<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended June 30, 2000
CARNEGIE INTERNATIONAL CORPORATION.
(Name of Small Business Issuer in Its Charter)
Colorado 13-3692114
(State of Incorporation) (IRS Employer Identification No.)
11350 McCormick Road Suite 1001 Hunt Valley, Maryland 21031
(Address of Principal Executive Offices)
(410) 785-7400
Issuer's Telephone Number
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
--- ---
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 68,556,729 shares of Common
Stock ($.001 par value) as of June 30, 2000.
Transitional small business disclosure format: Yes No X
--- ---
<PAGE>
CARNEGIE INTERNATIONAL CORPORATION
Quarterly Report on Form 10-QSB for the
Quarterly Period Ending June 30, 2000
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
Consolidated Statements of Losses: Three Months Ended June 30, 2000
and 1999; six months ended June 30, 2000 and 1999
Consolidated Balance Sheets:
June 30, 2000 and December 31, 1999
Consolidated Statements of Cash Flows:
Six months ended June 30, 2000 and 1999
Notes to Consolidated Financial Statements:
Six months ended June 30, 2000
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Independent Accountant's Report
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities.
Item 4. Submission of Matters to a Vote of Security Holders.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
The accompanying notes are an integral part of these statements.
Income Statement:
Carnegie International Corporation
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
2000 1999 2000 1999
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Operating $ 4,231,671 $ 5,750,155 $ 8,896,330 $ 8,919,113
Sale of Service Contracts 367,814 312,452 781,990 676,869
------------------------------------------------------------------------
4,599,485 6,062,607 9,678,320 9,595,982
COST OF SALES 2,453,825 3,981,714 5,275,229 5,648,444
------------------------------------------------------------------------
GROSS PROFIT 2,145,660 2,080,893 4,403,091 3,947,538
------------------------------------------------------------------------
OPERATING EXPENSES
Selling, General & Administrative 2,706,915 3,654,526 5,037,631 6,090,787
Consulting Agreement - - 316,044 -
Third party equity based compensation 150,469 - 150,469 -
Management Bonus - - - 1,500,000
Depreciation and amortization 1,387,183 1,601,657 2,769,130 2,395,934
------------------------------------------------------------------------
Total operating expenses 4,244,567 5,256,183 8,273,274 9,986,721
------------------------------------------------------------------------
LOSS FROM OPERATIONS (2,098,907) (3,175,290) (3,870,183) (6,039,183)
------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Interest income 7,913 104,086 14,137 107,910
Interest expense (180,752) (23,609) (320,594) (123,068)
Other income 63,252 12,594 186,264 31,845
------------------------------------------------------------------------
Total other income (expense) (109,587) 93,071 (120,193) 16,687
------------------------------------------------------------------------
LOSS FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES (2,208,494) (3,082,219) (3,990,376) (6,022,496)
INCOME TAXES (BENEFIT) - - - -
LOSS FROM CONTINUING OPERATIONS (2,208,494) (3,082,219) (3,990,376) (6,022,496)
Net Loss per common share (basic and assuming
dilution) $ (0.03) $ (0.05) $ (0.06) $ (0.10)
Weighted average common shares outstanding -
basic and diluted 63,522,923 62,791,530 61,916,779 60,618,944
------------------------------------------------------------------------
COMPREHENSIVE LOSS:
Net Loss (2,208,494) (3,082,219) (3,990,376) (6,022,496)
Foreign currency translation - 98 - 226
------------------------------------------------------------------------
COMPREHENSIVE LOSS $(2,208,494) $(3,082,121) $(3,990,376) $(6,022,270)
========================================================================
</TABLE>
<PAGE>
Consolidated Balance Sheet:
Carnegie International Corporation
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents $ 425,665 $ 463,374
Accounts receivable, net of allowance for doubtful accounts 2,206,776 2,634,755
Loan receivable 104,119
Note receivable 369,435 -
Inventory, at cost 441,835 353,993
Prepaid expenses 78,747 123,309
------------ ------------
Total current assets 3,522,458 3,679,550
Property and equipment, less accumulated depreciation 1,210,092 1,258,026
Software development costs, less accululated amortization 2,709,487 3,728,695
Other Assets:
Intangible assets, less accumulated amortization 38,585,745 39,720,405
Due from related parties - 21,244
Due from former Subsidiaries 206,112
Other Assets 149,770 28,552
------------ ------------
$ 46,177,552 $ 48,642,584
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Notes Payable $ 85,558 $ 159,000
Advance on Stock purchases 250,000 641,000
Current Maturities of long term debt 347,957 891,562
Current Maturities of notes payable to stockholders & affiliates 1,698,373 1,546,382
Deferred revenue 113,043 20,519
Accounts payable and accrued liabilities 6,819,379 7,596,753
------------ ------------
Total current liablities 9,314,310 10,855,216
Long-term debt to stockholders & affiliates, less current maturities 1,019,704 1,001,974
------------ ------------
Total Liabilities 10,334,014 11,857,190
------------ ------------
Stockholders' Equity:
Convertible preferred stock par value, Series A, B, E, F and G,
$1.00 par value per share; 40,000,000 shares authorized;
624,100 issued at June 30, 2000 and 274,100 issued at June 30, 1999 624,100 274,100
Common stock, no par with a stated value of $.01 per share;
110,000,000 shares authorized; 71,334,748 issued and
68,556,729 outstanding at June 30, 2000; 63,341,354 issued
and 59,288,335 outstanding at June 30, 1999 750,907 629,595
Additional paid-in capital 65,293,355 62,721,886
Accumulated Deficit (29,545,200) (25,554,823)
Foreign currency translation adjustment 1,376 (4,364)
------------ ------------
37,124,538 38,066,394
Less treasury stock, at cost (1,281,000) (1,281,000)
------------ ------------
Stockholders' equity 35,843,538 36,785,394
$ 46,177,552 $ 48,642,584
============ ============
</TABLE>
<PAGE>
Consolidated Statements of Cash Flow:
Carnegie International Corporation
Consolidated Statements of Cash Flow
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30
2000 1999
------ ------
<S> <C> <C>
Increase (decrease) in cash equivalents:
Cash flows from operating activities
Net Loss $(3,990,376) $(6,022,496)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Depreciation and amortization 2,769,130 2,395,934
Issuance of warrants as compensation 150,469 -
Accounts receivable 427,979 (1,146,065)
Due from Affiliates 21,244 1,378,796
Inventory (87,842) (371,259)
Prepaid expenses & other assets 32,516 (71,199)
Refundable income taxes (12,046) -
Accounts payable and accrued expenses (777,375) 874,913
Deferred revenue (163,142) (1,068)
Other, net 1,235,767 (175,244)
----------- -----------
Net cash provided by (used in) operations (393,676) (3,137,688)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (96,481) (295,075)
Capitalized software, net - 566,370
Collection of Loans receivable 104,119
Increase of Notes receivable (163,323) 1,058,224
----------- -----------
Net cash provided by (used in) investing activities (155,685) 1,329,629
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of notes payable (362,684) 969,603
Proceeds from Capital Leases 171,024
Proceeds of advance on Stock Purchases (391,000)
Sale of common stock 121,312 840,400
Proceeds from sale of option to purch common stk 973,000 46,750
----------- -----------
Net cash provided by (used in) financing activities 511,652 1,856,753
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENT (37,709) 48,584
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 463,374 837,649
----------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 425,665 $ 886,233
=========== ===========
SUPPLEMENTAL INFORMATION
Cash paid during the period for interest 140,308 36,309
Common stock issued in exchange for services & compensation 1,928,629 132,529
Common stock issued in exchange for acquisition 0 43,137,500
Convertible preferred shares issued in exchange for acquisition 350,000 -
</TABLE>
<PAGE>
CARNEGIE INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(UNAUDITED)
NOTE A - SUMMARY OF ACCOUNTING POLICIES
General
-------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-QSB, and therefore, do not
include all the information necessary for a fair presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the six month period ended June 30,2000 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2000. The unaudited condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and
footnotes thereto included in the Company's December 31, 1999 annual report
included in SEC Form 10-KSB/A.
Basis of Presentation
---------------------
The consolidated financial statements include the accounts of the Carnegie
International Corporation ("Company") and its wholly-owned subsidiaries, Talidan
Limited , a British Virgin Islands corporation,; Profit Through
Telecommunications (Europe) Limited, a United Kingdom corporation; Talidan USA
t/a Victoria Station, a Florida corporation; Harbor City Corporation t/a ACC
Telecom, a Maryland corporation; Voice Quest, Inc., a Florida corporation;
RomNet Support Services, Inc., a Massachusetts corporation; Carnegie
Communications, Inc., a Maryland corporation, Paramount International
Telecommunciations, Inc. ("Paramount"), a Nevada Corporation, American
Telephone & Computers, Inc., a Maryland Corporation and Federation of Associated
Health Systems, Inc., a Texas Corporation.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
<PAGE>
SEGMENT INFORMATION
During 2000 and 1999, the Company operated in the following principal
industries:
a. Telecomunications
b. Restaurant
Telecommunications include the development and distribution of software and
telephone operations. Corporate and other includes unallocated corporate costs.
The Company's foreign operations are conducted by Talidan and PTT.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- ---------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue from external customers:
Telecommunications $ 4,166,159 $ 5,575,493 $ 8,746,574 $ 8,599,341
Restaurant 433,326 487,114 931,746 996,641
Corporate - - -
----------- ----------- ----------- -----------
Total $ 4,599,485 $ 6,062,607 $ 9,678,320 $ 9,595,982
=========== =========== =========== ===========
Interest expense:
Telecommunications $ 106,989 $ 3,413 $ 201,703 $ 19,472
Restaurant 4,639 13,260 6,958 13,260
Corporate 69,124 6,936 111,933 90,336
----------- ----------- ----------- -----------
Total $ 180,752 $ 23,609 $ 320,594 $ 123,068
=========== =========== =========== ===========
Depreciation and amortization:
Telecommunications $ 1,347,338 $ 403,392 $ 2,702,244 $ 915,786
Restaurant 18,380 - 27,571 729
Corporate 21,465 1,198,265 39,315 1,479,419
----------- ----------- ----------- -----------
Total $ 1,387,183 $ 1,601,657 $ 2,769,130 $ 2,395,934
=========== =========== =========== ===========
Segment profit (loss) before taxes:
Telecommunications $(1,160,381) $ (328,101) $(2,093,456) $ (639,444)
Restaurant (14,534) 4,359 (43,665) 37,090
Corporate (1,033,580) (2,758,477) (1,853,256) (5,420,142)
----------- ----------- ----------- -----------
Total $(2,208,494) $(3,082,219) $(3,990,376) $(6,022,496)
=========== =========== =========== ===========
Segment assets:
Telecommunications $45,210,095 $12,553,141 $45,210,095 $12,553,141
Restaurant 165,566 376,943 165,566 376,943
Corporate 801,891 43,097,009 801,891 43,097,009
----------- ----------- ----------- -----------
Total $46,177,552 $56,027,093 $46,177,552 $56,027,093
=========== =========== =========== ===========
Expenditure for segment assets:
Telecommunications $ 36,359 $ 47,593 $ 85,980 $ 282,912
Restaurant - - 10,501 -
Corporate 5,385 - 12,163
----------- ----------- ----------- -----------
Total $ 36,359 $ 52,978 $ 96,481 $ 295,075
=========== =========== =========== ===========
</TABLE>
The following geographic area data for trade revenues is based on product or
service delivery location and property, plant and equipment is based on physical
location.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- ---------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues from external customers:
United States $ 4,178,424 $ 5,935,643 $ 8,500,262 $ 9,266,602
Canada 417,000 - 1,169,762 -
Mexico - - - -
Brazil - 113,176 - 301,155
United Kingdom 4,061 13,788 8,296 28,225
----------- ----------- ----------- -----------
Total $ 4,599,485 $ 6,062,607 $ 9,678,320 $ 9,595,982
=========== =========== =========== ===========
Segment assets:
U. S., net of intersegment receivables $43,317,958 $50,551,313 $43,317,958 $50,551,313
Canada 24,683 - 24,683 -
Mexico - - - -
Brazil 6,530 98,078 6,530 98,078
United Kingdom 2,828,381 5,377,702 2,828,381 5,377,702
----------- ----------- ----------- -----------
Total $46,177,552 $56,027,093 $46,177,552 $56,027,093
=========== =========== =========== ===========
</TABLE>
<PAGE>
NOTE B - SUBSEQUENT EVENTS
On July 20, 2000 the Company acquired the assets of TeleResources, Inc., of
Elmhurst, Illinois an interconnect and telecom reseller, from its senior
creditor. The Company purchased the business for 350,000 restricted shares of
the Company, plus warrants with strike prices of $1.75 and $2.25.
On July 27, 2000 The Company through its wholly owned subsidiary Talidan,
Limited agreed to accept 600,000 shares of the Companies shares as the full and
final payment of an outstanding debt between Talidan Limited and Westshire
Trading Company Inc. The Company had taken a reserve of $1,115,478.00 which was
the balance due on 12/31/99 in 1999.
NOTE C - GOING CONCERN
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As of June 30, 2000, the Company
had a working capital deficit of $5,791,852 and an accumulated deficit of
$29,545,200. Based upon the Company's plan of operation the Company estimates
that existing resources, together with funds generated from operations, will not
be sufficient to fund the Company's working capital. The Company is actively
seeking additional equity and debt financing. The Company believes that since
the resumption of trading, additional equity and debt financing will be more
readily available. There can be no assurances that sufficient financing will be
available on terms acceptable to the Company or at all. If the Company is unable
to obtain such financing, the Company will be forced to scale back operations,
which would have an adverse effect on the Company's financial conditions and
result of operation.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations Six Months Ended June 30, 2000 and 1999
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto, included elsewhere within
this Report.
Description of Company
----------------------
The Corporation is a holding company that operates a group of owned subsidiaries
in the telecommunications, Internet support & computer service, and restaurant
industries. The Corporation has no direct operating assets or business activity,
but does provide management and other services to its subsidiaries. The
Corporation's telecommunications business includes the development of
interactive voice response ("IVR") and voice recognition system software,
telecommunication billing clearing services to hospitality, health care and pay-
telephone industries for 0+ (credit card) & 0- (operator assisted) calls, the
marketing of international long distance call traffic through the promotion of
information and entertainment services, and the sale, installation and servicing
of telephone equipment. The Internet and computer services include technical
support services (help desk) for software and hardware, Internet support
services including Web development and e-commerce. The Corporation's restaurant
business consists of the ownership and operation of one restaurant located in
the Miami, Florida area. A full description of the Company's subsidiaries are in
the 1999 10-KSB/A filed on March 31, 2000
<PAGE>
Forward Looking Statements
--------------------------
This Form 10-QSB contains certain forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. All statements
included herein that address activities, events or developments that the
Corporation expects, believes, estimates, plans, intends, projects or
anticipates will or may occur in the future, are forward-looking statements.
Actual events may differ materially from those anticipated in the forward-
looking statements. Important risks that may cause such a difference include:
general domestic and international economic business conditions, increased
competition in the Corporation's markets and products. Other factors may
include, availability and terms of capital, and/or increases in operating and
supply costs. Market acceptance of existing and new products, rapid
technological changes, availability of qualified personnel also could be
factors. Changes in the Corporation's business strategies and development plans
and changes in government regulation could adversely affect the Company.
Although the Corporation believes that the assumptions underlying the forward-
looking statements contained herein are reasonable, any of the assumptions could
be inaccurate. There can be no assurance that the forward-looking statements
included in this filing will prove to be accurate. In light of the significant
uncertainties inherent in the forward-looking statements included herein, the
inclusion of such information should not be regarded as a representation by the
Corporation that the objectives and expectations of the Corporation would be
achieved.
Results of Operations
---------------------
The Company's revenues for the six months ended June 30, 2000, increased by
$82,338 to $9,678,320 as compared to $9,595,982 for the same period in 1999.
Loss from operations decreased $(2,169,000) to $(3,870,183) for the first six
months of 2000, from $(6,039,183) during the six months ended June 30, 1999.
Cost of sales for the six months ended June, 2000 were $5,275,229, a
decrease of $373,215 from $5,648,444 during the same period in 1999.
Operating expenses decreased $1,713,447 for the first six months of 2000
compared to the same period in 1999. Operating expenses as a percentage of
revenues were 85.5% in the first six months of 2000 as compared to 104.1% in
1999. Selling, general and administrative decreased $1,053,156 to $5,037,631
from $6,090,787 during the six months ended June 30, 2000.
Other income and expenses for the six months ended June 30, 2000 resulted in
net expenses of $(120,193) as compared to net income of $16,687 during the six
month period ended June 30,1999. The principal component of other expenses
during the six months ended June 30,2000 was interest expense of $320,594, an
increase of $197,526, or 160.5% from $123,068 during the six months ended June
30, 1999, and other income of $186,264, an increase of $154,419 from $31,845
during the six months ended June 30, 1999.
Liquidity and Capital Resources
-------------------------------
As of June 30, 2000, the Company had a working capital deficit of $5,791,852
compared to a working capital deficit of $7,175,666 at December 31, 1999 an
increase in working capital of $1,383,814. The increase in working capital was
substantially due to the Company's conversion of debt to equity. During the six
months ended June 30, 2000 and 1999, The Company incurred a cash flow deficit
from operating activities of $393,676 in 2000 as compared to a cash flow deficit
of $3,137,688 for the same period in 1999. The Company invested $96,481 in
equipment during the first six months of 2000 compared to $295,075 during the
same period of 1999. The Company met its cash requirements during the first six
months of 2000 through the borrowings of short term debt and the issuance of
common stock and options to purchase common stock. While the Company has raised
capital to meet its working capital and financing needs in the past, additional
financing is required in order to meet the Company's current and projected cash
flow deficits from operations. The Company is seeking financing in the form of
equity in order to provide the necessary working capital. The Company currently
has no commitments for financing. There are no assurances the Company will be
successful in raising the funds required.
<PAGE>
The Company has issued shares of its Common Stock from time to time in the past
to satisfy certain obligations, and expects in the future to also acquire
certain services, satisfy indebtedness and/or make acquisitions utilizing
authorized shares of the capital stock of the Company. There are no assurances
the Company will be successful in this regard.
The Company is subject to several lawsuits that have been discussed in detail in
prior filings as well those filed since our last filing. Below under Part II,
Item 1. are material updates to prior Carnegie disclosed actions against the
Company as well as several new or changes to actions against the Company and in
one case actions by the Company. The Company intends to vigorously defend the
complaints, which have been filed against the Company and in at least one case
against its officers and directors. Each of the complaints filed to date seeks
monetary damages and other relief; however, none specifically allege a defined
amount of damages. The Company believes it will be successful in the defense of
these actions. There can be no assurance in this regard.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
---------------------------
As Carnegie has previously disclosed, a purported shareholder action
entitled In re Carnegie International Corporation Securities Litigation, Civ.
--------------------------------------------------------------
No. L-99-1688, was instituted in the United States District Court for the
District of Maryland in June 1999. Carnegie filed a motion to dismiss the
complaint for failure to state a cause of action on which relief may be granted
on May 5, 2000. A hearing on Carnegie's motion to dismiss is scheduled for
September 22, 2000.
On or about April 28, 2000, in a separate action entitled Lipsitz, et al. v.
------------------
Grant Thornton, LLP, Civil Action No. L00CV1233, also in the United States
-------------------
District Court for the District of Maryland, Carnegie shareholders brought
similar securities claims against Grant Thornton, Carnegie's auditor. This
action, for certain limited purposes, has been consolidated with the shareholder
action against Carnegie, described above. Grant Thornton filed a Third Party
Complaint for contribution and breach of engagement agreement against Carnegie,
Lowell Farkas and David Gable. Motions to dismiss have been filed with respect
to all claims in the Lipsitz action by Carnegie and Grant Thornton, and are also
-------
scheduled for a hearing on September 22, 2000.
On May 23, 2000, Carnegie filed a complaint against Grant Thornton and Arthur
Flach, its Managing Partner, in the Circuit Court for Baltimore City, Maryland,
Civil Action No. 24-C-00-00239, alleging that Grant Thornton was negligent in
its performance of auditing and accounting services for Carnegie. The Complaint
also alleges counts of fraud and deceit, breach of trust, interference with
business relations, fraudulent inducement, excess fees, breach of contract and
defamation. Grant Thornton has filed a motion to stay proceedings in the state
court due to the pendency of the federal shareholder action described above. A
hearing on Grant Thornton's motion to stay is scheduled for August 22, 2000.
The Company's insurer under its Directors, Officers and Corporate Liability
Insurance Policy has undertaken payment for the representation of all of the
defendants, including current and former officers and directors of the Company,
in the lawsuit. The Company's insurer has advised the Company in writing that
the insurer has reserved its rights under the policy and that the insurer
intends to commence arbitration under the policy, in which the insurer may seek
to rescind the policy. The Company has informed the insurer that it disputes the
insurer's claim, that the Company desires mediation of any dispute that may
exist and that rescission of the policy is unwarranted. No further action has
been taken by either party.
The Company is subject to several lawsuits that have been disclosed in prior
filings.The Company believes it will be successful in the defense of these
actions. There can be no assurance in this regard.
<PAGE>
Item 2. Changes in Securities.
During this reporting period the Company issued 8,125,214 of restricted common
stock for a total of $3,388,628 for cash, payment of services and conversion of
debt to equity. All of such restricted securities were issued in reliance upon
the exemption from registration under section 4(2) of the Securities Act of
1933.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information
On April 28, 2000, the Company was informed by the staff of the SEC that it had
cleared all comments on its 1998 and 1999 filing.
A market maker filed a 15c-211 on May 2, 2000 to list the Company's securities
on the OTC Bulletin Board (CGYC). The market maker was informed that the
application was accepted on May 3, 2000, and trading of the Company's securities
resumed mid day on May 9, 2000.
During the week ended March 17, 2000, the Company entered into an agreement to
issue 2 million shares of its restricted stock under a consulting agreement with
Vadiari Group International dated July 15, 1998. (See Exhibit 10.22 which is
incorporated by reference herein.)
The Company, in issuing the 2 million shares on April 7, 2000, have had 1
million shares held in escrow, since a dispute among the parties to receive the
shares still exists. Even though the Company, at this time, does not know
whether all of the 1 million shares in escrow will be delivered, an additional
consulting fee expense of $316,044, for all of the 2 million shares issued, has
been included in the financial statements for the quarter ended March 31, 2000.
The $316,044 was calculated based on a 15% discount from the $0.375 closing
priced on March 17, 2000 for the 2 million shares less the $321,356 previously
recorded as a consulting fee expense in 1998.
On June 1, 2000 the Company and its Paramount International Telecommunications,
Inc., subsidiary acquired Federation of Associated Heath Systems, Inc., of San
Antonio, Texas. The purchase price was $3.5 million dollars worth of Carnegie
shares at a strike price of $1.00 plus additional compensation based on the
performance of Federation for years two and three.
On July 7,2000 the Company entered into a Letter of Intent to acquire the
business of ARC Communications of Piscataway, New Jersey. ARC is a remanufacture
of telephone products, primarily Lucent, as well as, a full service interconnect
business. Although the Company expects this transaction to be completed, there
can be no assurances.
On July 20,2000 the Company entered into a Letter of Intent to acquire the
business of Teleservies, Inc of Nashville, Tennessee. Teleservices is an
interconnect company servicing hotels with Mitel systems. Although the Company
expects this transaction to be completed, there can be no assurances.
The assumptions supporting the current value of goodwill are:
The current intangible value at 6/30/00 is $39,300,202. The $39,300,202 value
consists of Goodwill, Customer lists and assembled workforces. Goodwill is
amortized over 15 years. Customer lists and assembled workforces are amortized
over a shorter period of time. Please refer to the 1999 10-KSB/A for applicable
periods of amortization. In order to assess the recoverability of the net
Goodwill value, a cash flow is completed annually and quarterly for each
subsidiary that recognizes Goodwill. Cash flow reports are completed for each
subsidiary to determine whether or not the cash flow obtained solely from the
subsidiary is equal to or greater than the subsidiary's net Goodwill. If it is
not, the Goodwill is considered impaired. Based on cash flow, no impairment of
goodwill existed at 6/30/00, except for American Telephone and Computers, Inc.,
which was purchased for $25,000 on 4/6/99. Goodwill totaling $21,112 was
impaired and charged to operating expense at 12/31/99.
<PAGE>
Purchase Agreement Issues
-------------------------
The purchase agreement for ACC Telecom required quarterly payments of $50,000
per quarter over 5 years for a total of $1,000,000 of principal and interest.
The first payment was due on the closing with quarterly payments starting on
September 1, 1998. A payment was due on September 1, 1999, which was not made
resulting in a balance of $800,000 due under this agreement. The company fully
expects to make these payments in the future. The selling shareholders and the
Company have a buy back/sell back agreement that could be invoked based on the
marketability of MAVIS or cash flows. The buy back/sell back agreement has been
mutually extended to March 3, 2001.
The purchase agreement for Paramount calls for payment due the Eberle Family
Trust on May 25, 1999 in the amount of $1,244,774.48. This payment has not been
made to date due to the trading halt. The Trust has agreed to accept monthly
interest payments until a time a payment schedule will be agreed upon.
Changes in Directors
--------------------
On June 5, 2000, Steven R. Wood and William M. Reffett became members of
Carnegie's Board of Directors.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CARNEGIE INTERNATIONAL CORPORATION
Registrant
August 14, 2000 By: /s/ Lowell Farkas
Date -----------------------
Lowell Farkas
President and Chief Executive Officer
By: /s/ Richard Greene
-----------------------
Richard Greene, CPA
Corporate Secretary and Vice President,
Acting Chief Financial Officer
