
from April 2, 1999.
(UNAUDITED)
On November 22, 1999, Internet America, Inc. (IA) issued 2,425,000 shares
of its common stock in exchange for all of the outstanding stock of the Company.
IA also issued options to purchase 352,917 shares of IA common stock with a
weighted average exercise price of $1.62 per share in replacement of all of the
Company's outstanding stock options. The definitive agreement to acquire all of
the outstanding shares of the Company in a stock-for-stock transaction was
previously announced on September 13, 1999 and was approved by the Company's and
IA's shareholders. The value of the transaction was approximately $30 million
based upon the closing price for IA's common stock on November 22, 1999,
adjusted to reflect restrictions on the transfer of certain shares. The
transaction is expected to be accounted for as a purchase.
F-11
15
INTERNET AMERICA, INC.
PRO FORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited condensed pro forma balance sheet as of September 30,
1999 and the unaudited condensed pro forma statements of operations for the year
ended June 30, 1999 and the three months ended September 30, 1999 reflect the
acquisition of PDQ.Net, Inc. by Internet America, Inc. (the "Company"). On
November 22, 1999, the Company acquired all of the outstanding common stock of
PDQ.Net, Inc. in exchange for 2,425,000 shares of the Company's common stock.
The Company also issued options to purchase 352,917 shares of the Company's
common stock with a weighted average exercise price of $1.62 per share in
replacement of all of the outstanding stock options of PDQ.Net, Inc. The
transaction is valued at approximately $30 million based upon the November 22,
1999 closing price for the Company's common stock adjusted to reflect
restrictions on the transfer of certain shares. The combination will be
accounted for as a purchase under the provisions of Accounting Principles Board
Opinion No. 16, "Business Combinations." The assets and liabilities acquired
will be recorded at estimated fair values which, in the opinion of the Company's
management, approximate book value. The excess of the cost of the net assets
acquired over their fair value will be recorded as goodwill and amortized using
the straight-line method over an estimated life of three years. The results of
operations for the periods presented include the results of operations of the
acquired business assuming the transaction was consummated at the beginning of
the earliest periods presented.
The unaudited condensed pro forma financial statements are not necessarily
indicative of the Company's results of operations that might have occurred had
the acquisition been completed at the beginning of the periods presented, or
indicative of the Company's consolidated financial position or results of
operations for any future date or period.
These unaudited condensed pro forma financial statements should be read in
conjunction with the historical financial statements and notes thereto of
PDQ.Net, Inc. included elsewhere in this document and the consolidated financial
statements of Internet America, Inc. subsidiaries as filed previously under Form
10-KSB.
F-12
16
INTERNET AMERICA, INC.
PRO FORMA CONDENSED BALANCE SHEET
SEPTEMBER 30, 1999
(UNAUDITED)
PRO FORMA
HISTORICAL ADJUSTMENTS
---------------------------- ----------- PRO FORMA
INTERNET INTERNET
AMERICA PDQ AMERICA
------------ ------------ ------------
ASSETS
Current Assets
Cash and cash equivalents $ 3,303,947 $ 366,445 $ 3,670,392
Trade receivables, net 1,212,126 266,836 1,478,962
Prepaid expenses and other current assets 128,906 -- 128,906
------------ ------------ ------------
Total current assets 4,644,979 633,281 5,278,260
Property and equipment, net 2,311,849 795,288 3,107,137
Other assets, net 9,762,072 458,411 30,652,850 (1) 40,873,333
------------ ------------ ------------
$ 16,718,900 $ 1,886,980 $ 49,258,730
============ ============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities
Trade accounts payable $ 2,041,174 $ 468,479 $ 2,509,653
Accrued liabilities 884,161 277,235 780,000 (2) 1,941,396
Deferred revenue 2,907,039 1,688,736 4,595,775
Current maturities of long-term debt 213,087 59,474 272,561
Current maturities of capital lease obligations 48,750 95,946 144,696
------------ ------------ ------------
Total current liabilities 6,094,211 2,589,870 9,464,081
Capital lease obligations, net of current portion 87,000 94,222 300,412
Long-term debt, net of current portion 206,190 50,074 137,074
------------ ------------ ------------
Total liabilities 6,387,401 2,734,166 9,901,567
------------ ------------ ------------
Shareholders' equity (deficit):
Common stock 70,625 65,180 24,250 (3) 160,055
Additional paid-in capital 24,512,851 2,292,848 29,848,600 (3) 56,654,299
Accumulated deficit (14,251,977) (3,205,214) (17,457,191)
------------ ------------ ------------
Total shareholders' equity (deficit) 10,331,499 (847,186) 39,357,163
------------ ------------ ------------
$ 16,718,900 $ 1,886,980 $ 49,258,730
============ ============ ============
F-13
17
INTERNET AMERICA, INC.
PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
YEAR ENDED JUNE 30, 1999
(UNAUDITED)
PRO FORMA
HISTORICAL ADJUSTMENTS
---------------------------- ------------ PRO FORMA
INTERNET INTERNET
AMERICA PDQ AMERICA
------------ ------------ ------------
Revenues
Access $ 15,911,844 $ 6,001,313 $ 21,913,157
Business services 2,097,774 888,884 2,986,658
Other 109,412 10,498 119,910
------------ ------------ ------------
Total 18,119,030 6,900,695 25,019,725
------------ ------------ ------------
Operating Costs and Expenses
Connectivity and operations 8,800,924 3,761,451 12,562,375
Sales and marketing 6,044,762 1,675,086 7,719,848
General and administrative 4,244,557 1,939,970 6,184,527
Depreciation and amortization 1,685,097 274,113 10,217,617 (4) 12,176,827
------------ ------------ ------------
Total 20,775,340 7,650,620 38,643,577
------------ ------------ ------------
Operating loss (2,656,310) (749,925) (13,623,852)
Interest income (expense), net 185,105 (29,523) 155,582
------------ ------------ ------------
Loss before income tax (2,471,205) (779,448) (13,468,270)
Income tax benefit 7,787 -- 7,787
------------ ------------ ------------
Net loss $ (2,463,418) $ (779,448) $(13,460,483)
============ ============ ============
Net loss per common share:
Basic $ (0.45) $ (1.69)
============ ============
Diluted $ (0.45) $ (1.69)
============ ============
Weighted average common
shares outstanding
Basic 5,533,670 2,425,000 (3) 7,958,670
Diluted 5,533,670 2,425,000 (3) 7,958,670
F-14
18
INTERNET AMERICA, INC.
PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
PRO FORMA
HISTORICAL ADJUSTMENTS
---------------------------- ------------ PRO FORMA
INTERNET INTERNET
AMERICA PDQ AMERICA
------------ ------------ ------------
Revenues
Access $ 4,715,164 $ 1,752,118 $ 6,467,282
Business services 916,831 735,682 1,652,513
Other 206,608 32,200 238,808
------------ ------------ ------------
Total 5,838,603 2,520,000 8,358,603
------------ ------------ ------------
Operating Costs and Expenses
Connectivity and operations 3,150,195 1,502,601 4,652,796
Sales and marketing 1,498,470 489,399 1,987,869
General and administrative 1,387,200 973,443 2,360,643
Depreciation and amortization 1,416,012 140,194 2,554,404 (4) 4,110,610
------------ ------------ ------------
Total 7,451,877 3,105,637 13,111,918
------------ ------------ ------------
Operating loss (1,613,274) (585,637) (4,753,315)
Interest income (expense), net 36,782 (15,149) 21,633
------------ ------------ ------------
Loss before income tax (1,576,492) (600,786) (4,731,682)
Income tax benefit -- -- --
------------ ------------ ------------
Net loss $ (1,576,492) $ (600,786) $ (4,731,682)
============ ============ ============
Net loss per common share:
Basic $ (0.22) $ (0.50)
============ ============
Diluted $ (0.22) $ (0.50)
============ ============
Weighted average common
shares outstanding
Basic 7,009,211 2,425,000 (3) 9,434,211
Diluted 7,009,211 2,425,000 (3) 9,434,211
F-15
19
INTERNET AMERICA, INC.
NOTES TO CONDENSED PRO FORMA FINANCIAL STATEMENTS
(1) Represents goodwill associated with the purchase of PDQ.Net, Inc.
(2) Represents finder's fee, professional fees, and other costs associated
with the acquisition incurred subsequent to September 30, 1999.
(3) Represents the effect of Internet America common stock issued for the
purchase of PDQ.Net, Inc.
(4) Represents the amortization of goodwill for the indicated period
calculated using the straight-line method over an estimated life of three
years.
F-16
20
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.
INTERNET AMERICA, INC.
Date: January 21, 2000 By: /s/ James T. Chaney
----------------------------------
James T. Chaney,
Chief Financial Officer
21
INDEX TO EXHIBITS
Exhibit No. Description
- ----------- -----------
2.1 Agreement and Plan of Merger, dated September 12, 1999, among Internet America
Inc., GEEK Houston II, Inc., PDQ.Net, Incorporated and certain shareholders of
PDQ.Net, Incorporated (1)
23.1 Consent of Grant Thornton, LLP *
99.1 Press Release of Internet America, Inc. dated November 22, 1999 (2)
- --------------------
* Filed herewith.
(1) Incorporated by reference to Exhibit A to the Company's preliminary proxy
statement and definitive proxy statement filed with the Securities and
Exchange Commission on October 7, 1999 and October 19, 1999, respectively
(File No. 000-25147).
(2) Previously filed as an Exhibit to the Form 8-K filed on December 7, 1999.