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
Date of Report (Date of earliest event reported) July 30, 1999
------------------------------
RMI.NET, Inc.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in charter)
Delaware
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(State or other jurisdiction of incorporation)
001-12063 84-1322326
- ------------------------------------ --------------------------------------
(Commission File Number) (IRS Employee Identification No.)
999 Eighteenth Street, Suite 2201 80202
- ------------------------------------------------------------- -----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (303) 672-0700
--------------------------
Not Applicable
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(Former name or former address, if changed since last report)
ITEM 5. OTHER EVENTS.
As previously announced in the Registrant's Quarterly Report on Form
10-Q for the Quarter ended June 30, 1999, which was filed with the Securities
and Exchange Commission on August 9, 1999, the Registrant recently acquired
ACES Research, Inc., an Arizona corporation headquartered in Tucson, Arizona.
The Registrant agreed to pay approximately $1,938,000, payable in the form of
174,634 shares of common stock. The consideration that the Registrant agreed
to pay was determined through arm's length negotiation. There was no material
relationship between the Registrant and ACES Research, Inc. prior to the
acquisition. ACES Research is an Internet service provider whose customer
base is comprised of dedicated Internet access users. The Registrant intends
to use the assets acquired in the same manner that ACES Research utilized the
assets.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) ACES Research, Inc. - Audited Financial Statements:
Independent Auditors' Report - Ernst & Young LLP
Balance Sheets as of December 31, 1998 and 1997
Statements of Operations for the Years Ended December 31,
1998 and 1997
Statements of Stockholders' Equity for the Years Ended
December 31, 1998 and 1997
Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996
Notes to Financial Statements
(b) Pro Forma Financial Information:
Pro Forma Condensed Combined Balance Sheet as of June 30,
1999
Pro Forma Condensed Combined Statement of Operations for the
Year Ended December 31, 1998
Pro Forma Condensed Combined Statement of Operations for the
Six Months Ended June 30, 1999
(c) Exhibits:
Exhibit Number Description
--------------------- ---------------------------------------------
10.1 Asset Purchase Agreement by and among RMI.NET,
Inc. and ACES Research, Inc. and Ehud Gavron,
Joe Fico and Matthew Ramsey dated as of July
30, 1999
20.1 News Release dated July 30, 1999
announcing the Acquisition of ACES
Research, Inc.
SIGNATURE
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.
RMI.NET, Inc.
--------------------------------------------
(Registrant)
Date: August 30, 1999 By: /s/ CHRISTOPHER J. MELCHER
----------------------------------------
Christopher J. Melcher
Vice President, General Counsel and Corporate
Secretary
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
ACES Research, Inc.
We have audited the accompanying balance sheets of ACES Research, Inc. (an S
corporation) as of December 31, 1998 and 1997, and the related statements of
operations, stockholders' equity 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 ACES Research, Inc. at
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.
/s/ ERNST & YOUNG LLP
June 30, 1999
1
ACES RESEARCH, INC.
BALANCE SHEETS
December 31,
1998 1997
-------- --------
ASSETS
Current assets:
Cash..................................................................... $ --- $ 35,232
Accounts receivable...................................................... 46,306 16,263
-------- --------
Total current assets....................................................... 46,306 51,495
Property and equipment, net of accumulated depreciation of $71,061
and $39,054 at December 31, 1998 and 1997, respectively................ 106,493 106,274
-------- --------
Total assets................................................. $152,799 $157,769
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade.................................................. $ 77,900 $ 21,499
Deferred revenue......................................................... --- 22,455
Current maturities of obligations under capital leases................... 13,439 11,492
Line of credit payable................................................... 9,940 ---
Notes payable to related parties......................................... 21,403 25,024
-------- --------
Total current liabilities.................................................. 122,682 80,470
Long-term liability:
Obligations under capital leases, less current maturities 2,452 15,891
Stockholders' equity:
Class A common stock, $1 par value; 1,500 shares authorized, issued and
outstanding........................................................... 1,500 1,500
Retained earnings....................................................... 26,165 59,908
-------- --------
Total stockholders' equity................................................. 27,665 61,408
-------- --------
Total liabilities and stockholders' equity................... $152,799 $157,769
-------- --------
-------- --------
See accompanying notes.
2
ACES RESEARCH, INC.
STATEMENTS OF OPERATIONS
Year Ended December 31,
1998 1997
-------- --------
Revenues .................................................................. $721,589 $601,608
Operating expenses:
Internet connection expense.............................................. 384,233 247,694
General and administrative expense....................................... 109,464 101,456
Salaries and benefits expense............................................ 154,131 144,056
Travel and entertainment expense......................................... 36,775 51,585
Depreciation expense..................................................... 32,007 25,169
-------- --------
Total operating expenses.......................................... 716,610 569,940
-------- --------
Income from operations..................................................... 4,979 31,668
Other income, net.......................................................... 7,786 14,099
Interest expense........................................................... (3,508) (3,738)
-------- --------
Net income................................................................. $ 9,257 $ 42,029
-------- --------
-------- --------
See accompanying notes.
3
ACES RESEARCH, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Total
Common Stock Retained Stockholders'
CLASS A EARNINGS EQUITY
------------ -------- -------------
Balance at December 31, 1996 $ 1,500 $ 59,354 $ 60,854
Net income 42,029 42,029
Stockholder distributions (41,475) (41,475)
-------- --------- ---------
Balance at December 31, 1997 1,500 59,908 61,408
Net income 9,257 9,257
Stockholder distributions (43,000) (43,000)
-------- --------- ---------
Balance at December 31, 1998 $ 1,500 $ 26,165 $ 27,665
-------- --------- ---------
-------- --------- ---------
See accompanying notes.
4
ACES RESEARCH, INC.
STATEMENTS OF CASH FLOWS
Year ended December 31,
1998 1997
-------------- ----------
OPERATING ACTIVITIES
Net income................................................... $ 9,257 $ 42,029
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 32,007 25,169
Changes in operating assets and liabilities:
Accounts receivable................................. (30,043) 16,531
Accounts payable.................................... 56,401 11,197
Deferred revenue.................................... (22,455) (21,645)
-------------- ----------
Net cash provided by operating activities.................... 45,167 73,281
-------------- ----------
INVESTING ACTIVITIES
Purchases of property and equipment.......................... (32,226) (36,467)
-------------- ----------
Net cash used in investing activities........................ (32,226) (36,467)
-------------- ----------
FINANCING ACTIVITIES
Borrowings on line of credit................................. 11,640 ---
Payments on line of credit................................... (1,700) ---
Payments on notes payable, net of borrowings................. (3,621) 25,024
Stockholder distributions.................................... (43,000) (41,475)
Payments on capital lease obligations........................ (11,492) (8,762)
-------------- ----------
Net cash used in financing activities........................ (48,173) (25,213)
-------------- ----------
Net increase (decrease) in cash.............................. (35,232) 11,601
Cash at beginning of year.................................... 35,232 23,631
-------------- ----------
Cash at end of year.......................................... $ -- $ 35,232
-------------- ----------
-------------- ----------
SUPPLEMENTAL SCHEDULE OF ADDITIONAL CASH FLOW INFORMATION AND NONCASH ACTIVITIES
Interest paid................................................ $ 3,508 $ 3,738
Purchase of equipment through capital lease.................. --- 36,145
See accompanying notes.
5
ACES RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF BUSINESS
ACES Research, Inc. (the "Company"), an Arizona corporation, was founded in
1991 as a privately held S corporation. The Company is primarily involved in
providing high speed Internet connectivity in southern Arizona and throughout
other regions of the United States. The Company's three primary products are
56Kbps Internet Access, T-1 and Ethernet Internet access, and Professional
WEB access. The Company also provides a variety of network consulting, custom
software, and professional training to support its primary product offerings.
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 assets and liabilities and 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.
REVENUE RECOGNITION AND DEFERRED REVENUE
Revenue is recorded when earned. The Company signs connection agreements with
its customers and those contracts are usually for a length of one year.
Except on rare occasions, the Company bills those customers on a monthly
basis and recognizes the associated revenues at that time. In circumstances
where the customer has paid in advance for the Company's services, the
Company records a deferred revenue balance and recognizes the revenue ratably
over the life of the connection agreement.
ACCOUNTS RECEIVABLE
The Company extends credit to its customers based on evaluations of ability
to pay and generally no collateral is required. Concentrations of credit risk
with respect to trade receivables are limited.
PROPERTY AND EQUIPMENT
Property and equipment purchased new by the Company is recorded at cost.
Depreciation for new equipment is computed on a straight-line basis over the
following estimated useful lives:
Furniture and fixtures................................7 years
Computer equipment....................................5 years
Vehicles..............................................5 years
INCOME TAXES
The Company has elected to be taxed under the provisions of Subchapter S of
the Internal Revenue Code. Accordingly, the financial statements do not
include a provision for income taxes because the Company does not incur
federal or state income taxes. Instead, its earnings and losses are included
in the stockholders' personal income tax returns and are taxed based on their
personal tax strategies.
6
ACES RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
ADVERTISING EXPENSE
Advertising costs are expensed as incurred. Advertising expense was
$26,738 for the year ended December 31, 1998 and $24,725 for the year ended
December 31, 1997.
SIGNIFICANT CUSTOMERS
The Company has substantial business relationships with a few large
customers. The Company's top two customers accounted for 27.2% and 32.9% of
the Company's revenues as of December 31, 1998 and 1997, respectively. No
other single customer accounted for more than 10% of the Company's total
revenues.
2. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following:
1998 1997
---- ----
Vehicles.................................................. $ 15,000 $ 15,000
Furniture and fixtures.................................... 16,190 3,478
Computer equipment........................................ 146,364 126,850
--------- ---------
Total............................................ 177,554 145,328
Less accumulated depreciation............................. (71,061) (39,054)
--------- ---------
$ 106,493 $ 106,274
--------- ---------
--------- ---------
3. LINE OF CREDIT
The Company, during 1998, secured a $50,000 revolving line of credit with
interest accruing monthly at the rate equal to the bank's prime lending rate
plus 4.75% (12.75% at December 31, 1998); a minimum payment equal to 2% of
the balance of principal and accrued interest is due each month. The line of
credit is secured by depository accounts held with the bank. There are no
debt covenant obligations necessary to maintain the line of credit. The line
of credit may be canceled by either party at any time and is payable on
demand, upon the financial institution's request. As of December 31, 1998,
the balance of the line of credit was $9,940.
4. COMMITMENTS AND CONTINGENCIES
CAPITAL LEASES
The Company leases various computer equipment under the provision of a
long-term capital lease. The economic substance of the leases is that the
Company is financing the acquisition of the assets through the leases, and
accordingly, they are recorded in the Company's assets and liabilities.
The following is an analysis of the leased assets included in property and
equipment:
Computer equipment $ 36,145
Less accumulated depreciation (11,642)
--------
Total $ 24,503
--------
--------
7
ACES RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
CAPITAL LEASES (CONTINUED)
The following is a schedule by year of future minimum lease payments under
capital leases together with the present value of the net minimum lease payments
as of December 31, 1998:
Year Ending December 31:
1999 $15,000
2000 2,500
--------
Total minimum lease payments 17,500
Less amount representing interest (1,609)
--------
Present value of net minimum lease payments 15,891
Less current maturities 13,439
--------
Long-term maturities $ 2,452
--------
--------
OPERATING LEASES
Future minimum rental commitments as of December 31, 1998 under noncancelable
operating leases are:
1999.......................................... $39,299
2000.......................................... 16,706
--------
$56,005
--------
--------
The Company leases certain facilities under operating leases which contain
renewal options and provide for periodic cost-of-living adjustments and for
other taxes and fees. Rental expense was $37,237 and $20,614 for the periods
ended December 31, 1998 and 1997, respectively.
5. RELATED PARTY TRANSACTIONS
The Company is obligated for $21,403 as of December 31, 1998 and for $25,024
as of December 31, 1997 to its two primary stockholders for loans that were
made to the Company on behalf of the aforementioned stockholders. The
non-interest bearing loans are payable on demand. Assuming that the Company
was unable to secure the non-interest bearing loans from its stockholders and
assuming that the Company would have to draw on its line of credit at a rate
of 12.75% as of December 31, 1998 to satisfy its obligations, the amount of
interest expense incurred by the Company would have amounted to approximately
$2,960 for the year ended December 31, 1998 and approximately $1,595 for the
year ended December 31, 1997.
6. STOCK TRANSFER
Effective January 1, 1998, the President of the Company agreed to grant 23%
of his outstanding stock in the Company to two of the Company's key
employees. In exchange for the stock, the two key employees agreed to pay the
President an agreed upon sum of money upon termination of employment or by
January 1, 2003, whichever occurs first. The Company accounted for the stock
transfer as a variable compensation plan pursuant to the provisions of
Emerging Issues Task Force 95-16. No compensation expense for the year ended
December 31, 1998 has been recorded to reflect the transfer of the stock
ownership rights due to immateriality.
8
ACES RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. SUBSEQUENT EVENTS
Subsequent to December 31, 1998, the Company entered into negotiations with
RMI.net to sell 100% of the outstanding stock of the Company. The transaction
is expected to be consummated in July 1999.
8. YEAR 2000 READINESS (UNAUDITED)
The Company is preparing its systems and applications for the Year 2000.
Various problems may result from the improper processing of dates and
date-sensitive calculations by computers and other machinery as the year 2000
is approached and reached. These problems arise from the fact that most of
the world's computer hardware and software have historically used only two
digits to identify the year in a date. If the computer systems cannot
distinguish between the years 1900 and 2000, system failures or other
computer errors could result. Since the Company is a relatively new company
(founded in 1996), most hardware and software systems, as well as software
programs used by the Company, will not be impacted by the Year 2000 issues.
All future software that will be purchased will be year 2000 compliant. All
internally written software has been checked to ensure year 2000 compliance.
Users have been briefed on the necessity for them to check any special,
non-mission critical software that they have purchased for their departments
to ensure that it is year 2000 compliant. The Company has inventoried the
externally purchased network elements, including routers, router software,
router redundancy options, processor cards, and switches. The Company has
verified 100% completion of testing, in cooperation with the external
vendors, that the products associated with the network elements are year 2000
compliant. The Company has evaluated the financial impact for year 2000
compliance and total costs have not exceeded a material amount nor are future
costs expected to be material. The estimates for the costs of the year 2000
program are based upon management's best estimates and may be updated or
revised as additional information becomes available.
9
SELECTIVE UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following selected unaudited pro forma combined financial information
presented below has been derived from the unaudited or audited historical
financial statements of the Company, ACES Research, Inc., Triad Resources
L.L.C. (d/b/a WebZone), IdealDial Corporation and August 5th Corporation
(d/b/a Dave's World) and reflects management's present estimate of pro forma
adjustments, including a preliminary estimate of the purchase price
allocations, which ultimately may be different.
The acquisition is being accounted for using the purchase method of
accounting. Accordingly, assets acquired and liabilities assumed are recorded
at their estimated fair values, which are subject to further adjustment based
upon appraisals and other analysis, with appropriate recognition given to the
effect of the Company's borrowing rates and income tax rates.
The unaudited pro forma combined statements of operations for the six months
ended June 30, 1999 and the year ended December 31, 1998 give effect to the
acquisitions as if they had been consummated at the beginning of such period.
These pro forma statements of operations combines the historical consolidated
statements of operations for the periods reported for the Company, ACES
Research, Inc., Triad Resources L.L.C. (d/b/a WebZone), IdealDial Corporation
and August 5th Corporation (d/b/a Dave's World).
The unaudited pro forma condensed combined balance sheet as of June 30, 1999
gives effect to the acquisitions as if they had been consummated on that
date. This pro forma balance sheet combines the historical consolidated
balance sheet at that date for the Company, ACES Research, Inc., and for
Triad Resources L.L.C. (d/b/a WebZone).
The unaudited pro forma condensed combined financial statements may not be
indicative of the results that actually would have occurred if the
transaction described above had been completed and in effect for the periods
indicated or the results that may be obtained in the future. The unaudited
pro forma condensed combined financial data presented below should be read in
conjunction with the audited and unaudited historical financial statements
and related notes thereto of the Company.
10
Pro Forma Condensed Combined Statement of Operations
For the Year Ended December 31, 1998
(Unaudited)
Historical
-------------------------------------------------------------------------------------
Previously
Reported ACES Pro Forma Pro Forma Pro Forma
RMI.NET, Inc. Acquisitions (B) Research, Inc. Subtotal Adjustments (C) Combined
----------------------------------------------------------------------------------------
(Amount in Thousands, Except Per Share Data)
Revenue
Communication Services 7,974 13,580 722 22,276 0 22,276
Web Solutions 2,113 0 0 2,113 0 2,113
-------------------------------------------------------------------------------------
10,087 13,580 722 24,389 0 24,389
-------------------------------------------------------------------------------------
Cost of revenue earned
Communication Services 3,471 9,911 384 13,766 0 13,766
Web Solutions 50 0 0 50 0 50
-------------------------------------------------------------------------------------
3,521 9,911 384 13,816 0 13,816
-------------------------------------------------------------------------------------
Gross profit 6,566 3,669 338 10,573 0 10,573
-------------------------------------------------------------------------------------
General, selling and administrative expenses 9,184 3,784 301 13,269 0 13,269
Cost related to unsuccessful merger attempt 6,071 0 0 6,071 0 6,071
Depreciation and amortization 1,789 470 32 2,291 2,228 (5) 4,519
-------------------------------------------------------------------------------------
Operating income (loss) (10,478) (585) 5 (11,058) (2,228) (13,286)
-------------------------------------------------------------------------------------
Other income (expense)
Interest expense (320) (140) (4) (464) 0 (464)
Interest Income 51 0 0 51 0 51
Other income (expense), net 78 98 8 184 0 184
-------------------------------------------------------------------------------------
(191) (42) 4 (229) 0 (229)
-------------------------------------------------------------------------------------
Net loss (10,669) (627) 9 (11,287) (2,228) (13,515)
=====================================================================================
Preferred stock dividends 33 33
Net loss applicable to common Stockholders (10,702) (13,548)
Basic and Diluted loss per share from
continuing operations (1.39) (1.56)
========= =============
Average number of common shares
outstanding (5) 7,690 8,675
========= =============
11
Pro Forma Condensed Combined Balance Sheet
As of June 30, 1999
(Unaudited)
----------------------------------------------------------------------------------------
Previously
Reported ACES Pro Forma Pro Forma Pro Forma
RMI.NET, Inc. Acquisitions (B) Research, Inc. Subtotal Adjustments (C) Combined
----------------------------------------------------------------------------------------
(Dollars in Thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents 4,423 18 (7) 4,434 - 4,434
Trade receivables less allowance for
for doubtful accounts 4,687 74 88 4,849 - 4,849
Inventories 237 - - 237 - 237
Other 840 16 2 858 - 858
------------------------------------------------------------------------------------
Total Current Assets 10,187 108 83 10,378 - 10,378
------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, net 8,270 742 103 9,115 - 9,115
Goodwill, net 21,637 - - 21,637 6,773 (1) 28,410
Other 117 61 - 178 - 178
====================================================================================
Total Assets 40,211 911 186 41,308 6,773 48,081
====================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 4,361 86 71 4,518 - 4,518
Current maturities of long term debt and
capital lease obligations 1,919 140 - 2,059 - 2,059
Deferred revenue 1,076 - - 1,076 - 1,076
Accrued payroll & related taxes 408 - - 408 - 408
Accrued expenses & other 2,070 142 - 2,212 - 2,212
------------------------------------------------------------------------------------
Total Current Liabilites 9,834 368 71 10,273 - 10,273
------------------------------------------------------------------------------------
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS 3,227 178 60 3,465 - 3,465
------------------------------------------------------------------------------------
Total liabilites 13,061 546 131 13,738 - 13,738
REDEEMABLE CONVERTIBLE PREFERRED STOCK 4,594 - - 4,594 - 4,594
Stockholders' Equity
Common Stock 12 - 1 13 (1) 12
Additional paid in capital 47,422 50 (45) 47,427 (5)(3) 47,422
7,193 7,193
Accumulated deficit (24,878) 315 99 (24,464) (414)(2) (24,878)
Unearned compesation - - - - - -
------------------------------------------------------------------------------------
22,556 365 55 22,976 6,773 29,749
------------------------------------------------------------------------------------
40,211 911 186 41,308 6,773 48,081
====================================================================================
12
Pro Forma Condensed Combined Statement of Operations
For the Six Months Ended June 30, 1999
(Unaudited)
Historical
-------------------------------------------------------------------------------------
Previously
Reported ACES Pro Forma Pro Forma Pro Forma
RMI.NET, Inc. Acquisitions (B) Research, Inc. Subtotal Adjustments (C) Combined
----------------------------------------------------------------------------------------
(Amount in Thousands, Except Per Share Data)
Revenue
Communication Services 9,801 4,704 418 14,923 0 14,923
Web Solutions 1,851 0 0 1,851 0 1,851
------------------------------------------------------------------------------------
11,652 4,704 418 16,774 0 16,774
------------------------------------------------------------------------------------
Cost of revenue earned
Communication Services 5,406 3,241 211 8,858 0 8,858
Web Solutions 511 0 0 511 0 511
------------------------------------------------------------------------------------
5,917 3,241 211 9,369 0 9,369
------------------------------------------------------------------------------------
Gross profit 5,735 1,463 207 7,405 0 7,405
------------------------------------------------------------------------------------
General, selling and administrative expenses 10,222 1,080 171 11,473 0 11,473
Cost related to unsuccessful merger attempt 0 0 0 0 0 0
Depreciation and amortization 2,605 158 23 2,786 797 (4) 3,583
------------------------------------------------------------------------------------
Operating income (loss) (7,092) 225 13 (6,854) (797) (7,651)
------------------------------------------------------------------------------------
Other income (expense)
Interest expense (228) (41) 0 (269) 0 (269)
Interest Income 68 2 0 70 0 70
Other income (expense), net 0 0 23 23 0 23
------------------------------------------------------------------------------------
(160) (39) 23 (176) 0 (176)
------------------------------------------------------------------------------------
Net loss (7,252) 186 36 (7,030) (797) (7,827)
====================================================================================
Preferred stock dividends 178 178
Net loss applicable to common Stockholders (7,430) (8,005)
Basic and Diluted loss per share from
continuing operations (0.73) (0.72)
========= ========
Average number of common shares
outstanding (5) 10,141 10,902
========= ========
13
NOTES TO THE PRO FORMA CONSENSED
COMBINED FINANCIAL DATA
(UNAUDITED)
(A) BASIS OF PRESENTATION
The accompanying unaudited pro forma condensed combined balance sheet is
presented as of June 30, 1999. The accompanying unaudited pro forma condensed
combined statements of operations are presented for the six months ended June
30, 1999 and the year ended December 31, 1998.
(B) PREVIOUSLY REPORTED ACQUISITIONS: The accompanying unaudited pro forma
condensed combined balance sheet presented as of June 30, 1999 includes the
balance sheet as of June 30, 1999 of Triad Resources L.L.C. (d/b/a WebZone)
which was previously disclosed on Form 8K/A filed with the Securities and
Exchange Commission on August 19, 1999. The accompanying unaudited pro forma
condensed combined statements of operations presented for the six months
ended June 30, 1999 and the year ended December 31, 1998 included the
condensed statements of operations for the respective periods ended for Triad
Resources L.L.C. (d/b/a WebZone), IdealDial Corporation and August 5th
Corporation (d/b/a Dave's World). These acquisitions were previously
disclosed on Form 8K/A and filed with the Securities and Exchange Commission
on August 19, 1999, August 5, 1999 and April 19, 1999, respectively.
(C) PRO FORMA ADJUSTMENTS: The following pro forma adjustments have been made
to the unaudited condensed combined balance sheet as of June 30, 1999 and the
unaudited condensed combined statements of operations for the six months
ended June 30, 1999 and the year ended December 31, 1998:
(1) To reflect the 174,634 shares of RMI stock valued at $1.9 million
which is the number of shares issued in connection with the acquisition
of ACES Research, Inc. and the 439,493 shares of RMI stock valued at
$5.3 million which is the number of shares issued in connection with
the acquisition of Triad Resources L.L.C. (d/b/a WebZone). The excess
purchase price over the fair value of the assets acquired has been
allocated to goodwill. The pro forma adjustment reflects the
incremental goodwill in the amount of $6.8 million. Shares of Common
Stock issued for the acquisition were recorded at fair market value as
based on the current market price of RMI's publicly traded stock. The
final allocation of the purchase price will be made after the
appropriate appraisals or analyses are performed. Upon completion of
the appraisals and in accordance with the terms thereof, the excess
purchase price currently allocated to goodwill will be allocated to the
appropriate asset classifications, including customer list and
goodwill. While goodwill will be amortized over a period of five years,
customer list or other identified intangibles may be amortized over
shorter periods, which would therefore increase amortization expense.
(2) To eliminate the equity accounts of the acquisition.
(3) To adjust amortization expense due to increase in the carrying
value of goodwill, using a life of five years, as if such acquisitions
had been completed as of January 1, 1998.
(4) To adjust for revenues and expenses for the acquisition of ACES
Research, Inc., Triad Resources L.L.C. (d/b/a WebZone) and IdealDial
Corporation as if such acquisitions had been completed as of January 1,
1999.
(5) To adjust for revenues and expenses for the acquisition of ACES
Research, Inc., Triad Resources L.L.C. (d/b/a WebZone), IdealDial
Corporation and August 5th Corporation (d/b/a Dave's World) as if such
acquisitions had been completed as of January 1, 1998.
14