<PAGE>

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

(Mark One)
[ X ] 15,  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
                  For the fiscal year ended  December 31, 1996

                                       OR

[   ] 15, TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from  _____________ to ____________


                       COMMISSION FILE NUMBER:  001-12063

                          ROCKY MOUNTAIN INTERNET, INC.
              ----------------------------------------------------
              Exact name of Registrant as specified in its charter

Delaware                                                         84-1322326
--------                                                         ---------------
State or other jurisdiction of                                   I.R.S. Employer
incorporation or organization                                    Identification

1099 18th Street, Suite 3000 DENVER COLORADO                     80202
--------------------------------------------                     ---------------
Address of principal executive offices                           Zip Code

Registrant's telephone number, including area code:              303-672-0700
                                                                 ---------------
Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to section 12(g) of the Act:

     Common Stock, par value $.001 per share
     Warrants to purchase common stock

Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes  X     No      .
   -----     ------

Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB.  [  ].

State issuer's revenue for its most recent fiscal year.  $3,281,579

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The aggregate market value of the voting stock held by non-affiliates of the
registrant on March 15, 1997, based upon the closing price of the Common
Stock on the NASDAQ SmallCap Market for such date, was approximately
$5,445,000.

The number of outstanding shares of the registrant's Common Stock as of March
15, 1997, was approximately 4,648,565 shares.

                      DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's Proxy Statement to be filed with the Securities
and Exchange Commission on or prior to April 30, 1997 and to be used in
connection with the Annual Meeting of Shareholders expected to be held June
10, 1997 are incorporated by reference in Part III of this Form 10-KSB.  Only
portions of the Proxy Statement which are specifically incorporated by
reference are deemed filed as part of this Annual Report on Form 10-KSB.

Transitional Small Business Disclosure Format (Check One): Yes       No   X
                                                               -----    -----

















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                                   PART I

ITEM 1. DESCRIPTION OF BUSINESS

Certain of the information contained in this Form 10-KSB, including
"Description of Business" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations", contain forward-looking
statements. The forward-looking statements herein are based on current
expectations that involve a number of risks and uncertainties.  Such
forward-looking statements are based on assumptions that the Company will
continue to design, market and provide succesful new services, that
competitive conditions will not change materially, that demand for the
Company's services will continue to grow, that the Company will retain and
add qualified personnel, that the Company's forecasts will accurately
anticipate revenue growth and the costs of producing that growth, and that
there will be no material adverse change in the Company's business.  In light
of the significant uncertainties inherent in the forward-looking information
included in this Form 10-KSB, actual results could differ materially from
the forward-looking information contained in this Form 10-KSB.

Rocky Mountain Internet, Inc. (the "Company") is a regional full-service
Internet access provider offering a wide range of Internet access services
including dial-up access, dedicated high speed access, and other Internet
related services to businesses and individuals including World Wide Web
("Web") services, data services and network frame services in the State of
Colorado. The Company gives particular attention to providing exemplary
customer service at competitive prices.  The Company's high speed, digital
telecommunications network provides subscribers with direct access to the
full range of Internet applications and resources including E-mail, World
Wide Web sites, USENET newsgroups and FTP software.  The Company has
experienced rapid growth in its subscriber base, reaching approximately 9,800
subscribers at the end of December 1996, up from 4,000 subscribers at the end
of December, 1995.

The Company is a Delaware corporation with its executive office located in
Denver, Colorado, and an operating facility located in Colorado Springs,
Colorado.  The Company employs approximately 83 persons.  The Company was
incorporated in October 1995, and is the successor to Rocky Mountain
Internet, Inc., a Colorado Corporation which was incorporated in 1994.

RMI's network infrastructure is comprised of a regional telecommunications
network supported by a backbone of leased, high-speed dedicated phone lines,
computer hardware and software, and local access points known as points of
presence ("POPs") in eleven Colorado cities providing access availability to
more than 85% of the population in Colorado.  The Company's strategy includes
constructing additional POPs in various cities located in the Rocky Mountain
West.

ACQUISITIONS

RMI acquired two businesses in late 1996. In November, 1996, the Company
acquired assets of CompuNerd, Inc., a small Colorado Springs based Web
services company.  RMI acquired in that transaction approximately 35 Web
hosting subscribers and 115 Internet access subscribers.  In December, 1996,
the Company acquired the assets of The Information Exchange, LLC., a Denver
based voice messaging service company, a related party through common
ownership.  The Information Exchange provides voice messaging services to
over 370 business

                                                                             3
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clients in the Denver Metropolitan area.  RMI completed this acquisition with
the intent to provide a multi-media service (voice messaging, email and fax)
to its dial-up clients in the second half of 1997.  In January, 1997, RMI
acquired the dedicated high speed and dial-up subscribers from Online Network
Enterprises, Inc. (O*N*E), headquartered in Boulder, Colorado, a division of
VR*1, Inc. The O*N*E acquisition netted RMI approximately 47 dedicated and
732 dial-up subscribers.  The total monthly revenue acquired between the
three companies is approximately $45,000.

INDUSTRY OVERVIEW

The Internet had its origins in 1969 as a project of the Advanced Research
Project Agency ("ARPA") of the U.S. Department of Defense.  The network
established by ARPA was designed to provide efficient connections between
different types of computers separated by large geographic areas and to
function even if part of the network became inoperative.  Historically, the
infrastructure was used by academic institutions and governmental agencies
for remote access to host computers and electronic mail communications.
Accordingly, the U.S. government historically provided the majority of
funding for the infrastructure.  However, as the modern Internet developed
and became commercial, funding shifted to the private sector.  Over the past
year, the number of worldwide Internet users has increased significantly.  In
addition, the number of domains registered, which the Company believes is a
forward-indicator of activity on the Internet, has increased at a rapid pace.
There are several key drivers responsible for the rapid proliferation of
Internet use:

     --   IMPROVING PERFORMANCE - There have been significant bandwidth,
          communications, and price/performance improvements in communications
          over the Internet.  These developments make the Internet an
          increasingly attractive medium for conducting business, adding
          convenience, and attracting more users.

     --   GROWTH OF MODEM-ENABLED PCS - As the installed personal computer
          ("PC") base has grown, it has become increasingly common for those
          PCs to have a modem connection.  Many new computers now have pre-
          installed modems, allowing connections to be made even more easily.

     --   IMPROVED CONTENT - As the Internet grows, new information and services
          available on the Internet have attracted attention and created a more
          widespread appeal.

     --   EXPANSION OF LANS AND WANS - Corporate, government, and educational
          local area networks ("LANs") and wide area networks ("WANs") are
          expanding and these installed networks enable multiple users to be
          connected to the Internet through a single point of contact.
          Therefore, the actual number of Internet users connected through
          these LANs and WANs greatly exceeds the number of connection points.

     --   EXPECTATIONS FOR ELECTRONIC COMMERCE OVER THE INTERNET - With the
          increased recognition of the Internet's potential as a medium for
          marketing and purchasing, a growing number of companies are initiating
          or expanding their use of the Internet for commercial purposes.

                                                                             4
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     --   DRAMATIC INCREASE IN NAVIGATIONAL AND UTILITY TOOLS - The
          proliferation and improvement of software tools and browsers which
          facilitate Internet use have attracted more users.  The World Wide
          Web and other user-friendly interfaces have made it easier for users
          to access desired information on the Internet.

The convergence of these factors is creating an environment in which
individuals and businesses and other organizations perceive a compelling need
to establish Internet access and an Internet presence.  The Company believes
that its Internet access, Web service and value-added services offerings are
particularly appealing to businesses for a number of reasons.  For example,
many businesses are accustomed to working with a vendor with a local presence
and may prefer to contract with an Internet service provider such as RMI
which has a local presence and the experience and reputation of providing
quality and dependable service.  Furthermore, many businesses have Internet
requirements that go beyond the simple access that most Internet service
providers offer.  These Internet requirements include security, network
consulting, high-bandwidth managed access and data services.

THE RMI STRATEGY

RMI provides a comprehensive range of Internet access options, Web production
services and Web hosting services designed to meet the needs of businesses
and individual subscribers.  The Company's strategy is to focus on cities
that have not become the primary target markets for the national access
providers and long distance carriers, but have enough of a population base to
provide a return on investment to justify initiatives by the Company.  It is
the objective of RMI to provide a "one-stop-shop" to local businesses that
require not only reliable Internet access, but guidance regarding the use of
the Internet and how to take full advantage of applications pertinent to
their businesses.  RMI plans to leverage its local presence and direct field
sales force and customer service organization to provide on-site sales and
support.  RMI also plans to remain competitive in the individual dial-up
market with reasonably priced services. RMI's network infrastructure
currently allows local access for approximately 85% of the population in
Colorado.

RMI's strategy is to focus on cities that are not the primary target of the
national access providers and long distance carriers and to provide
comprehensive solutions by direct on-site sales contact with the business
communities in those areas.  The Company intends to continue to expand its
subscriber base by providing high quality services coupled with the expertise
to assist its customers with application driven solutions to their needs, RMI
intends to achieve this strategy by focusing on the following key elements:

FOCUS ON BUSINESS SUBSCRIBERS.  The Company believes that use of the Internet
by businesses will grow substantially over the next several years.  The
Internet has the potential to enhance productivity through improved
communications, access to data, and through new ways of organizing how
businesses interact, both with other commercial enterprises and with
consumers.  The Internet provides the potential for even small businesses to
maintain a worldwide presence for marketing their products and making
information about their products and services available to interested parties
in ways not possible before.  The Company believes that many businesses are
aware, in general, that the Internet provides potential new means of
conducting business, and that businesses do not have the knowledge or
technical expertise required

                                                                             5
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to access or use the Internet.  The Company believes that by offering its
business customers a consultative and intensive service oriented
relationship, it can position itself as an important value added supplier and
thus gain a competitive advantage vis-a-vis its larger competitors which may
be unwilling or unable to provide the kind of customized service that the
Company intends to provide.  In order to implement this strategy, the Company
instituted a field sales organization in November of 1995 which makes outside
calls on business customers and potential business customers.

PROVIDE HIGH-BANDWIDTH, RELIABLE INFRASTRUCTURE SERVICES. In the fourth
quarter of 1996, RMI instituted a frame network of Cascade switches in
Denver, Colorado Springs and Boulder that are interconnected via a DS3 fiber
optic network.  RMI also increased its network infrastructure to include
redundant T3 access to the Internet through MCI Telecommunications
Corporation and ANS CO + RE Systems, Inc. with its main servers, routers and
network equipment contained in a data center with extensive environmental
controls including generator power backup and dual air conditioning systems.
The Company has expanded its network in anticipation of increasing demand for
higher bandwidth requirements such as 10 Mbps through 45 Mbps.

PROVIDE VALUE-ADDED SERVICE OFFERINGS.  RMI offers a range of value-added
services designed to assist business customers in taking strategic advantage
of opportunities offered by the Internet such as increased revenues,
decreasing costs, bringing value-added services to their clientele and taking
advantage of the new advances in electronic commerce.  These include Web
services, network consulting, security consulting, data services, commercial
transaction and payment processing services, Intranet applications, and voice
messaging services.

PRICING STRATEGY.  RMI believes that price competition will intensify as the
Internet market grows and matures.  RMI intends to remain competitive by
pricing its services to reflect market conditions.  Accordingly, the Company
believes that management of its costs will be critical in increasing market
share and remaining competitive.  RMI has made significant investments in its
hardware and network infrastructure which are designed to increase efficiency
and reduce the cost of delivering its services.

In general, RMI intends to price all of its services in order to remain
competitive with demand, competition and market trends.  It is not the
intention of  RMI to either be the lowest priced provider or conversely the
highest priced provider.  RMI continues to add value to its services through
its investment in its network in order to offer the highest quality services,
and through its focus on customer needs and ensuring that the Company's
client base receives the highest degree of customer service and support.

RMI SERVICES

RMI primarily provides two high quality services which it believes are
competitively priced:  Internet access service and Web services.  Internet
access services can be divided into two basic categories:  personal accounts
for individuals and small businesses that connect to the Internet via a modem
(referred to as "dial-up" accounts), and high speed dedicated accounts
(principally for medium  to large business users) that connect to the
Internet via dedicated telecommunications lines.  Dial-up subscribers can
access the Internet by calling RMI's local POPs.  RMI's dedicated accounts
consist of subscribers that desire to connect internal computer networks to
the Internet. The Company offers a wide variety of service options, which
vary in price

                                                                             6
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depending upon the features included and the data rate, or bandwidth, of the
connection.  RMI bills its Internet access subscribers monthly, quarterly or
annually in advance.  A significant percentage of individual accounts are
billed automatically through pre-authorized credit card accounts.  RMI also
provides complete installation services, sales of turnkey networking
equipment, education and training services, and an efficient technical
support and network monitoring support team.

Web services can also be divided into two basic categories:  Web hosting
services and Web productions (or content).  RMI designs Web pages and
performs additional programming for Web sites on behalf of its business
subscribers. Charges for Web page design and programming vary widely with the
size and complexity of the project.  RMI's Web services produce Web sites
that make use of original graphic arts, interactive forms, data base queries
and search engines.  RMI also hosts Web pages on behalf of its customers
enabling them to have a continued presence of the Internet.

RMI'S VALUE-ADDED SERVICES

REALAUDIO SERVER.  This software package delivers live and on-demand audio
over the Internet.  Winner of PC Magazine's Editor's Choice Award, RealAudio
allows leading Web sites, such as ESPNET SportsZone, to provide a value-added
service to its audience, while enabling companies to deliver training,
education, or special announcements over their Intranets.

DATA CENTER SERVICES.  As more people use the Internet to shop for products
and services, the demands on shared server resources are increasing.  RMI
offers businesses the alternative of colocating their servers at RMI, thereby
taking cost-effective advantage of the company's centralized Internet
resources.  For example, a Web developer who colocates a server at RMI can
save 40% to 60% of the monthly cost of maintaining that server in-house.

In addition, RMI is establishing itself as a provider's provider for Internet
transportation services.  The company facilitates and enables businesses that
want to provide Internet transportation services, such as Hypertext Transfer
Protocol (HTTP) for Web, Simple Mail Transfer Protocol (SMTP) for mail,
Network News Transfer Protocol (NNTP) for news, File Transfer Protocol (FTP)
for file transfer, and Internet Group Multicast Protocol (IGMP) for
multimedia.

ON-LINE NETWORK REPORTS.  RMI developed a password-protected on-line network
reporting service to allow customers to monitor the traffic and performance
of both RMI's network and the client's Internet connection in 15-minute
increments. The reports provide hourly, daily or weekly access to
high-resolution maps, tables, and graphs detailing the availability of
specific WAN links, network bandwidth, and error rates to help users
prioritize their internal network activities and reduce network management
expenses.

TRAINING CENTER.  RMI's new headquarters in downtown Denver includes a
training center with 12 workstations.  Customers can schedule their employees
for various levels of Internet training, ranging from basic access training
to HTML programming.  Customized, one-on-one training is also available,
either at RMI's new facility, or at the customer's site.

RMI is the first local Internet service provider to implement the
leading-edge E-mail system, geared toward smaller LANs with 35 or fewer
personal computer users. According to a recent Dataquest survey, 75 percent
of all LANs have 35

                                                                             7
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or fewer users.  InternetFlash, developed by Dynaflo Systems, Inc.,  is a
high-performance, cost-effective E-mail delivery system that immediately and
automatically delivers E-mail directly to personal computer users within
small-and medium-size local area networks (LAN). The new InternetFlash
service instantly alerts each user that new E-mail was received, thus
eliminating the need for users to frequently dial their E-mail system to
check receipt of messages.

BUSINESS RELATIONSHIPS

The Company has established five joint venture agreements covering eight POP
locations with unrelated parties pursuant to which the Company and the
unrelated parties provide Internet services in certain rural areas and
smaller population centers in Colorado.  Each of the parties to these
agreements is a local small business or business person who is not otherwise
affiliated with the Company. These agreements provide for the local party to
provide equipment and marketing services while the Company provides Internet
access and administrative services. The agreements provide for most revenues
from accounts in the geographic areas covered by the agreements to be split
equally between the Company and the local party.

These arrangements apply in specified territories outside of the main
Colorado population areas and accounted for approximately $67,500 (or
approximately 6%) of 1995 total revenue and approximately $354,100 (or
approximately 11%) of 1996 total revenue.  Each of these alliances is for an
unspecified term and is terminable by the local party on three months notice,
subject to certain rights of the Company to purchase the interest of the
other party on termination. Although the Company may enter into additional
similar business alliances in the future, management expects that revenues
from such alliances will represent a proportionately smaller part of total
revenues as the Company expands its operations in the future.

NETWORK INFRASTRUCTURE

RMI believes that its future success in the Internet access services market
depends in part on its ability to enhance its current service offerings for
individuals and businesses and to advance the capabilities and capacity of
its telecommunications network.  The Company purchased five B-STDX 9000
Cascade switches in October, 1996 in order to implement a regional backbone
network. The B-STDX switch is a wide area network (WAN) switch that
simultaneously supports Frame Relay, Switched Multimegabit Digital Service
(SMDS), Integrated Services Digital Network (ISDN), and Asynchronous Transfer
Mode (ATM) on a single platform.  RMI installed these switches in various
locations in the cities of Denver, Colorado Springs and Boulder.  These
switches are interconnected via a DS3 network supplied by the ICG Telecom
Group, Inc.

The Company is continuing to optimize and increase the capacity and
capabilities of its telecommunications network.  The Company currently is
working to increase its speed, reliability, and network fault tolerance.  In
November, 1996 the Company built a data center which is located at the
Corporate head office at 1099 18th Street, in Denver.  The new data center is
an environmentally controlled facility with built in network redundancies,
dual air conditioning systems, an FM 200 fire protection system and generator
power backup supported by an Uninterrupted Power Supply (UPS).  This facility
not only provides redundancies and stability to the Company's network, but
also allows the Company to make this facility available to those clients that
want

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the ability to colocate their Web servers in the RMI data center and pay RMI
for use of the facility as well as high bandwidth access to the Internet.

OPERATIONS AND CUSTOMER SUPPORT

As of December 31, 1996, the Company had 29 employees dedicated to technical
dial-up support, commercial account support, network operations and customer
service.  The Company's Colorado Springs location facilitates the dial-up
technical support group that provides phone support for dial-up subscribers.
RMI also established a separate commercial support group for commercial high
speed access clients which involves phone support, on-site support and
installations.  The Company's network support team concentrates on the
performance, stability and repair of the Company's network, network equipment
and servers.

SALES AND MARKETING

Prior to November, 1995, RMI's growth in its subscriber base was attributable
to word-of-mouth referrals primarily in the individual dial-up market.  In
November, 1995, the Company began to staff a direct sales group in order to
support a new focus on business customers.  The Company believes that it can
deliver high-speed Internet access solutions and Web services to business
customers in its regional markets and differentiate itself through an on-site
consultative approach, high-quality services and exemplary customer service.
Although it is not the intention of RMI to abandon the dial-up market, RMI
believes that its ability to differentiate itself from the national Internet
access providers, long distance providers and regional telephone companies
can best be achieved in the business market.

The Company currently employs eight field sales people, seven of whom work in
the Company's Denver office and one of whom works out of the Company's
Colorado Springs office.  RMI also employs five inside salespeople to handle
incoming calls which have been primarily generated by word-of-mouth and by
the local press the Company has been receiving.  The Company plans to
continue to expand its direct field sales force and inside sales group in
order to increase its market coverage.  RMI also employs a customer service
group, currently comprised of four people, who concentrate on business client
retention.

The Company intends to continue its program of minimal advertising and to
maximize the amount of local newspaper, radio and television exposure with
press releases and interest articles on the Company.

COMPETITION

The Internet connectivity business is highly competitive and there are no
substantial barriers to entry.  The Company believes that competition will
intensify in the future and its ability to successfully compete depends on a
number of factors including market presence, the capacity, reliability, and
the security of its network infrastructure, its pricing of services compared
to its competitors, the timing of new products and services by the Company
and its competitors, the Company's ability to react to changes in the market,
and industry and economic trends.  The Company's competitors consist of (1)
regional Internet access providers, (2) national Internet service providers,
(3) on-line services companies, (4) regional telephone companies and national
long distance carriers, and (5) hardware/software companies and cable
operators.

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REGIONAL INTERNET ACCESS PROVIDERS.  The Company's competitors include
numerous regional Internet access providers, the largest of which are
SuperNet, Inc. and Internet Express, Inc. SuperNet was formed by the Colorado
Advanced Technology Institute, and is currently the largest provider in the
State of Colorado with 15 POP locations. It has been in business since 1986.
Internet Express, Inc. is a wholly owned subsidiary of Telephone Express,
Inc., a commercial long distance provider.  Internet Express currently offers
service in the states of Colorado, Texas, Arizona and Washington.

NATIONAL INTERNET SERVICE PROVIDERS.  National Internet service providers
include companies such as NETCOM, PSI, UUNET and BBN.  These national
competitors have established national and international networks, providing
extensive coverage throughout the U.S. and select international locations.
NETCOM, PSI and UUNET have recently completed large public offerings and as a
result have established extensive cash resources with which they may be able
to develop and expand their communications and network infrastructure more
quickly, adapt more swiftly to new or emerging technologies and changes in
customer requirements, take advantage of acquisition and other opportunities
more readily, and devote more resources to the marketing and sale of
services, than the Company.  NETCOM, PSI and BBN have targeted the individual
dial-up market, while UUNET has specifically targeted the business markets.

ON-LINE SERVICE COMPANIES.  Other competitors include the national on-line
service providers including America On-line, Inc., CompuServe (a division of
H&R Block), Prodigy,  Delphi Internet Services (a division of News Corp.),
and Genie (a division of General Electric Information Services).  Most of the
established on-line services are rapidly expanding their Internet access
services in order to offer more direct access to the Internet at more
competitive prices.  On-line service companies are focused on the individual
dial-up market and are becoming direct competitors with the national Internet
providers and the long distance carriers.

REGIONAL TELEPHONE COMPANIES AND NATIONAL LONG DISTANCE COMPANIES.  Regional
telephone companies such as U S West Communications Inc. and national long
distance carriers such AT&T, MCI, and Sprint Communications have recently
announced Internet access services. The Company's management believes AT&T
will be a significant competitor to the national Internet providers, long
distance carriers, and on-line services that are targeting the individual
dial-up market.

HARDWARE/SOFTWARE COMPANIES AND CABLE OPERATORS.  In 1995, Microsoft Corp.
announced its entry into the on-line service business with "Microsoft
Network", a consumer on-line service that was released as a standard
integrated feature of the Windows 95 operating system.  Microsoft Corp. has
recently focused its significant resources on its new Web browser software
called Microsoft Network Explorer and has proceeded to sign strategic
distribution agreements with America On-line Inc. and AT&T.  IBM's most
recent version of its OS/2 operating system software includes Internet
utilities, and IBM has announced plans to introduce Internet connectivity
through its own private communications network. Cable operators such as
Tele-Communications, Inc. have also announced their intention to utilize
their cable networks to offer Internet services.   Cable modems have the
capacity to transmit at speeds up to 10 Megabits per second versus the normal
telephone dial-up speed of 28.8 kilobits per second.  Several cable companies
are in the process of upgrading their systems to handle the Internet because
cable services were not originally designed for the two-way nature of
Internet traffic.

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The Company is not currently subject to regulation by the Federal Communications
Commission or any other agency, other than regulations applicable to businesses
generally.

Because the Internet is a relatively new medium, the legal obligations and
First Amendment rights of participants in the Internet, including service
providers such as RMI, are not well defined and continue to evolve.  The
Internet has not been subject to regulation by the Federal Communications
Commission or other governmental agencies, as has television, and standards
applicable to print publishers and television in respect of the law of
defamation and obscenity are not clearly applicable to the Internet.
Moreover, to the extent these issues have been considered by the courts,
outcomes have not been uniform. In 1996, Congress passed a telecommunications
act which, among other things, includes protection from liability for
Internet providers who take steps to prevent defamatory material from being
published on the Internet and also includes provisions to protect children
from indecent material on the Internet. Certain provisions of that
legislation regarding the imposition of criminal penalties for publication of
indecent materials on the Internet were recently held to be unconstitutional
by a federal district court.

ITEM 2. DESCRIPTION OF PROPERTIES

The Company's corporate headquarters is located in Denver, Colorado at 1099
Eighteenth Street, Suite 3000, where the executive, sales and marketing and
administrative functions exist.  The Company leases approximately 19,500
square feet in Denver under a lease which terminates May 8, 2002.  Rental
payments under that lease are approximately $15,835 per month for the first
eight months and $31,670 per month for the remaining lease term. The Company
is responsible for its pro rata share of related operating expenses.  The
Company also leases approximately 4,000 square feet in Denver at 1800 Glenarm
which formerly housed the Corporate headquarters.  This facility has been
sub-let for the remainder of the lease term which concludes January 7, 2001.
The Company recognized a loss on the subletting of this space in 1996 of
approximately $58,000 which includes the broker commission plus the
difference between the rate paid by the Company and the amount realized from
the sublet tenant.  The Company maintains an office of approximately 8,000
square feet in Colorado Springs which is leased until January, 2000 at a
monthly rental of $4,474 plus a prorata share of increases in operating
expenses.  RMI also has leased POP locations in Loveland, Colorado Springs
and Denver, Colorado.  Eight additional leased POP locations in Alamosa,
Burlington, Durango, Grand Junction, Hayden, Leadville, Montrose, and Pueblo,
Colorado are leased by the Company's partners in joint venture arrangements.
The Company does not own any real estate.

ITEM 3. LEGAL PROCEEDINGS

On September 6, 1996, Robert Lewis and Storefronts in Cyberspace, L.L.C.,
filed a complaint in Denver District Court naming the Company and the
Colorado Rockies Baseball Club, Ltd., as defendants.  All claims against the
Company have since been dismissed except for a breach of contract claim
seeking $25,000 in damages. The Company's management believes the breach of
contract claim is without merit and intends to vigorously defend against it.
The Company is not a party to any other litigation.

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ITEM 4. No matters were submitted to a vote of security holders in the fourth
quarter.

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company completed its initial public offering on September 5, 1996.  The
Company's Common Stock is traded on the NASDAQ SmallCap Market under the
symbol RMII and the Company's Warrants are traded on the NASDAQ SmallCap
Market under the symbol RMIIW.

The following table sets forth the closing high and low bid prices of the
Company's Common Stock as reported on the NASDAQ SmallCap Market.  These
prices are believed to be representative inter-dealer quotations, without
retail markup or commissions, and may not represent prices at which actual
transactions occurred.

               1996                                         Bid
                                                     High        Low
               Quarter Ended September 30            $2.75       $2.50
               Quarter Ended December 31             $1.625      $1.00

               1997
               First Quarter (through March 15)      $2.75       $1.125

The number of record holders of the Company's $.001 par value common stock at
March 15, 1997 was 54. Because many of the Company's shares of common stock
are held by brokers or other institutions on behalf of stockholders, the
Company is unable to estimate its total number of beneficial owners of its
common stock represented by these record holders.  The Company has never
declared or paid any dividends on its common stock.  Since the Company
currently intends to retain all future earnings to finance growth, it does
not anticipate paying any cash dividends in the foreseeable future.  In
addition, the Company's Series A Preferred Stock prohibits the payment of
dividends on common stock for so long as any dividends have not been paid on
the Series A Preferred Stock.  Since the terms of an equipment lease to which
the Company is a party prohibit payment of dividends on the Series A
Preferred Stock and there are as a result accrued but unpaid dividends on the
Series A Preferred Stock, the Company is currently prohibited from paying
dividends on the common stock pursuant to the prohibition contained in the
Series A Preferred Stock.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

                           SELECTED FINANCIAL DATA

The following table sets forth selected financial data for the Company as of
the dates and for the periods indicated.  The income statement data for the
years ended December 31, 1995 and 1996, and the balance sheet data as of such
dates have been derived from financial statements of the Company which have
been included herein and which have been audited by McGladrey & Pullen, LLP.
(1995) and Baird, Kurtz, and Dobson (1996), independent public accountants.
These data should be read in conjunction with the Company's financial
statements and related notes included elsewhere in this Form 10-KSB.

                                                                            12
<PAGE>

                                                     YEAR ENDED DECEMBER 31,
                                                      1995           1996
STATEMENT OF OPERATIONS DATA:
Revenues                                           $1,179,325    $ 3,281,579
Gross profit                                          858,956      2,177,912
Operating (loss) income                              (108,522)    (2,241,194)
Net (loss) income                                    (128,794)    (2,302,571)
Net (loss) income per share (1)                          (.04)          (.63)

OTHER OPERATING DATA:
Approximate number of subscribers
  at end of period                                      4,000          9,800
Number of POPs at end of period                             9             11

BALANCE SHEET DATA:
Cash and Cash Equivalents                          $  274,661    $   348,978
Investments                                                 0      1,356,629
Working Capital (Deficit)                            (186,865)       370,884
Total Assets                                          924,603      5,540,167
Long Term debt                                        524,437      1,134,380
Total Stockholders' (deficit) equity                 (169,036)     2,317,437

(1) Loss per share computed based on 3,489,000 Shares outstanding for 1995
and 3,715,000 shares outstanding for 1996. See Note 1 to the Company's
financial statements included elsewhere in this report.


OVERVIEW

The Company's growth strategy is to focus on commercial accounts in the high
speed access, frame relay network, and Web services areas.  The Company also
continues to experience strong growth in dial-up access services based on
quality of service and word of mouth reputation.

Three acquisitions occurred in late 1996 and early 1997 pursuant to the
Company's strategy to expand through acquisitions as well as internal growth.
CompuNerd, Inc., a small Colorado Springs based Web services company was
acquired as of November 1, 1996 for consideration consisting of $70,478 and
30,000 shares of common stock.  The Information Exchange (IE), a Denver based
voice messaging business was acquired effective December 1, 1996 for 52,723
shares of common stock.  IE focuses on voice messaging to commercial
customers. Its acquisition further expands the Company's ability to provide a
full complement of services through the Internet. Several affiliates of the
Company were equity holders in The Information Exchange.  See Item 12,
"Certain Relationships and Related Transactions."  Effective January 16,
1997, the Company acquired dial-up and dedicated access subscribers from
Online Network Enterprises, Inc., a Boulder, Colorado, based provider of
Internet access and Web services for consideration consisting of $150,000 of
cash and 116,932 shares of the Company's common stock.

The Company has positioned itself for continued growth by expanding its
infrastructure and employee base.  In December 1996, the Company relocated
its Corporate headquarters in Denver to an 19,500 square foot facility which
includes a data center where Denver based operations are being consolidated.
The Company's principal access servers, Web servers, ISDN routers, dial-up



                                                                              13

<PAGE>

modem facilities, and management workstations are consolidated in this
facility to provide enhanced management and security.  In addition to
improved facilities, the Company continues to seek and hire quality sales,
technical, and administrative management and staff.  As a result the Company
will continue to incur losses in the near term. The Company will not generate
income or positive cash flow from operations unless revenues continue to
increase at rates commensurate with past growth while maintaining its
existing cost structure. Although the Company believes that its current
investment in equipment and related infrastructure, and its current employee
base (which accounts for a significant portion of selling, general and
administrative expense) can support substantial growth, there can be no
assurance that revenues will continue to grow at the rate they have over the
past year.

The Company may experience fluctuations in operating results in the future
caused by various factors, some of which are outside of the Company's
control, including general economic conditions, specific economic conditions
in the Internet access industry, user demand for the Internet, capital
expenditures and other costs relating to the expansion of operations, the
timing and number of customer subscriptions, the introduction of new services
by the Company or its competitors, the mix of services sold and the mix of
distribution channels through which those services are sold.  In addition,
the Company's expenses, including but not limited to obligations under
equipment leases, facilities leases, telephone access lines, and Internet
access are relatively fixed in the short term, and therefore variations in
the timing and amount of revenues could have a material adverse effect on the
Company's results of operations.


RESULTS OF OPERATIONS

Revenues

Revenues are generated by a variety of Internet related activities that
include dial up access services, dedicated access services primarily for
business customers, frame services, and Web hosting and production.  Other
sources of revenue include equipment sales related to dedicated access
accounts, educational courses, and setup charges associated with the
Company's various services.  The following table provides information
regarding amounts of revenues in the foregoing categories for the years
ended December 31, 1995 and 1996.

                                       Years Ended December 31,
                                        1995              1996         % Change
     REVENUE
     Dial-Up Service                $  621,475      $  1,465,269          135%
     Dedicated Access Service          262,267           689,311          163%
     Web Services                       29,110           413,592         1321%
     Equipment Sales                   144,551           519,551          259%
     Other                             121,922           193,856           59%
                                    ----------      ------------
          Total                     $1,179,325      $  3,281,579          178%


The Company's revenue grew 178% from the year ended December 31, 1995 as
compared to the year ended December 31, 1996.  The total number of customers
grew from 4,000 to 9,800 during the same periods representing an increase of
145%. Revenues exclusive of Equipment Sales grew at 167%.  Revenues grew at a
faster rate than customer count due to a focus on commercial customers with
higher monthly billing rates and from increases in Web Production and Hosting
and Equipment sales.



                                                                              14
<PAGE>

DIAL-UP SERVICE

The Company's strategy is to provide an high quality service with few busy
signals.  In order to assure this service level the Company does not provide
any unlimited access service price plans during the business day, these plans
have a tendency to congest the network.  The Company does provide a range of
service offerings based on a set number of hours for a set rate with
additional hours billed as overage.  The table below shows the composite
weighted average billing rate for full service Internet access by quarter
for 1995 and 1996.

                          For the Three Months Ended

 March     June    September    December    March    June   September   December
 1995      1995       1995        1995      1996     1996      1996       1996

$20.52    $20.42     $20.88      $21.02    $20.97   $20.33    $20.41     $20.50


The 135% revenue growth in Dial-Up Service in 1996 over 1995 is attributable
to growth in customers while maintaining average billing rates.  Dial-up
Service has been split approximately evenly between commercial and
residential customers throughout 1995 and 1996.

RMI has established business alliances with five unrelated parties for the
purpose of providing Internet Services in secondary markets in the State of
Colorado.  These joint venture agreements provide for the local party to
provide equipment and marketing services while the Company provides Internet
Access and administrative services.  Dial-up revenues based on these joint
ventures generated $ 67,500 in revenues in 1995 and $ 354,100 in 1996 for an
increase of 425%.  The joint venture points of presence (POP) began in the
second quarter of 1995 and grew to six locations by the end of 1995 and eight
locations by the end of 1996.


DEDICATED ACCESS SERVICE

Dedicated access services are primarily provided to commercial customers and
include a wide range of connectivity options tailored to the requirements of
the customer.  These services include private port (dedicated modem),
Integrated Services Digital Network(ISDN) connections, 56 Kbps frame relay
connections, T-1 (1.54 Mbps) frame relay connections, point to point
connections, and T-3 (45 Mbps) or fractional T-3 connections.  The Company
also offers a colocation service in which the customer's equipment is located
in the RMI data center, thereby providing access to the Internet directly
through the Company's connection.

The table below shows the quarterly customer count by each of the component
services offered for dedicated access as of the dates indicated:

<TABLE>
Service          March 31   June 30   Sept 30   Dec 31   March 31   June 30   Sept 30   Dec 31
                   1995       1995      1995     1995      1996       1996      1996     1996
<S>                 <C>        <C>       <C>      <C>       <C>        <C>       <C>
Private Port        29         30        36       35        42         47        46       54
56 Kbps             18         27        27       34        47         69        71       72
ISDN                 0          0         0        2         3         13        46       80
T-1                  7         10        10       11        16         25        29       30
Colocation           0          1         4        4         6          4         5        6
</TABLE>


WEB SERVICES

Web services revenues are composed of Web page hosting and Web page
production. Web page hosting provides ongoing revenue from customers for
whom RMI hosts a



                                                                              15

<PAGE>

Web site on Web servers in the RMI data center.  All access made to these Web
Sites by the customer and the Internet community as a whole are processed on
the RMI servers.  The advantage to customers is high speed access to sites by
their targeted audiences.  The following is a summary of the number of Web
hosting customers as of the dates indicated:

March 31  June 30  Sept 30   Dec 31   March 31   June 30   Sept 30   Dec 31
  1995     1995     1995      1995      1996      1996      1996      1996

   1        21      45        90        157       217       242       341


Web page hosting accounted for $ 26,200 of revenue in 1995 and $239,700 of
1996 revenue for an increase of 815%.  The increase resulted from increases
in the direct sales force, increased server capacities and speed, and the
increasing popularity of the Web as a business tool.

Web page production increased from $3,770 for 1995 to $ 173,800 for 1996 for
an increase of 4,510%.  The Company increased the size of the Web production
department as well as provided customers more complex applications. The
growth in Web hosting business helped to drive this part of the business plus
the activities of the Company's direct sales force.  RMI did not have a
direct sales force until December, 1995.


EQUIPMENT SALES

RMI sells hardware to its customers as an accommodation and to provide a "one
stop shop" for Internet services.  Equipment sales can vary from a single
router for an ISDN connection to providing servers and Internet grade routers
for colocations.  Sales grew from $144,551 in 1995 to $519,551 in 1996 or
259%. Equipment sales are typically low margin transactions and can fluctuate
dramatically depending on large server orders.  RMI has established wholesale
purchasing relationships with national and regional vendors in order to
provide an attractively priced total Internet solution to its commercial
customers.


GROSS PROFIT

Gross profit consists of total revenue less the direct costs of delivering
services and the cost of equipment. Gross profit on Internet services
(exclusive of equipment) as a percentage of sales is 81% for 1995 and 77% for
1996.  The reduction in gross profit percentage is principally the result of
increasing capacity for Internet access, ISDN facilities, and dial-up
facilities.





                                                                              16
<PAGE>


GENERAL, SELLING AND ADMINISTRATIVE

SALES AND MARKETING EXPENSES increased from $92,300 in 1995 to $776,500 in 1996
inclusive of personnel costs.  The Company hired a full time direct sales staff
beginning in December, 1995.  Of the total 1996 sales and marketing expense,
approximately $565,000 relate to personnel expenses.  The Company had 6
employees at the end of 1995 and 16 employees at the end of 1996 in sales and
marketing.  Extensive efforts have been made to identify, hire, and train sales
personnel with expertise in Internet access and in Web applications.
Approximately $211,500 for 1996 was spent on advertising, developing and
printing marketing and sales support materials, and trade show attendance.


GENERAL AND ADMINISTRATIVE EXPENSES increased from approximately $875,200 in
1995 to $3,642,600 in 1996.  General and administrative costs consist of
personnel (excluding sales and marketing personnel), physical facilities,
depreciation, amortization, professional services and other related
administrative expenses.  Significant items are discussed below.

Payroll costs increased from $459,575 for the year ended December 31, 1995, to
$2,138,460 for the year ended December 31, 1996.  The Company had 29 employees
at the end of 1995 and increased staff to 67 at the end of 1996 in all areas of
the Company including administration, technical support, development, and senior
management (excluding sales and marketing).  Rent expense for 1995 was $82,269
and increased to $240,720 in 1996.  During 1996 the Company moved its corporate
headquarters and leased office space of approximately 19,500 square feet which
includes a data center comprised of 1,200 square feet.  The Company continues to
occupy offices in Colorado Springs for staff performing Dial-In technical
support, customer service, and sales functions.  Additionally, the Company
leases two POP's (points of presence) which contain routers, servers, and modems
to provide Internet access for its customers.  The Company's former offices in
Denver at 1800 Glenarm have been sub leased effective March 1, 1997 for the
remainder of the lease term.  A one time charge of approximately $58,000 has
been recorded in 1996 for commission expense on the transaction as well as the
difference between the sub lease rate and the existing lease rate.

The Company experienced an increase in communications expense from $58,400 for
the year ended 1995 to $196,800 for the year ended 1996.  These expenses
included local telephone service, cellular phones and pager costs and long
distance telephone expenses.  The Company uses multiple "800" phone numbers to
provide technical support, customer support, and sales order processing to its
growing base of customers.


LIQUIDITY AND CAPITAL RESOURCES

The Company has incurred losses since inception and has experienced negative
operating cash flow in 1996.  The Company's operations used net cash of
approximately $1.5 million for the year ended December 31, 1996.  The cash used
by operating activities is primarily attributable to the Company's continued
expansion of its facilities and employee base in anticipation of continued
growth in revenues.

Between December 31, 1995, and December 31, 1996, the Company's employee base
increased from 35 to 83 and its total assets increased from $924,603 to
$5,540,167.  The increase in the Company's total assets is primarily
attributable to $2,375,348 of property and equipment (net of accumulated


                                                                             17

<PAGE>

depreciation), $1,356,629 in short term investments, and $428,489 of accounts
receivable.  The Company has financed this growth primarily with revenues
from operations, from proceeds of approximately $3.7 million resulting from
completion of the Company's initial public offering in September 1996, and
1.7 million from capital lease financing.  In addition, sources of cash
included $490,000 in proceeds from a private placement of convertible notes
(since converted into common stock) in late 1995 and early 1996, and $406,000
in net proceeds from a private placement of Series A Convertible Preferred
Stock in mid-1996.

During 1996 the Company acquired approximately $2.5 million in equipment,
software, and leasehold improvements.  Equipment consisted of Cascade switches
and related equipment for the Company's frame relay network, routers, servers
and computers.  Of the $2.5 million expended, approximately $1.7 million was
financed through capital lease transactions.

The Company has a bank line of credit in the amount of $500,000 which,
subsequent to December 31, 1996 was fully drawn.  No amounts were outstanding as
of December 31, 1996, with respect to this line of credit.  The line of credit
is secured by a pledge of a $300,000 treasury bill repurchase agreement and by
the Company's accounts receivable.  The Company's office lease is also secured
by a pledge of a treasury bill of $250,000.

As of December 31, 1996, the Company had working capital of $370,884.  This
included $348,978 of cash and cash equivalents and $1,356,629 of investments in
financial instruments convertible to cash.  Trade receivables as of that date
were $518,827.  Current liabilities as of that date were approximately
$2,088,350, including $425,160 of accounts payable, $451,823 of current
maturities of long-term debt and capital lease obligations, $528,160 of accrued
payroll and related taxes, and $460,836 of accrued expenses attributable
primarily to a payable on office furniture, deferred office rent, preferred
stock dividend payable, accrual for unbilled circuit costs, and amounts due
joint venture partners pending cash collections.  Also included in current
liabilities as of that date is $218,121 of deferred revenue, which represents
differences in the timing of payments by customers and recognition of the
related revenue.

RMI is an Internet Service Provider (ISP) with an high growth rate (as discussed
elsewhere in this document).  The Company's growth is dependent on building a
strong infrastructure and hiring high quality sales, technical, and
administrative personnel.  In order to build the infrastructure and acquire the
human resources needed to maintain an high growth rate, the Company has operated
with a negative cash flow from operations during 1996 and projects to continue
to do so for the first half of 1997.  The company's cash requirements are
relatively fixed for the near term and the Company expects to generate positive
operating cash flows by late 1997 if revenues continue to increase according to
expectations without any significant cost increases.  In the near term, the
Company expects to finance negative operating cash flows from incentive programs
to customers designed to increase the rate of realization of accounts
receivable, and, if necessary, from reductions in operating expenses.  As
discussed below, the Company may conduct an equity financing which, if
completed, the proceeds would be available to fund operations.  In the longer
term, should revenues not continue to increase according to expectations, the
Company may have to seek additional financing to fund operating losses or
implement additional reductions in operating expenses.  Reductions in operating
expenses, if effected, could adversely affect revenues and therefore not result
in the expected increase in cash flow.  The Company does not currently have


                                                                             18

<PAGE>


access to additional bank financing and therefore additional financing would
have to result from additional issuances of equity or debt securities.


The Company's common stock is traded on the NASDAQ SmallCap Market.  The NASDAQ
Stock Market, Inc. has recently proposed changes to the maintenance criteria for
listing eligibility on the Small Cap Market, including a requirement that
issuers have at least $2,000,000 in net tangible assets.  As of January 31,
1997, the Company had less than $2,000,000 in net tangible assets.  If the
proposed changes to the SmallCap Market listing criteria are approved by the SEC
and if the Company were to fail to meet such requirements, the Company's common
stock would no longer trade in the SmallCap Market, which would adversely affect
the liquidity and price of the Company's common stock.  In anticipation of the
eventual approval of the new maintenance criteria, the Company is seeking to
raise $1 million to $2 million in additional equity capital in a private
placement of stock, the terms and structure of which are not determined at this
time.  The proceeds of that offering would be used to meet the more stringent
listing criteria and to improve the Company's working capital and liquidity.
There can be no assurance that additional equity capital will be available to
the Company or, if it is available, that it will be available on terms favorable
to the Company.

ITEM 7. FINANCIAL STATEMENTS

                                                                             19


<PAGE>








                          ROCKY MOUNTAIN INTERNET, INC.

                             ACCOUNTANTS' REPORT AND
                        CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 1995 AND 1996




<PAGE>

                          ROCKY MOUNTAIN INTERNET, INC.

                           DECEMBER 31, 1995 AND 1996


                                TABLE OF CONTENTS

                                                                          Page
                                                                          ----

INDEPENDENT ACCOUNTANTS' REPORT                                              1
  Baird, Kurtz, & Dobson (1996)                                              1
  McGladrey & Pullen (1995)                                                  2

CONSOLIDATED FINANCIAL STATEMENTS
  Balance Sheets                                                             3
  Statements of Operations                                                   5
  Statements of Stockholders' Equity (Deficit)                               6
  Statements of Cash Flows                                                   7
  Notes to Financial Statements                                              8





<PAGE>

                         INDEPENDENT ACCOUNTANTS' REPORT




Board of Directors
Rocky Mountain Internet, Inc.
Denver, Colorado


   We have audited the accompanying consolidated balance sheet of ROCKY MOUNTAIN
INTERNET, INC. as of December 31, 1996, and the related consolidated statements
of operations, stockholders' equity (deficit) and cash flows for the year 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 audit.

   We conducted our audit 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 audit provides a reasonable basis for our opinion.

   In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ROCKY
MOUNTAIN INTERNET, INC. as of December 31, 1996 and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.




/s/ BAIRD, KURTZ & DOBSON


Denver, Colorado
February 28, 1997


                                    -1-

<PAGE>

                        INDEPENDENT AUDITOR'S REPORT


To the Board of Directors
Rocky Mountain Internet, Inc.
Denver, Colorado


We have audited the accompanying balance sheet of Rocky Mountain Internet,
Inc. as of December 31, 1995 and the related statements of operations,
stockholders' deficit, and cash flows for the year 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 audit.

We conducted our audit 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 audit provides 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 Rocky Mountain Internet,
Inc. as of December 31, 1995 and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted
accounting principles.



                           /s/ McGLADREY & PULLEN, LLP


Denver, Colorado
February 23, 1996

                                        -2-
<PAGE>

                          ROCKY MOUNTAIN INTERNET, INC.

                           CONSOLIDATED BALANCE SHEETS

                           DECEMBER 31, 1995 AND 1996



                             ASSETS                          1995       1996
                                                          ---------  ----------
CURRENT ASSETS
  Cash and cash equivalents                               $ 274,661  $  348,978
  Investments                                                     -   1,356,629
  Trade receivables, less allowance for doubtful
    accounts; 1995 - $5,700; 1996 - $115,000                 90,338     518,827
  Inventories                                                12,185      91,047
  Other                                                       5,153     143,753
                                                          ---------  ----------
                    Total Current Assets                    382,337   2,459,234
                                                          ---------  ----------

PROPERTY AND EQUIPMENT, AT COST
  Equipment                                                 555,654   2,513,944
  Computer software                                          36,806     202,501
  Leasehold improvements                                      4,880     127,877
  Furniture, fixtures, and office equipment                  15,101     413,678
                                                          ---------  ----------
                                                            612,441   3,258,000
  Less accumulated depreciation and amortization            132,812     403,023
                                                          ---------  ----------
                                                            479,629   2,854,977
                                                          ---------  ----------
OTHER ASSETS
  Customer lists, at amortized cost                               -     145,444
  Deposits                                                   62,637      80,512
                                                          ---------  ----------
                                                             62,637     225,956
                                                          ---------  ----------
                                                          $ 924,603  $5,540,167
                                                          ---------  ----------
                                                          ---------  ----------

See Notes to Consolidated Financial Statements.


                                     -3-

<PAGE>

                          ROCKY MOUNTAIN INTERNET, INC.

                     CONSOLIDATED BALANCE SHEETS (Continued)

                           DECEMBER 31, 1995 AND 1996

                  LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
                                                                            1995          1996
                                                                        ----------    -----------
<S>                                                                     <C>           <C>
CURRENT LIABILITIES
  Notes payable                                                         $   19,419    $     4,250
  Current maturities of long-term debt and capital lease obligations        72,675        451,823
  Accounts payable                                                         192,985        425,160
  Deferred revenue                                                         169,645        218,121
  Accrued payroll and related taxes                                         83,528        528,160
  Accrued expenses                                                          30,950        460,836
                                                                        ----------    -----------
       Total Current Liabilities                                           569,202      2,088,350
                                                                        ----------    -----------

LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS                               524,437      1,134,380
                                                                        ----------    -----------

STOCKHOLDERS' EQUITY (DEFICIT)
  Preferred stock, $.001 par value; authorized 1,000,000
    shares; issued and outstanding 1995 - 0 shares,
    1996 - 250,000 shares                                                        -            250
  Common stock, $.001 par value; authorized 10,000,000
    shares; issued and outstanding 1995 1,868,000 shares; 1996
    4,540,723 shares                                                         1,868          4,541
  Additional paid-in capital                                                28,847      4,839,968
  Accumulated deficit                                                     (199,751)    (2,527,322)
                                                                        ----------    -----------
       Total Stockholders' Equity (Deficit)                               (169,036)     2,317,437
                                                                        ----------    -----------

                                                                        $  924,603    $ 5,540,167
                                                                        ----------    -----------
                                                                        ----------    -----------
</TABLE>

See Notes to Consolidated Financial Statements.


                                     -4-

<PAGE>


                        ROCKY MOUNTAIN INTERNET, INC.

                    CONSOLIDATED STATEMENTS OF OPERATIONS

                   YEARS ENDED DECEMBER 31, 1995 AND 1996



                                                   1995          1996
                                                ----------    ----------
REVENUE
  Internet access and services                  $1,034,774   $ 2,762,028
  Equipment sales                                  144,551       519,551
                                                ----------   -----------
                                                 1,179,325     3,281,579
                                                ----------   -----------

COST OF REVENUE EARNED
  Internet access and services                     193,875       640,880
  Equipment sales                                  126,494       462,787
                                                ----------   -----------
                                                   320,369     1,103,667
                                                ----------   -----------
GROSS PROFIT                                       858,956     2,177,912


GENERAL, SELLING AND ADMINISTRATIVE EXPENSES       967,478     4,419,106
                                                ----------   -----------

OPERATING LOSS                                    (108,522)   (2,241,194)
                                                ----------   -----------

OTHER INCOME (EXPENSE)
  Interest expense                                 (31,818)     (157,042)
  Interest income                                    2,397        44,322
  Finance charges                                    3,871        24,654
  Other income, net                                  5,278        26,689
                                                ----------   -----------
                                                   (20,272)      (61,377)
                                                ----------   -----------
LOSS BEFORE INCOME TAXES                          (128,794)   (2,302,571)

INCOME TAX EXPENSE                                       -             -
                                                ----------   -----------

NET LOSS                                        $ (128,794)  $(2,302,571)
                                                ----------   -----------
                                                ----------   -----------

PRIMARY AND FULLY DILUTED LOSS PER SHARE
  Net loss per share                            $     (.04)  $      (.63)
                                                ----------   -----------
                                                ----------   -----------




See Notes to Consolidated Financial Statements



                                      -5-

<PAGE>
                       ROCKY MOUNTAIN INTERNET, INC.

         CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

                  YEARS ENDED DECEMBER 31, 1995 AND 1996

<TABLE>
                                        Preferred Stock      Common Stock      Additional
                                       ----------------   ------------------    Paid-in      Accumulated
                                       Shares    Amount    Shares     Amount    Capital        Deficit        Total
                                       -------   ------   ---------   ------   ----------    ------------  -----------
<S>                                    <C>       <C>      <C>         <C>      <C>           <C>           <C>
BALANCE, DECEMBER 31, 1994                   -   $    -   1,188,000   $1,188   $   26,626    $   (70,957)  $   (43,143)
  Purchase of common stock for
    redemption                               -        -    (180,000)    (180)     (18,570)             -       (18,750)
  Issuance of common stock                   -        -     860,000      860        1,008              -         1,868
  Capital contribution                       -        -           -        -       19,783              -        19,783
  Net loss                                   -        -           -        -            -       (128,794)     (128,794)
                                       -------   ------   ---------   ------   ----------    -----------   -----------

BALANCE, DECEMBER 31, 1995                   -        -   1,868,000    1,868       28,847       (199,751)     (169,036)
  Issuance of preferred stock          250,000      250           -        -      405,750              -       406,000
  Issuance of common stock                   -        -   1,365,000    1,365    3,775,887              -     3,777,252
  Stock option compensation                  -        -           -        -       12,807              -        12,807
  Issuance of underwriters' warrants         -        -           -        -          100              -           100
  Conversion of debentures into
    common stock                             -        -   1,225,000    1,225      488,775              -       490,000
  Dividends on preferred stock               -        -           -        -            -        (25,000)      (25,000)
  Issuance of common stock for the
    acquisition of CompuNerd, Inc.           -        -      30,000       30       67,470              -        67,500
  Issuance of common stock for the
    acquisition of the Information
    Exchange                                 -        -      52,723       53       60,332              -        60,385
  Net loss                                   -        -           -        -            -     (2,302,571)   (2,302,571)
                                       -------   ------   ---------   ------   ----------    -----------   -----------

BALANCE, DECEMBER 31, 1996             250,000   $  250   4,540,723   $4,541   $4,839,968    $(2,527,322)  $ 2,317,437
                                       -------   ------   ---------   ------   ----------    -----------   -----------
                                       -------   ------   ---------   ------   ----------    -----------   -----------
</TABLE>


See Notes to Consolidated Financial Statements

                                     -6-

<PAGE>
                          ROCKY MOUNTAIN INTERNET, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                     YEARS ENDED DECEMBER 31, 1995 AND 1996

                                                        1995          1996
                                                     ---------     ----------
CASH FLOWS FROM OPERATING ACTIVITIES
  Net loss                                           $(128,794)   $(2,302,571)
  Items not requiring (providing) cash:
    Depreciation                                        51,395         88,162
    Amortization                                        39,030        186,044
    Salaries paid with stock options                         -         12,807
  Changes in:
    Trade receivables                                  (59,621)      (417,999)
    Inventories                                        (12,185)       (78,862)
    Other current assets                                (5,153)      (138,066)
    Accounts payable                                    89,395        224,618
    Deferred revenue                                    77,084         41,268
    Accrued payroll and related taxes                   83,528        443,208
    Accrued expenses                                    30,550        429,886
                                                     ---------     ----------
        Net cash provided by (used in) operating
          activities                                   165,229     (1,511,505)
                                                     ---------     ----------

CASH FLOWS FROM INVESTING ACTIVITIES
  Purchases of property and equipment                 (177,771)      (900,235)
  Purchase of investments                                    -     (1,756,629)
  Proceeds from investments                                  -        400,000
  Payment for purchase of CompuNerd, Inc.                    -        (70,478)
  Additions to deposits                                (60,635)       (16,675)
                                                     ---------     ----------
        Net cash used in investing activities         (238,406)    (2,344,017)
                                                     ---------     ----------

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from sale of common stock                     1,868      3,777,252
  Proceeds from sale of preferred stock                      -        406,000
  Proceeds from notes payable                           18,000          6,689
  Proceeds from long-term debt                         373,000        135,404
  Sale of stock warrants                                     -            100
  Payment of preferred stock dividend                        -        (25,000)
  Purchase of common stock for redemption              (18,750)             -
  Payments on notes payable                             (8,217)       (26,108)
  Payments on long-term debt and capital leases
    obligations                                        (54,533)      (344,498)
                                                     ---------     ----------
        Net cash provided by financing activities      311,368      3,929,839
                                                     ---------     ----------

INCREASE IN CASH AND CASH EQUIVALENTS                  238,191         74,317

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR            36,470        274,661
                                                     ---------     ----------

CASH AND CASH EQUIVALENTS, END OF YEAR               $ 274,661     $  348,978
                                                     ---------     ----------
                                                     ---------     ----------


See Notes to Consolidated Financial Statements


                                    -7-
<PAGE>

                        ROCKY MOUNTAIN INTERNET, INC.

               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       DECEMBER 31, 1995 AND 1996


NOTE 1:   NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

   The Company is a provider of Internet access services and Web services to
businesses, professionals and individuals in the state of Colorado.  The Company
facilitates access to the Internet by means of a regional telecommunications
network comprised of a backbone of leased, high-speed dedicated phone lines,
computer hardware and software and local access points known as points of
presence in eleven locations.  The Company's high speed, digital
telecommunications network provides subscribers with direct access to the full
range of Internet applications and resources.

PRINCIPLES OF CONSOLIDATION

   The financial statements include the accounts of the Company and its wholly-
owned subsidiary, Rocky Mountain Internet Subsidiary (Colorado) Inc.  The
operations of this subsidiary consists solely of the ownership of equipment,
which it leases to the Company.  All significant intercompany accounts and
transactions have been eliminated.

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.

CASH EQUIVALENTS

   The Company considers all liquid investments with original maturities of
three months or less to be cash equivalents.  At December 31, 1995 and 1996,
cash equivalents consisted primarily of money market accounts.

COST OF REVENUE EARNED

   Included in Internet access and services cost of revenue earned is primarily
the cost of high speed data circuits and telephone lines that allow customers
access to the Company's service plus Internet access fees paid by the Company to
Internet back bone carriers.


                                     -8-

<PAGE>

                        ROCKY MOUNTAIN INTERNET, INC.

               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       DECEMBER 31, 1995 AND 1996


NOTE 1:   NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
          (continued)

PROPERTY AND EQUIPMENT

   Depreciation and amortization of property and equipment is computed using the
straight line method over the estimated useful lives of the assets, ranging from
five to seven years.  Certain equipment obtained by capital lease obligations
are amortized over the life of the lease.  Improvements to leased property are
amortized over the lesser of the life of the lease or life of the improvements.

   Major additions and improvements to property and equipment are capitalized,
whereas replacements, maintenance and repairs which do not improve or extend the
lives of the respective assets, are expensed.

REVENUE RECOGNITION

   The Company charges customers (subscribers) monthly access fees to the
Internet and recognizes the revenue in the month the access is provided.  For
certain subscribers billed in advance, the Company recognizes the revenue over
the period the billing covered.  Revenue for other services provided, including
set-up fees charged to customers when their accounts are activated, or equipment
sales, are recognized as the service is performed or the equipment is delivered
to the customer.

ADVERTISING

   The Company expenses advertising costs as incurred.  During the years ended
December 31, 1995 and 1996, the Company incurred $24,847 and $167,565,
respectively, in advertising costs.

CUSTOMER LISTS

   The excess of the purchase price over the fair value of net assets acquired
in business acquisitions is recorded as customer lists, and is amortized on a
straight line basis over five years.


                                     -9-

<PAGE>

                        ROCKY MOUNTAIN INTERNET, INC.

               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       DECEMBER 31, 1995 AND 1996


NOTE 1:   NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
          (continued)

INVENTORIES

   Inventories consist of Internet access equipment and are valued at the lower
of cost of market.  Cost is determined using the first-in, first-out method.

LOSS PER COMMON SHARE

   For the years ended December 31, 1995 and 1996, loss per share is computed
based upon approximately 3,489,000 and 3,715,000, respectively, weighted average
common shares outstanding for both primary and fully-diluted earnings per share.
The net loss for the year ended December 31, 1996 used in the calculation was
increased by the preferred stock dividends paid of $25,000.  These calculations
assumes all shares issued prior to the Company's initial public offering in
September, 1996, were outstanding during all periods presented, including shares
issuable under debenture and preferred stock conversions.  It also includes
shares relating to stock options, calculated using the treasury stock approach.

INCOME TAXES

   Deferred tax liabilities and assets are recognized for the tax effects of
differences between the financial statement and tax basis of assets and
liabilities.  A valuation allowance is established to reduce deferred tax assets
if it is more likely than not that a deferred tax asset will not be realized.

RENT EXPENSE

   The Company recognizes rent expense on a straight-line basis over the lease
terms.  Differences between expense recognized and payments made are recorded as
accrued expense.


                                     -10-

<PAGE>

                        ROCKY MOUNTAIN INTERNET, INC.

               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       DECEMBER 31, 1995 AND 1996


NOTE 1:   NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
          (continued)

INVESTMENTS

   Debt securities and marketable equity securities for which the Company has no
immediate plans to sell but which may be sold in the future are classified as
available-for-sale and carried at fair value.  Unrealized gains and losses are
recorded, net of related income tax effects, in stockholders' equity.  At
December 31, 1996, the Company had one investment in a U.S. Treasury Note, and
two repurchase agreements with a bank classified as available-for-sale.  The
repurchase agreements are secured by U.S. Treasury Notes.  The investments
mature in 1997, and the fair value of the investments approximated cost.

NOTE 2:   NOTES PAYABLE, LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS

   The Company has a commercial line of credit with a Bank that provides for
borrowing of up to $500,000 and is secured by a repurchase agreement in the
amount of $300,000, plus accounts receivable of the Company.  The line bears
interest at the bank's prime rate plus 2% and matures September 10, 1997.  At
December 31, 1996, the Company had no borrowings on this line, but was fully
drawn in 1997.

   Long-term debt and capital lease obligations at December 31, 1995 and 1996,
consisted of the following:

                                                            1995        1996
                                                        ----------   ----------
Capital lease obligations payable to finance
  companies, due in monthly installments aggregating
  $62,631 including interest ranging from 9.5% to
  33% through November, 2001, collateralized by
  equipment.  An officer and shareholder of the
  Company has guaranteed certain of the leases
  and one of the leases restricts the payment of
  preferred stock dividends.                            $  196,732   $1,586,203
Debentures (converted to common stock in 1996)             373,000            -
Other                                                       27,380            -
                                                        ----------   ----------
                                                           597,112    1,586,203
Less current maturities                                     72,675      451,823
                                                        ----------   ----------
                                                        $  524,437   $1,134,380
                                                        ----------   ----------
                                                        ----------   ----------


                                     -11-

<PAGE>

                        ROCKY MOUNTAIN INTERNET, INC.

               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       DECEMBER 31, 1995 AND 1996


NOTE 2:   NOTES PAYABLE, LONG-TERM DEBT AND CAPITAL LEASE  OBLIGATIONS
          (continued)

   Subsequent to December 31, 1996, the Company borrowed $200,000 from a bank.
The note is due January 3, 2000, is payable $66,660 annually plus one final
principal payment with interest accrued at prime plus 2%, and is secured by
furniture and fixtures.

   Aggregate maturities required on long-term debt and obligations under capital
leases at December 31, 1996, are as follows:

                                                Amount
                                              ----------
          Years ending December 31:
               1997                           $  451,823
               1998                              482,255
               1999                              573,700
               2000                               60,322
               2001                               18,103
                                              ----------
                                              $1,586,203
                                              ----------
                                              ----------

   The following is a schedule by years of the future minimum lease payments
under the capital leases, together with the present value of the minimum lease
payments as of December 31, 1996:

                                                           Amount
                                                         ----------
          Years ending December 31:
               1997                                      $  751,389
               1998                                         697,443
               1999                                         635,526
               2000                                          72,067
               2001                                          21,392
                                                         ----------
               Future minimum lease payments              2,177,817
               Less amount representing interest            591,614
                                                         ----------
               Present value of minimum lease payments   $1,586,203
                                                         ----------
                                                         ----------


   Equipment acquired under capital lease obligations had a cost of $248,586 and
$1,976,285 and accumulated depreciation of $33,990 and $186,011 at December 31,
1995 and 1996, respectively.


                                   -12-

<PAGE>

                        ROCKY MOUNTAIN INTERNET, INC.

               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       DECEMBER 31, 1995 AND 1996


NOTE 3:   COMMITMENTS AND CONTINGENCIES

LEASE COMMITMENTS

   The Company leases operating facilities, facilities storing Internet point of
presence equipment, and certain equipment under operating lease agreements
expiring through May, 2002.  Certain lease agreements require the Company to pay
certain operating expenses and provide for escalation of annual rentals if the
landlord's operating costs increase.

   At December 31, 1996, the future minimum payments under these leases are as
follows:

                                                           Amount
                                                         ----------
          Years ending December 31:
               1997                                      $  377,874
               1998                                         525,474
               1999                                         501,366
               2000                                         447,594
               2001                                         382,501
               Thereafter                                   126,679
                                                         ----------
                                                         $2,361,488
                                                         ----------
                                                         ----------

   In February, 1997, the Company subleased one of its operating facilities.
The Company accrued a loss of $58,073 as of December 31, 1996, as a result of
this sublease.  Minimum future rentals receivable under this noncancellable
operating sublease was $178,648, covering the period through January, 2001, and
is not deducted from the above future minimum payments.

   Rent expense was $82,269 and $240,720 for 1995 and 1996, respectively.

EMPLOYEE CONTRACTS

   The Company currently has employment agreements with six of its officers that
provide for salaries ranging from $102,000 per year to $66,000 per year, and are
terminable for cause.  The Company may also terminate the agreements without
cause subject to the obligation to pay the terminated employee a severance
payment equal to from five to eight months salary based on length of service.
The employment agreements terminate in December, 1999.  Employment agreements
with any employees do not significantly restrict such employee's ability to
compete with the Company following any termination.


                                   -13-

<PAGE>

                         ROCKY MOUNTAIN INTERNET, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          DECEMBER 31, 1995 AND 1996


NOTE 3:  COMMITMENTS AND CONTINGENCIES  (continued)

EMPLOYEE CONTRACTS  (continued)

   In February, 1997, one of the officers' employment was terminated.  The
officer was also a shareholder, and in a negotiated agreement the Company has
agreed to purchase 90,000 shares of the Company's common stock from the
individual for $120,000.  The stock will be purchased over an eighteen month
period.

LETTER OF CREDIT

   The Company had $250,000 at December 31, 1996, in an outstanding letter of
credit to be used in case of default on its main operating facilities lease.
The letter of credit is secured by $250,000 currently invested in a U.S.
Treasury Note.

OTHER CONTINGENCIES

   The Company has various claims and legal matters occurring in the normal
course of business which, in the aggregate, are not expected to have a
material adverse effect on the financial position of the Company.


NOTE 4:  BUSINESS ALLIANCES

   The Company has entered into various joint venture agreements with
unrelated parties to provide Internet service to certain areas within
Colorado.  Under the agreements, the Company provides access to the Internet
through its point of presence (POP) sites and administrative and customer
support services.  The other parties provide equipment at the local POP site
and market the Internet service in the local area.  Most revenues generated
by the joint ventures are shared equally by the two parties.  The agreements
can be terminated with notice, the Company has the first option to purchase
the local POP equipment should the other parties desire to dispose of their
interest.  During the years ended December 31, 1995 and 1996, the Company had
revenues from the joint ventures of $67,452 and $354,565, respectively, and
included in accrued expenses are payables to joint venture partners of $9,774
and $10,069 at December 31, 1995 and 1996, respectively.



                                      -14-
<PAGE>

                         ROCKY MOUNTAIN INTERNET, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          DECEMBER 31, 1995 AND 1996


NOTE 5:  INCOME TAXES

   Under the provisions of the Internal Revenue Code, the Company has
available for federal income tax purposes, a net operating loss carryforward
of approximately $2,238,000, which expires in the years 2010 and 2011.  The
tax effects of this and other temporary differences related to deferred taxes
were:

                                                  1995         1996
                                                --------    ---------
   Deferred tax assets:
       Net operating loss                       $ 44,000    $ 850,000
       Allowance for doubtful accounts             2,000       44,000
       Tax goodwill                               20,000       18,000
       Accrued expenses                                -       22,000
                                                --------    ---------
                                                  66,000      934,000
   Valuation allowance                           (66,000)    (934,000)
                                                --------    ---------
       Net deferred tax asset                   $      -    $       -
                                                --------    ---------
                                                --------    ---------


   The actual provisions for income taxes varied from the expected provision
for income taxes (computed by applying the statutory U.S. Federal income tax
rates to loss before taxes) only because the tax benefit of the net operating
losses for the periods ended December 31, 1995 and 1996, is offset by the
valuation allowance.


NOTE 6:  DEPENDENCE ON SUPPLIERS

   The Company depends upon third-party suppliers for its access to the
Internet through leased telecommunications lines.  Although this access is
available from several alternative suppliers, there can be no assurance that
the Company could obtain substitute services from other providers at
reasonable or comparable prices or in a timely manner.  The Company is also
dependent upon the regional Bell operating company to provide installations
of circuits and to maintain those circuits.



                                      -15-
<PAGE>

                         ROCKY MOUNTAIN INTERNET, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          DECEMBER 31, 1995 AND 1996


NOTE 7:  REORGANIZATION

   The Company was originally formed as a sole proprietorship in October,
1993 and incorporated as a Colorado corporation in March, 1994.  A new
Delaware corporation was formed in October, 1995.  On October 31, 1995, the
Delaware corporation purchased all the assets relating to the Colorado
corporation's business, and assumed all of its liabilities, except for
certain notes payable to shareholders.  Since both parties in the transaction
were under common control, the transaction has been accounted for similar to
a pooling of interests, and all assets purchased and liabilities assumed were
recorded by the Delaware corporation at the Colorado corporation's historical
costs.  These financial statements reflect the operations of both entities
during the years ended December 31, 1995 and 1996.  The stockholders' equity
balances represent shares outstanding as if the transaction had taken place
January 1, 1995.


NOTE 8:  PREFERRED STOCK

   On April 26, 1996, the Board of Directors designated 250,000 shares of
Preferred Stock as Series A Convertible Preferred Stock (Series A Stock) and
set the terms of the stock.  The Series A Stock accrues cumulative dividends
at the rate of 10% per annum.  The dividends are payable quarterly to the
extent permitted by applicable law.  The Series A Stock may be converted into
shares of Common Stock at the option of the holder at any time after May 15,
1997.  The rate of conversion is the Series A Stock's liquidation value
divided by the conversion price, currently set at $2.00 per share.  The
Series A Stock's liquidation value is equal to the price paid for the Series
A Stock plus any cumulative dividends unpaid as of the conversion date.  The
conversion price is subject to change due to certain antidilution adjustments.

   The Company offered 250,000 shares of Series A Stock at $2.00 per share to
accredited investors under an offering that was complete and the shares sold
in June, 1996.  The offering netted the Company approximately $406,000 after
expenses of the offering of approximately $94,000.

   The Company has the authority to issue up to an additional 750,000 shares
of Preferred Stock.  The Board of Directors is authorized to fix the terms
and preferences of the Preferred Stock prior to its being issued.



                                      -16-
<PAGE>

                         ROCKY MOUNTAIN INTERNET, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          DECEMBER 31, 1995 AND 1996


NOTE 9:  COMMON STOCK TRANSACTIONS

   On September 5, 1996, the Company completed a public offering of 1,365,000
units at an offering price of $3.50 per unit.  Each unit consisted of one
share of common stock and one warrant to purchase one share of common stock
at $4.375 per share for a 23-month period commencing October 5, 1997, and
prior to September 5, 1999.  Under certain circumstances, the Company may
redeem the warrants at $.25 per warrant.  Additionally, the Company sold the
underwriter for $100 warrants to purchase 125,000 units.  These units are
exercisable through September 5, 2000, at an exercise price of $4.20 per unit
(for which the accompanying warrant is exercisable at $6.5625).  Costs of the
offering, including a 10% commission paid to the underwriters, the
underwriters nonaccountable expense allowance and professional fees, totalled
$1,000,248, resulting in net proceeds from the offering of $3,777,252.

   In connection with the public offering completed on September 5, 1996, the
Company entered into a consulting agreement retaining the underwriters as
financial consultants to the Company for a twelve month period for a fee of
$30,000.


NOTE 10: BENEFIT PLANS

MANAGEMENT BONUS PLAN

   The Company had a bonus plan during 1996 in which named employees were
entitled to receive a cash bonus based upon achievement of specified levels
of revenues by the Company for the year ended December 31, 1996.  For the
year ended December 31, 1996, the Company accrued $158,000 in bonuses under
the plan. The Company gave employees the option of receiving their bonuses in
cash or stock options.  As a result, 51,230 stock options were issued in 1997
to employees at an exercise price of $1.00 per share.  Additional
compensation of $12,807 was recorded during the year ended December 31, 1996
as a result of these stock options being issued.

   The Company adopted a similar plan for 1997.  If the Company achieves its
targeted revenues during 1997 bonuses of $259,000 will be payable.  Achieving
revenues above or below the target would result in bonuses above or below
this amount.



                                      -17-
<PAGE>

                         ROCKY MOUNTAIN INTERNET, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          DECEMBER 31, 1995 AND 1996


NOTE 10:  BENEFIT PLANS  (continued)

STOCK OPTION PLANS

   In July, 1996, the Company adopted the 1996 Employee Stock Option Plan
(the Employee Plan) and the Non-Employee Directors' Stock Option Plan (the
Directors' Plan).  The Employee Plan provides for an authorization of 471,300
shares of Common Stock for issuance upon exercise of stock options granted
under the Plan. The Employee Plan is administered by the Board of Directors,
which determines the persons to whom options are granted, the type, number,
vesting schedule, exercise price and term of options granted.  Under this
plan both incentive and non-qualified options can be granted.

   An aggregate of 18,000 shares of Common Stock are reserved for issuance
under the Directors' Plan.  All non-employee directors are automatically
granted non-qualified stock options to purchase 1,500 shares initially and an
additional 1,500 shares for each subsequent year that they serve up to a
maximum of 6,000 shares per director.

   The following is a summary of the status of the Company's two stock option
plans and the stock options discussed under management bonus plans at
December 31, 1995 and 1996, and the changes during the years then ended:

<TABLE>
                                             1995                                       1996
                            -------------------------------------   -----------------------------------------
                              Employee Plan                             Employee Plan
                             and Bonus Plan      Directors' Plan       and Bonus Plan        Directors' Plan
                            -----------------   -----------------   --------------------   ------------------
                                     Weighted            Weighted               Weighted             Weighted
                                      Average             Average                Average              Average
                                     Exercise            Exercise               Exercise             Exercise
                            Shares    Price     Shares    Price     Shares       Price     Shares     Price
                            ------   --------   ------   --------   -------     --------   ------    --------
<S>                             <C>   <C>           <C>   <C>       <C>          <C>        <C>       <C>
Outstanding,
  beginning of year             -     $  -          -     $   -           -      $   -          -     $  -
Granted during year             -        -          -         -     284,230       1.68      1,500      2.00
                            -----     ----      -----     -----     -------      -----     ------     -----
Outstanding, end of year        -     $  -          -     $   -     284,230      $1.68      1,500     $2.00
                            -----     ----      -----     -----     -------      -----     ------     -----
                            -----     ----      -----     -----     -------      -----     ------     -----
Options exercisable,
  end of year                   -                   -                25,000                1,500
                            -----               -----               -------                ------
</TABLE>



                                       -18-
<PAGE>

                         ROCKY MOUNTAIN INTERNET, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          DECEMBER 31, 1995 AND 1996


NOTE 10:  BENEFIT PLANS  (continued)

   The fair value of each option granted is estimated on the date of the grant
using the Black-Sholes method with the following weighted-average assumptions:

       Dividend per share                     $0.00
       Risk-free interest rate                6.16%
       Expected life of options              5 years

       Weighted-Average fair value
         of options granted during 1996       $1.90

   The following table summarized information about stock options under the
plans outstanding at December 31, 1996:

<TABLE>
                                 Options Outstanding               Options Exercisable
                         ------------------------------------    ----------------------
                                         Weighted-
                                          Average    Weighted-                 Weighted-
                                        Remaining    Average                   Average
           Range of         Number     Contractual   Exercise      Number      Exercise
       Exercise Prices   Outstanding       Life        Price     Exercisable     Price
       ---------------   -----------   -----------   --------    -----------   --------
           <S>             <C>           <C>         <C>            <C>        <C>
           $   0.40         25,000       5 years     $   0.40       25,000     $   0.40
           $   1.00         51,230       5 years     $   1.00            -     $      -
           $   2.00        209,500       5 years     $   2.00        1,500     $   2.00
</TABLE>

   One non-qualified stock option to purchase 25,000 shares at $.40 per share
was granted under the Employee Plan.  This option vested immediately.  The
remaining Employee Plan options above have a five year term and vest over
three years with one-third vested at the end of the first year.

   In January, 1997, 184,000 options were issued under the Employee Plan at
an exercise price of $1.50 per share, under the same terms as the remaining
options described above.





                                      -19-
<PAGE>

                        ROCKY MOUNTAIN INTERNET, INC.

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                         DECEMBER 31, 1995 AND 1996

NOTE 10:  BENEFIT PLANS   (continued)

   The Company applies APB Opinion 25 and related Interpretations in accounting
for its plans, and no compensation cost has been recognized for the plans, other
than the one non-qualified option.  Had compensation cost for the Plans been
determined based on the fair value at the grant dates using Statement of
Financial Accounting Standards No. 123, the Company's net loss would have
increased by $74,258 in 1996.  In addition, the Company's loss per share would
have increased by $.02 in 1996.

NOTE 11:  ACQUISITIONS

   On November 1, 1996, the Company acquired the customer base and selected
assets of CompuNerd, Inc. for $70,428 in cash and 30,000 shares of the Company's
common stock.  On December 1, 1996, the Company acquired the Information
Exchange, a related party through common ownership, in exchange for 52,723
shares of the Company's common stock.  The acquisitions have been accounted for
as purchases by recording the assets acquired at their estimated market value at
the acquisition date.  The operations of the Company include the operations of
the acquirees from the acquisition date.  Consolidated operations would not have
been significantly different for the Company had the CompuNerd, Inc. acquisition
been made at the time of the periods shown below.  Unaudited ProForma
consolidated operations assuming the Information Exchange purchase was made at
the beginning of each year are shown below:

                                                   1995             1996
                                                -----------     -----------
              Net sales                         $1,200,0645     $ 3,367,720
              Net loss                          $  (214,042)    $(2,337,599)
              Net loss per share                $      (.06)    $      (.64)

   The ProForma results are not necessarily indicative of what would have
occurred had the acquisition been on these dates, nor are they necessarily
indicative of future operations.

   In January, 1997, the Company entered into an agreement to purchase
substantially all of the assets of O.N.E., an Internet service provider,
including equipment, contracts and intangibles for $150,000 in cash plus 116,932
shares of the Company's common stock.  The purchase also requires the Company to
enter into a service agreement with VR-1, Inc., the parent company of O.N.E., in
which VR-1, Inc. would have a credit of up to $175,000 for the purchase of
services from  the Company.  This acquisition was accounted for as a purchase.

                                      -20-

<PAGE>
                        ROCKY MOUNTAIN INTERNET, INC.

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                         DECEMBER 31, 1995 AND 1996

NOTE 12:  ADDITIONAL CASH FLOW INFORMATION

NONCASH INVESTING AND FINANCING ACTIVITIES                 1995        1996
                                                         --------   ----------
  Capital lease obligations incurred for equipment       $211,654   $1,672,244
  Capital contributions by reductions of notes payable     19,783            -
  Long-term debt converted to common stock                      -      490,000
  Acquisition of CompuNerd, Inc. through issuance of
    common stock                                                -       67,500
  Acquisition of the Information Exchange through
    issuance of common stock                                    -       60,385

ADDITIONAL CASH PAYMENTS INFORMATION

  Interest paid                                          $ 22,043   $  159,007


NOTE 13:  CONTINUED OPERATIONS

   During the year ended December 31, 1996, the Company incurred a net loss of
$2,302,571 and used $1,511,505 of net cash from operating activities.  The
Company's management currently has plans it believes will increase revenues in
order to become profitable and generate positive cash flows from operations.
However, there are no assurances that the Company's plan's for revenue growth
and improved operating cash flows will be successful.  It could be necessary to
raise additional capital or reduce operating costs to meet liquidity
requirements.  Reducing operating costs could inhibit the Company's planned rate
of revenue growth.














                                      -21-
<PAGE>

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

On January 21, 1997, the Board of Directors of Rocky Mountain Internet, Inc.
resolved to engage the accounting firm of Baird, Kurtz and Dobson as the
Registrant's independent accountant for its fiscal year ending December 31,
1996.  Effectively, the Registrant's former independent accountant, McGladrey &
Pullen, LLP, simultaneously resigned as of January 20, 1997.  The Denver office
of McGladrey & Pullen was acquired by Baird, Kurtz and Dobson on June 17, 1996.
Certain former audit engagement members are now with Baird, Kurtz and Dobson,
and will continue to be involved with the Registrant's audit.

McGladrey & Pullen's report on the financial statements for the past two years
contained a going concern statement, but otherwise was not qualified or modified
as to audit scope or accounting principles.

During the two most recent fiscal years and interim period subsequent to
December 31, 1995, there have been no disagreements with McGladrey & Pullen on
matters of accounting principles or practices, financial statement disclosure,
auditing scope or procedure, or any reportable events.

McGladrey & Pullen has furnished Registrant with a copy of its letter addressed
to the SEC stating that it agrees with the above statements.


                                                                             20
<PAGE>




                                  PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.

The information required by Item 10 is incorporated by reference to the
Company's Proxy Statement to be used in connection with its 1997 Annual Meeting
of Shareholders and to be filed with the Commission not later than 120 days
after December 31, 1996.

ITEM 10. EXECUTIVE COMPENSATION.

The information required by Item 10 is incorporated by reference to the
Company's Proxy Statement to be used in connection with its 1997 Annual Meeting
of Shareholders and to be filed with the Commission not later than 120 days
after December 31, 1996.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by Item 11 is incorporated by reference to the
Company's Proxy Statement to be used in connection with its 1997 Annual Meeting
of Shareholders and to be filed with the Commission not later than 120 days
after December 31, 1996.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by Item 12 is incorporated by reference to the
Company's Proxy Statement to be used in connection with its 1997 Annual Meeting
of Shareholders and to be filed with the Commission not later than 120 days
after December 31, 1996.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.

a)  EXHIBITS

(a)  Exhibits required by Item 601 of Regulation S-B

 Exhibit
 Number        Description of Exhibits


   3.1         Certificate of Incorporation *
   3.2         Bylaws of Rocky Mountain Internet, Inc. *
   4.1         Form of Warrant Agreement dated September 5,1996 between Rocky
               Mountain Internet, Inc. and American Securities Transfer, Inc. *
   4.2         Form of Subordinated Convertible Promissory Note *
   4.3         Form of Lock-Up Agreement for Shareholders *
   4.4         Form of Lock-Up Agreement for Preferred Stockholders *
   4.5         Form of Lock-Up Agreement for Debenture Holders *
   4.6         Form of Stock Certificate *
   4.7         Form of Warrant Certificate *
  10.1         Agreement of Lease between Denver-Stellar Associates Limited
               Partnership, Landlord and Rocky Mountain Internet, Inc., Tenant
               **
  10.2         Asset Purchase Agreement - Acquisition of Compunerd, Inc. **
  10.3         Confirmation of $2.0 million lease line of credit **
  10.4         Agreement between MCI and Rocky Mountain Internet, Inc.
               governing the provision of professional information system


                                                                             21
<PAGE>

               development services for the design and development of the MCI
               internal Intranet project referred to as Electronic Advice. **
  10.5         Sublease Agreement- 2/26/97 - 1800 Glenarm, Denver, Colorado
  10.6         Acquisition of The Information Exchange
  10.7         Asset purchase of On-Line Network Enterprises
  10.8         1996 Incentive Compensation Plan - Annual Bonus Incentive
  10.9         1997 Incentive Compensation Plan - Annual Bonus Incentive
  16.1         Letter re change in certifying accountant  ***
  27.1         Financial Data Schedule

 *    Incorporated by reference from the Company's registration statement on
      Form SB-2 filed with the Commission on August 30, 1996, registration
      number 333-05040C.
 **   Incorporated by reference from the Company's Form 10-QSB filing dated
      11/14/96.
 ***  Incorporated by reference to the Company's Form 8-K filing dated
      1/28/97.

(b) Reports on 8-K.  State whether any reports on Form 8-K were filed during the
last quarter of the period covered by this report, listing the items reported,
any financial statements filed and the dates of such reports.


     Item 4. Changes in Registrant's Certifying Accountant - filed January 21,
     1997

     Item 5.  Other Events. -  Correction to Earnings per Share report - filed
     March 21, 1997.


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.


Rocky Mountain Internet, Inc.
Registrant

March 31, 1997      By:  /s/ D. Kirk Roberts
                    --------------------------------
                    Chief Financial Officer



                    By: /s/ Roy J. Dimoff
                    --------------------------------
                    Chief Executive Officer and
                    Chairman -- Board of Directors



                    By: /s/ Christopher K. Phillips
                    --------------------------------
                    Board of Directors



                    By: /s/ Gerald Van Eeckhart
                    --------------------------------
                    Board of Directors
                                                                             22