Rocky Mountain Internet Inc (RMI), the Denver, Colorado-based ISP bent on an aggressive acquisition strategy, saw its third quarter results hit hard by a recent failed attempt to buy one of its rivals, Internet Communications Corp. RMI announced a reverse takeover of ICC in early June for $38m and a high-yield debt financing to pay for it and leave some money over. Through a combination of the ICC shareholders’ reluctance to sell and RMI’s difficulties in raising the money, the deal soon hit the skids. In early October RMI asked ICC to hold the acquisition period open a little longer so it could raise the money – the shareholders had by then given the go-ahead – but ICC refused and declared RMI in default of the acquisition agreement. As is often the case, ICC came off worse; its stock immediately lost half its value and kept on falling and the company has been threatened with de-listing by the Nasdaq stock exchange (10/21/98), although it seems to have managed to convince Nasdaq that it meets its requirements. ICC sued RMI for $30m in damages for lost productivity and other costs. The acquisition, which is now officially terminated, also cost RMI. It reported third quarter net losses of $5.3m, which included a total of $4.6m in charges relating to the debacle, comprising various costs associated with the acquisition, such as lawyers and accounting fees, and printing costs. RMI is disputing the amount owed to those parties, and estimates the eventual cost to be between $3.8m and $5.2m, so it plumped for a number halfway between the two, hence the $4.6m. Without the charges the company lost nine cents per share in the quarter, which was five cents better than expected, according to Zacks Investment Research, and down from 16 cents per share the previous year. Third quarter revenues were up 62% at $2.6m. cash and equivalents were just $730,713 on September 30, down from $1.1m nine months earlier. Chief financial officer Peter Kushar says there is also a $2.7m non-cash charge in the third quarter, which is for the warrants the company issued, some of which were exercised, some of which were not. The charge represents the difference between the issue price and the exercise price. Kushar also says the additional S1 filing from RMI this week is clearing up all sorts of shares and warrants that needed to be registered to fulfill some of its other acquisitions throughout this year and is not a secondary stock offering.
