<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
/X/ Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended September 30, 1996
/ / Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from ___________ to _____________
Commission file number 33-25129-LA
CHARTER COMMUNICATIONS INTERNATIONAL, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
NEVADA 84-1097751
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
17100 EL CAMINO REAL, HOUSTON, TEXAS 77058
(Address of Principal Executive Offices)
(713) 486-8337
(Issuer's Telephone Number, Including Area Code)
_______________________________________________________________
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
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
--- ---
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<PAGE>
CHARTER COMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 1996
<PAGE>
CONTENTS
Consolidated Balance Sheets as of September 30, 1996 (unaudited) and
December 31, 1995 (audited)
Consolidated Statements of Operations for the three and nine months ended
September 30, 1996 (unaudited) and three and nine months ended September 30,
1995 (unaudited)
Consolidated Statements of Cash Flows for the three and nine months ended
September 30, 1996 (unaudited) and three and nine months ended September 30,
1995 (audited)
Notes to Consolidated Financial Statements (unaudited)
<PAGE>
CHARTER COMMUNICATIONS INTERNATIONAL,INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
1996 1995
------------- ------------
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 489,598 $ 43,841
Accounts Receivable, net of allowance for
doubtful accounts of $556,137 and $3762 2,476,784 43,155
Receivables from Related Parties 368,235 34,181
Inventories 394,195
Prepaid Expenses and Other 345,431 28,169
----------- ----------
TOTAL CURRENT ASSETS 4,074,243 149,346
PROPERTY AND EQUIPMENT, AT COST
Property, Plant and Equipment 6,441,486 933,636
Accumulated Depreciation (1,344,301) (146,681)
----------- ----------
TOTAL PROPERTY AND EQUIPMENT 5,097,185 786,955
OTHER ASSETS
Other Assets 41,555
Other Investments 255,839 150,000
Intangible assets, net of accumulated
amortization of $378,149 24,646,372
----------- ----------
TOTAL OTHER ASSETS 24,943,766 150,000
----------- ----------
TOTAL ASSETS $34,115,194 $1,086,301
----------- ----------
----------- ----------
See accompanying notes to consolidated financial statements.
<PAGE>
CHARTER COMMUNICATIONS INTERNATIONAL,INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
1996 1995
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable - Trade $ 5,467,890 $ 195,730
Accrued Expenses and Other 819,399 93,008
Due to Related Parties 54,167 129,167
Unearned Revenues 325,764
Current Portion of Long-term Notes Payable 250,737
Lines of Credit 1,079,203 129,443
Loans from Shareholders 542,466 1,828
----------- ----------
TOTAL CURRENT LIABILITIES 8,539,626 549,176
LONG TERM DEBT
Long-term Notes Payable, net 548,855
Senior Subordinated Notes, net 2,463,753 172,819
----------- ----------
TOTAL LONG-TERM LIABILITIES 3,012,608 172,819
----------- ----------
TOTAL LIABILITIES 11,552,234 721,995
STOCKHOLDERS' EQUITY
Preferred Stock-.01 par value; 100,000
shares authorized, 550 shares issued
and outstanding; liquidation preference
of $1,999,800 6
Common Stock--.00001 par value; 45,000,000
shares authorized, 24,013,231 and 7,298,393
shares issued and outstanding 240 73
Additional Paid In Capital 28,120,372 2,235,902
Accumulated Deficit (5,557,652) (1,871,675)
----------- ----------
TOTAL STOCKHOLDERS' EQUITY 22,562,960 364,306
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $34,115,194 $1,086,301
----------- ----------
----------- ----------
See accompanying notes to consolidated financial statements.
<PAGE>
CHARTER COMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
(UNAUDITED)
September 30, December 31,
1996 1995
------------- ------------
REVENUES
Communications Services $ 1,236,706 $ 29,098
Hardware and Software 746,933
Networking Service Revenues 126,286
Internet Connection Services 479,880
----------- ---------
TOTAL REVENUES 2,589,805 29,098
----------- ---------
COST OF REVENUES AND OPERATING EXPENSES
Data Communications and Operations 1,596,926
Hardware and Software Costs 597,283
Sales and Marketing 411,661
General and Administrative 1,168,176 268,820
Bad Debts 187,000
Depreciation and Amortization 371,388 50,074
----------- ---------
TOTAL COST OF REVENUES AND OPERATING EXPENSES 4,332,434 318,894
----------- ---------
OTHER INCOME OR EXPENSES
Interest Expense 127,133 28,692
Other (Income) or Losses 4,988 (3,682)
----------- ---------
TOTAL OTHER (INCOME) OR EXPENSES 132,121 25,010
----------- ---------
NET LOSS BEFORE INCOME TAXES
AND MINORITY INTEREST IN
CONSOLIDATED SUBSIDIARY (1,874,750) (314,806)
INCOME TAX PROVISION (BENEFIT) 0 0
MINORITY INTEREST IN
CONSOLIDATED SUBSIDIARY 0 0
----------- ---------
NET LOSS $(1,874,750) $(314,806)
----------- ---------
----------- ---------
See accompanying notes to consolidated financial statements.
<PAGE>
CHARTER COMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
(UNAUDITED)
September 30, September 30,
1996 1995
-------------- -------------
LOSS PER SHARE $ (0.12) $ (0.04)
-------------- -------------
-------------- -------------
Number of shares used in computing net
loss per share 15,270,046 7,298,391
----------- ----------
----------- ----------
See accompanying notes to consolidated financial statements.
<PAGE>
CHARTER COMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED
(UNAUDITED)
September 30, September 30,
1996 1995
-------------- -------------
REVENUES
Communications Services $ 1,536,189 $ 59,224
Hardware and Software 1,998,694
Networking Service Revenues 540,826
Internet Connection Services 1,228,523
----------- --------
TOTAL REVENUES 5,304,232 59,224
----------- --------
COST OF REVENUES AND OPERATING EXPENSES
Data Communications and Operations 2,614,573
Hardware and Software Costs 1,584,694
Sales and Marketing 968,410
General and Administrative 2,663,937 636,179
Bad Debts 188,164
Depreciation and Amortization 698,698 141,518
----------- --------
TOTAL COST OF REVENUES AND
OPERATING EXPENSES 8,718,476 777,697
----------- --------
OTHER INCOME OR EXPENSES
Interest Expense 282,897 96,581
Other (Income) or Losses 1,619 (3,682)
----------- --------
TOTAL OTHER (INCOME) EXPENSES 284,516 92,899
----------- --------
NET LOSS BEFORE INCOME TAXES AND
MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARY (3,698,760) (811,372)
INCOME TAX PROVISION (BENEFIT) 0 0
MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARY 12,783 0
----------- --------
Net Loss $(3,685,977) $(811,372)
----------- --------
----------- --------
See accompanying notes to consolidated financial statements.
<PAGE>
CHARTER COMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED
(UNAUDITED)
September 30, September 30,
1996 1995
-------------- -------------
LOSS PER SHARE $ (0.31) $ (0.51)
------------- ------------
------------- ------------
Number of shares used in computing net
loss per share 11,886,440 7,298,391
------------- ------------
------------- ------------
See accompanying notes to consolidated financial statements.
<PAGE>
CHARTER COMMUNICATIONS INTERNATIONAL,INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
(UNAUDITED)
September 30, September 30,
1996 1995
------------- -------------
CASH FLOWS FROM OPERATING
ACTIVITIES
NET LOSS $(1,874,750) $(314,806)
ADJUSTMENTS TO RECONCILE NET LOSS
TO NET CASH USED IN OPERATING
ACTIVITIES:
Depreciation and Amortization 371,389 50,074
Loss on Disposal of Asset 5,721
Bad Debts 187,000
Amortization of Discounts on
Senior Subordinated Notes 13,353
Non-Cash Consulting and
Services Fees 151,848
Decrease (increase) in
operating assets:
Accounts Receivable 192,000 (13,597)
Receivables from Related Parties 89,741 (957)
Inventory (138,168)
Prepaid Expenses and Other (107,602) (531)
Organization Costs (106,973) (36,667)
Increase (decrease) in
operating liabilities:
Accounts Payable 692,957 (51,379)
Accrued Expenses and Other 6,703 (16,293)
Due to Related Parties 54,167
Unearned Revenues 38,145
Other (3,098)
----------- ---------
Total adjustments 1,447,183 (69,350)
----------- ---------
NET CASH USED IN OPERATING
ACTIVITIES (427,567) (384,156)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property & Equipment (843,945) (28,063)
Investment in Joint Venture (31,657)
----------- ---------
NET CASH USED IN INVESTING
ACTIVITIES (875,602) (28,063)
See accompanying notes to consolidated financial statements.
<PAGE>
CHARTER COMMUNICATIONS INTERNATIONAL,INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
(UNAUDITED)
September 30, September 30,
1996 1995
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Loans from Shareholders 500,000
Repayment of Loans
from Shareholders (25,000) (1,209,961)
Proceeds from Trust Funds Receivable 4,904
Repayment of Subordinatedd
Line of Credit (109,915)
Repayments on Lines of Credit (34,018)
Repayments of Bank Notes (8,424)
Proceeds from the Issuance of
Common Stock 1,101,738
Preferred Stock Subscription
Deposit Applied (100,000)
Proceeds from Issuance of
Preferred Stock 1,977,612
---------- -----------
NET CASH FROM FINANCING
ACTIVITIES 1,534,296 562,640
---------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 231,127 150,421
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 258,471 100,503
---------- -----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 489,598 $ 250,924
---------- -----------
---------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest Paid $110,770 $ 37,581
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
CHARTER COMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
(UNAUDITED)
September 30, September 30,
1996 1995
------------- -------------
CASH FLOWS FROM OPERATING
ACTIVITIES
NET LOSS $(3,685,977) $(811,372)
ADJUSTMENTS TO RECONCILE NET LOSS
TO NET CASH USED IN OPERATING
ACTIVITIES:
Depreciation and Amortization 698,699 141,518
Loss on Disposition of Asset 5,721
Bad Debts 188,164
Amortization of Discounts on
Senior Subordinated Notes 31,092
Non-Cash Consulting and
Services Fees 223,575
Decrease (increase) in
operating assets:
Accounts Receivable (290,222) (17,915)
Receivables from Related Parties 131,665 (776)
Inventory (92,730)
Prepaid Expenses and Other Assets (212,827) (177)
Organization Costs (106,973) (76,777)
Increase (decrease) in
operating liabilities:
Accounts Payable 947,639 (26,872)
Accrued Expenses and Other 124,099 45,441
Due to Related Parties (75,000)
Unearned Revenues 164,238
Other (31,820)
----------- ---------
Total adjustments 1,705,320 64,442
----------- ---------
NET CASH USED IN OPERATING
ACTIVITIES (1,980,657) (746,930)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property & Equipment (2,561,852) (83,295)
Proceeds from Sale Leaseback 274,165
Acquisition of Subsidiary (375,000)
Investment in Joint Venture (185,848)
Purchased Goodwill (6,000)
----------- ---------
NET CASH USED IN INVESTING
ACTIVITIES (2,854,535) (83,295)
See accompanying notes to consolidated financial statements.
<PAGE>
CHARTER COMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
(UNAUDITED)
September 30, September 30,
1996 1995
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Loans from Shareholders $ 500,000 $ 295,000
Repayment of Loans
from Shareholders (25,000) (1,227,500)
Proceeds from Trust Funds Receivable 46,039
Proceeds from Subordinated
Line of Credit 73,757
Repayment of Subordinated
Line of Credit (109,915)
Proceeds from Lines of Credit 1,000,000
Repayments on Lines of Credit (50,240)
Repayments of Bank Notes (174,233)
Proceeds from Senior
Subordinated Notes 2,172,008
Proceeds from Issuance of
Stock Warrants 332,992
Proceeds from the Issuance of
Common Stock 1,525,422
Preferred Stock Subscription
Deposit 100,000
Preferred Stock Subscription
Deposit Applied (100,000)
Proceeds from Issuance of
Preferred Stock 1,977,612
----------- -----------
NET CASH FROM FINANCING
ACTIVITIES 5,280,949 1,054,993
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 445,757 224,768
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 43,841 26,156
----------- -----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 489,598 $ 250,924
----------- -----------
----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Interest Paid $ 165,428 $ 96,581
See accompanying notes to consolidated financial statements.
<PAGE>
CHARTER COMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet of Charter Communications International, Inc.
(the "Company"), a Nevada corporation, and it's wholly owned subsidiaries as of
September 30, 1996 and the related statements of operations and statements of
cash flows for the three months and nine months ended September 30, 1996, are
unaudited.
The consolidated balance sheet of the Company and it's wholly owned subsidiaries
as of December 31, 1995 and the related statements of operations and statements
of cash flows for the year ended December 31, 1995, were audited by other
accountants and they expressed an unqualified opinion on them in their report
dated March 29, 1996, but they have not performed any auditing procedures since
that date.
In the opinion of management, all adjustments, which include only normal
recurring adjustments necessary to present fairly the financial position,
results of operations and cash flows for the periods presented, have been
made. All significant intercompany items have been eliminated in
consolidation.
Certain disclosures and other information required by generally accepted
accounting principals have been omitted from these financial statements as
permitted by reference to other Securities and Exchange Commission filings.
These statements should be read in conjunction with the Company's Form 10-KSB
Annual Report as of December 31, 1995.
REVENUE RECOGNITION
Revenues from telecommunications, Internet access services and networked
computer sales and services are generally recognized when the services are
provided.
Invoices rendered and payments received for telecommunications services and
Internet access in advance of the period when revenues are earned are
recorded as unearned revenues and recognized ratably over the period the
services are provided or the term of the Internet subscription agreements,
which are generally 3 to 12 months. Sales of hardware are recognized when
installation has occurred and no further performance obligation remains.
Sales of pre-packaged software are recognized upon delivery of the product.
<PAGE>
CHARTER COMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
INVENTORIES
Inventories at September 30, 1996 consist of Internetworking and network
computer products as well as pre-packaged software used for Internet access.
All inventory is recorded as finished goods and is available for sale.
Inventories are stated at the lower of cost or market. Cost is determined on
the first-in, first-out method.
INCOME TAXES
The provision for income taxes is computed on the pretax income included in
the consolidated statement of income. The asset and liability approach is
used to recognize deferred tax liabilities and assets for the expected future
tax consequences of temporary differences between the carrying amounts and
the tax basis of assets and liabilities.
NET LOSS PER SHARE
LOSS PER SHARE - Net loss per share was computed by dividing the net loss by
the weighted average number of common and common equivalent shares
outstanding during the period. For purposes of this calculation, dilutive
outstanding warrants and employee stock options are considered common stock
equivalents. Due to the loss incurred for the periods presented, all common
stock equivalents are considered anti-dilutive and have been omitted from the
respective earnings per share calculations.
SUPPLEMENTARY LOSS PER SHARE - On March 8, 1996, the Series A Preferred Stock
was automatically converted into 2,847,412 shares of the Company's common
stock. Supplementary loss per share is the loss per share amount adjusted to
reflect the conversion of preferred stock on March 8, 1996 as if the
conversion had occurred on the day the preferred stock was issued.
Supplementary loss per share for the three and nine months ended September
30, 1996 and for the year ended December 31, 1995 was ($.12), ($.29) and
($0.22), respectively.
AMORTIZATION
The Company amortizes any purchased goodwill on acquisitions over a period
ranging from 5 to 30 years on a straight-line basis. Amortization of goodwill
amounted to $176,652 and $313,714, the three and nine months ended September
30, 1996, respectively.
<PAGE>
CHARTER COMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
NOTE B - ACQUISITIONS
PHOENIX DATANET, INC.
On January 8, 1996, the Company acquired 90 percent of the issued and
outstanding capital stock of Phoenix DataNet, Inc.(PDN), in exchange for
$525,000 in cash. PDN, a Texas corporation, was formerly a subsidiary of
Phoenix Data Systems, Inc. (Systems). PDN was originally incorporated on
February 21, 1995, and prior to that date had operated as a division of
Systems. Systems entered into an agreement on December 22, 1995 to sell its
90 percent ownership of the issued and outstanding shares of common stock of
PDN. On March 21, 1996, the Company acquired the remaining 10 percent in PDN
through the issuance of 150,000 shares of the Company's common stock, at a
estimated fair market value of $2.00 per share at the time the transaction
was consummated. The acquisition has been accounted for as a purchase.
PDN engages in the business of providing Internet access to businesses and
individuals and a full range of related services, including the creation and
development on behalf of its customers of Internet based advertising,
customer service functions, on-line sales and services and other on-line
interactive services. Additionally, PDN sells and services a complete line
of Internetworking products for Internet access.
PHOENIX DATA SYSTEMS, INC.
On March 21, 1996, the Company acquired 100 percent of the issued and
outstanding capital stock of Systems. The transaction involved the exchange
of 1,000,000 shares of the Company's common stock, 825,000 shares of which
were immediately issued free and clear of any adverse claims or encumbrances
and 175,000 shares are being retained by the Company in order to secure
representations and warranties and covenants of Systems and Systems
shareholders and will be subject to offset against claims against Systems.
All claims against Systems have been settled and the 175,000 shares were
issued on September 20, 1996. The shares issued in the transaction were
valued at $2.00 per share, the estimated fair market value as of the date the
transaction was consummated. The acquisition has been accounted for as a
purchase.
Systems is in the business of providing computer network integration,
service, consulting and support for commercial businesses.
<PAGE>
CHARTER COMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
NOTE B - ACQUISTIONS (CONT.)
PANAMA PHONE CENTERS
On March 30, 1996 the Company acquired the assets and rights to operate long
distance telephone centers at various U.S. military installations in the
Republic of Panama. Prior to March 30, 1996 the Company had been receiving
royalties from telephone calls placed at these phone centers, under a
seperate contract. The phone centers and rights to provide these service
were acquired for the price of $224,000 cash and 2,000 shares of common stock
of the Company valued at $2.00 per share. Simultaneously with the purchase
the Company entered into an agreement with a lease finance company to sell
and lease back a portion of the assets acquired. Lease financing was
obtained in the amount of $168,000, the acquisition price of the majority of
the phone center assets. The term of the lease provides for monthly payments
of $5,712, beginning on April 1, 1996 and continuing through March 1, 1999.
This transaction is not considered to be a significant business combination
and accordingly, no proforma information is presented.
JOINT VENTURE AGREEMENT
On January 24, 1996 the Company entered into an agreement for joint
operations of international telecommunications service into and out of
various locations in the Country of Mexico. The Company has agreed to incur
various expenses to reactivate the international telecommunications service
to various hotel facilities, arrange for agreements with international
carriers to provide call termination and other services and contribute future
funds for equipment to connect new customers.
OVERLOOK COMMUNICATIONS INTERNATIONAL CORPORATION (OCI)
On July 15, 1996, the Company entered into an agreement to acquire 100
percent of the issued and outstanding capital stock of OCI. OCI, a North
Carolina Corporation, is an independent telecommunications service bureau and
reseller of domestic and international long-distance services including
prepaid calling cards and 800 and 900 traffic to customers in the United
States. OCI's operations commenced in 1992. The transaction was consummated
on September 5, 1996, and involved the issuance of 8,999,960 shares of the
Company's common stock. The shares issued in the transaction were valued at
$2.00 per share, the estimated fair market value as of the date the
transaction was consumated. The acquisition has been accounted for as a
purchase.
<PAGE>
CHARTER COMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
NOTE B - ACQUISTIONS (CONT.)
WORLDLINK COMMUNICATIONS, INC. (WORLDLINK)
On September 13, 1996, the Company entered into an agreement to acquire 100
percent of the issued and outstanding capital stock of Worldlink. Worldlink,
a Georgia Corporation, is a swithced based reseller of long distance service
which uses debit cards to market its service. The transaction was
consummated on October 1, 1996, and involved the issuance of 1,850,000 shares
of the Company's common stock. The shares issued in the transaction were
valued at $2.00 per share, the estimated fair market value as of the date the
transaction was consumated. The acquisition has been accounted for as a
purchase.
Unaudited proforma revenues, net loss and loss per share assuming the
acquisitions mentioned above had occured at January 1, 1996, are as follows:
HISTORICAL PROFORMA
---------- --------
Charter Communications
International, Inc.
Charter Communications and
International, Inc. Subsidiaries
For the 9 Months Ended For the 9 Months Ended
September 30, 1996 September 30, 1996
---------------------- ----------------------
Revenues $ 5,304,232 $ 12,754,516
Net Loss (3,685,977) (5,356,890)
Net Loss per share (.31) (.24)
NOTE C - INTANGIBLE ASSETS
Intangible assets consist of the following at September 30, 1996:
Organizational Costs $ 113,843
Non-Compete Covenant and Other 78,700
Goodwill 24,831,978
Accumulated Amortization (378,149)
-----------
$24,646,372
-----------
<PAGE>
CHARTER COMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
NOTE D - NOTES PAYABLE AND LINES OF CREDIT
At September 30, 1996, the Company has outstanding term notes payable to
financing companies with varying terms and conditions in the total amount of
$799,592. A portion of these notes are collateralized by property, plant and
equipment owned by the Company. The portion of the total notes payable that
will become due within the next twelve months amounted to $250,737 at
September 30, 1996 and has been classified as a current liability in the
accompanying financial statement.
Additionally, the Company has obtained short term financing from various
shareholders with varying terms and conditions totalling $542,466 at
September 30, 1996.
The company has established three lines of credit with a commercial bank that
provide for borrowings up to $146,000, $500,000 and $500,000. The revolving
credit lines are secured by a security interest in certain electronic
equipment and securities of a shareholder of the Company. Interest is
payable monthly on two of the credit lines and quarterly on one, all at the
bank's prime rate plus 1%. Repayments of principal on these lines of credit
are due as follows:
PERIODIC
BALANCE, SEPTEMBER 30 PAYABLE PRINCIPAL DUE BALANCE DUE
- --------------------- ------- ------------- -----------
$104,203 Monthly $ 4,056 December 10, 1996
$475,000 Quarterly $25,000 May 2, 1997
$500,000 Annually - June 13, 1997
NOTE E - SENIOR SUBORDINATED NOTES
Beginning in December, 1995, the Company made a private offering of
$2,500,000, subsequently increased to $2,873,000, of its 12% Senior
Subordinated Notes due December 31, 2000, with attached warrants which will
grant the purchasers of the Notes the right to buy 2,000,000 shares,
subsequently increased to 2,298,400 shares, of Company's Common Stock. The
warrants grant the purchasers the right to exercise the warrants at prices of
$.70 per share in 1996, $1.25 in 1997, $1.75 in 1998, $2.25 in 1999 and $2.50
in 2000. Interest is payable quarterly at the rate of 12% per annum, in
arrears. The notes are not secured by any asset of the Company or guaranty.
<PAGE>
CHARTER COMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
NOTE E - SENIOR SUBORDINATED NOTES (CONT.)
Of the $2,873,000 in notes offered, $2,805,000 were issued to September 30,
1996. The fair market value of the 2,244,000 warrants issued in conjunction
with the notes was estimated by the Company to be $372,339 and is recorded as
additional paid in capital and a discount on the notes. The notes are stated
net of discount, which is being amortized over the term of the notes.
Amortization of this discount included in the accompanying financial
statements for the three months and nine months ended September 30, 1996,
amounted to $13,353 and $31,092, respectively, and is included in interest
expense for those periods.
NOTE F - COMMON STOCK AND COMMON STOCK PURCHASE WARRANTS AND
OPTIONS ISSUED FOR SERVICES
During the three and nine months ended September 30, 1996, the Company issued
3,000 and 18,000 shares, respectively, of common stock, granted 0 and 80,000,
respectively, common stock purchase warrants and granted 30,547 and 242,464,
respectively, common stock options to nonemployees for services provided to
the Company. These warrants expire between six months and five years from
the date of the grant and have an exercise price between $.70 and $2.50 per
share. The Company recognizes an expense equivalent to the fair market value
of the services.
NOTE G - STOCKHOLDERS' EQUITY
STOCK WARRANTS
During the three and nine months ended September 30, 1996, the Company
granted 0 and 54,400, respectively, common stock purchase warrants to certain
key employees and 0 and 100,000, respectively, to outside directors. These
warrants expire between six months and five years from the date of grant and
have an exercise price between $.70 and $2.50 per share. During the three
months and nine months ended September 30, 1996, 1,360,000 of the outstanding
warrants were exercised at a price of $.70 per share.
At September 30, 1996 the Company had outstanding warrants that gave the
holders the right to purchase 2,517,631 shares of the Company's common stock
at prices ranging from $.70 to $2.50 per share.
<PAGE>
CHARTER COMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
NOTE G - STOCKHOLDERS' EQUITY (CONT.)
STOCK OPTIONS
During the three and nine months ended September 30, 1996, the Company
granted 175,917 and 721,502 stock options to certain employees. The
exercise price of the stock options granted to the employees ranged from $.70
to $6.00 per share, the estimated fair market value of the Company's common
stock at the date of grant. No compensation expense has been recognized in
the financial statements related to the grant of these options.
The Company has established three stock option plans, the Long-term Stock
Option Plan, the Incentive Stock Option Plan and the NonEmployee Director
Stock Option Plan. Each plan is authorized to grant 500,000 shares of common
stock. The exercise price must be at least equal to the fair market value of
the Company's common stock at the date of the grant. Options can be issued
with varying terms and contain various provisions. The Company has also
issued nonplan options with varying terms and provisions. The following
table represents a summary of the outstanding options at September 30, 1996:
OPTION PRICE NUMBER OF
STOCK OPTIONS PER SHARE OPTIONS
- ------------- ------------ ---------
Outstanding, beginning of year $.70 1,250,000
Granted $.70 - $6.00 963,966
Canceled $.70 - $2.00 (706,833)
----------
Outstanding, end of quarter $.70 - $6.00 1,507,133
Exercisable, end of quarter 314,167
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
(a) PLAN OF OPERATION. Over the next twelve months, the Company will
continue to vigorously pursue the expansion of its International Private
Lines, Long Distance Telephone, Calling Card, Phone Centers, and INTERNET
Access services. The Company intends to capitalize on the growing demand for
these services and gain market share by building its subscriber base both
domestically and internationally. Management believes the expansion will be
accomplished through the acquisition of additional licenses and concessions
allowing the Company to provide these services both in the United States and
in targeted Latin American countries. The Company intends to aggressively
pursue new customers by combining the highest possible level of service with
an expanded sales force and intensive marketing efforts. After thoroughly
investigating market demand, the Company expects to expand in major cities in
Latin America. Strategic alliances are expected to be formed with local
business groups and individuals in order to create successful operations
within the respective target Latin Countries.
The Company intends to continue to build an International Private Line
communication network that will provide voice, data, facsimile, INTERNET,
intranet, telecommuting, and video services to government and commercial
organizations operating throughout the United States and Latin America. The
building of this private line network is complementary to the Company
objective of providing INTERNET access services.
The Company is currently licensed to provide international private line
services in the United States, El Salvador, Peru, Dominican Republic,
Honduras, Venezuela, Mexico, and Panama. Over the next twelve months, the
Company intends to seek, through public and private markets, an additional
$10-12 million to build-out and operate facilities in these countries.
While the Company's telecommunication business is currently focused on
the provision of international private lines, it is also participating in an
existing venture in Mexico to provide Long Distance Telephone Services to the
United States. The initial investment by the Company was approximately
$120,000. The Company is actively pursuing other opportunities to provide
long distance services in Mexico and other Latin American countries. While
there are presently no contractual commitments regarding the purchase of
facilities and equipment to provide these services, the Company anticipates
that approximately $3-4 million dollars over the next several quarters will
be required to expand its long distance service to meet the demand of
existing opportunities.
The Company's INTERNET business continues to expand and is currently
experiencing an annualized growth rate of approximately 100% in its domestic
INTERNET business. In March, 1996, the Company formed Phoenix DataNet de
Panama and commenced the offering of INTERNET services to business and
residential customers in Panama City, Panama. In the first six months of
operation, the Company acquired over 700 new customers. On July 19, 1996,
the Company obtained an additional concession to provide INTERNET services to
both residences and business operating in Venezuela. Charter anticipates it
will spend approximately $130,000 per site in order to provide INTERNET
services at each of the seven areas targeted for private line services in
Venezuela.
<PAGE>
The Company's available resources are not adequate to meet its
requirements for the next 12 months. The Company anticipates financing its
future needs for operational activities and capital asset acquisitions
through private placements and public offerings of equity or debt securities.
(b) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Results of Operations
Operations from January 26, 1994 through December 31, 1995 consisted
primarily of raising capital, obtaining financing, locating, acquiring,
installing, and testing equipment, and administrative activities such as
license and concession acquisitions. A discussion or comparison of 1995
quarterly results to 1996 quarterly results will not be meaningful to the
reader and therefore has not been included herein.
In the first quarter of 1996, the Company's first international private
line customers went on-line, the acquisition of Phoenix DataNet and Phoenix
Data Systems were completed, and the military phone centers in Panama were
purchased. During the third quarter, the Company completed the acquisition of
Overlook Communications International Corporation and Worldlink
Communications, Inc., and the results of their operations for the month of
September, 1996 are included in the third quarter results for the Company.
The acquisitions are more fully described in footnotes to the financial
statements and the forms 8-K filed with respect thereto.
Consolidated revenues for the combined lines of business for the third
quarter and nine months were $2,589,805 and $5,304,232, respectively. The
net loss was $1,874,750 for the third quarter and $3,685,977 for the nine
months of 1996.
Selling, general, and administrative expenses were $1,579,837 and
$3,632,347 for the third quarter and nine months ended September 30, 1996,
respectively. Higher selling and administrative expenses are associated with
business expansion and acquisitions. These expenses should decrease
proportionally with the expected increases in revenues in the last quarter
and in 1997.
Data communications or telecommunications line costs were $1,596,926 and
$2,614,573 for the third quarter and nine months of 1996, respectively. The
telecommunications line costs as a proportion of revenues for the acquired
companies is much larger than for the previously reported Charter revenues or
operations. The Company provided for bad debt expense and increased the
allowance account by $185,000 during the third quarter of 1996.
Depreciation and amortization expenses were $371,388 and $698,698 for
the third quarter and nine months of 1996, respectively. The increase of
amortization from prior quarters is the result of the goodwill created with
the acquisitions of the Overlook and Worldlink companies. Refer to the
financial statement footnotes.
Interest expense was $127,133 and $282,897 for the third quarter and
nine months of 1996, respectively. The increase in the quarter and nine
months compared to the same period in 1995 is due to the Company's migration
from a development stage company to a fully
<PAGE>
operating entity and the 1996 acquisition program. It is anticipated
interest costs will continue to increase until such time as additional equity
funding is obtained to finance the business expansion program. The Company's
credit facilities are variable rate notes tied to the prime rate. Increases
in the prime lending rate could negatively affect the Company's earnings.
Net losses for the quarter and nine months ended September 30, 1996 were
$1,874,750 or ($.12) per share and $3,685,977 or ($.31) per share,
respectively.
Liquidity and Capital Resources
Net cash used in operations for the third quarter and nine months ended
September 30, 1996 were $427,567 and $1,980,657, respectively. The Company
also used cash for investing activities in the amount of $875,602 in the
third quarter of 1996 and $2,854,535 in total for the nine months ended
September 30, 1996. The primary use was for the purchase of equipment and
installation at domestic and international locations to expand business
capacity. The primary funding has been obtained from several sources: bank
lines of credit approximately $1,100,000, private placement of notes and
warrants in 1995 of approximately $2,873,000, shareholder loans $500,000, and
issuance of common stock of approximately $1,525,000. Additional cash was
obtained from increases in accounts receivable and accounts payable. The
Company's available resources are not adequate to meet its requirements for
the next 12 months. The Company anticipates financing its future needs for
operational activities and capital asset acquisitions through private
placements and public offerings of equity or debt securities.
Expenses incurred during 1995 and most of 1996 are costs necessitated to
develop, implement, and market the Company's operating strategy.
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is not a party to any legal proceeding which is not routine
and incidental to the business or which involves an amount, exclusive of
interest and costs, which exceeds ten percent of the current assets of the
Company.
The Company had previously reported in Item 3 of its Form 10-KSB for the
year ended December 31, 1995, that its subsidiary Phoenix Data Systems
("PDS") and 3Com Corporation ("3Com") were involved in litigation relating to
a promissory note executed by PDS payable to 3Com in the original principal
amount of $541,501.85. On September 21, 1996, such litigation was settled
and a complete release received by the Company and PDS from any and all
claims relating to the subject matter of such litigation. The Company had
negotiated a contractual indemnification against such claim from the
shareholders of PDS at the time the Company acquired PDS. The former
shareholders of PDS fully funded the settlement of the 3Com/PDS litigation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits required by Item 601 of Regulation S-B
Exhibit 27 -- Financial Data Schedule
(b) REPORTS ON FORM 8-K.
Reports on Form 8-K were filed during the quarter for which this
report is filed as follows:
September 20, 1996 - reporting the acquisition of Overlook
Communications International, Inc. (financial statements to the report are to
be filed no later than November 19, 1996).
October 16, 1996 - reporting the acquisition of WorldLink
Communications, Inc. (financial statements to the report are to be filed no
later than December 16, 1996).
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHARTER COMMUNICATIONS
INTERNATIONAL, INC.
Date: November 14, 1996 By: /S/ ROAN L. SCRAPER
----------------------------------
President
Date: November 14, 1996 By: /S/ PATRICK E. DELANEY
----------------------------------
Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1996 (UNAUDITED) AND THE
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1996 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 489,598
<SECURITIES> 0
<RECEIVABLES> 3,032,921
<ALLOWANCES> 556,137
<INVENTORY> 394,195
<CURRENT-ASSETS> 4,074,243
<PP&E> 6,441,486
<DEPRECIATION> 1,344,301
<TOTAL-ASSETS> 34,115,194
<CURRENT-LIABILITIES> 8,539,626
<BONDS> 0
0
0
<COMMON> 240
<OTHER-SE> 22,562,720
<TOTAL-LIABILITY-AND-EQUITY> 34,115,194
<SALES> 5,304,232
<TOTAL-REVENUES> 5,304,232
<CGS> 4,199,267
<TOTAL-COSTS> 7,831,614
<OTHER-EXPENSES> 983,214
<LOSS-PROVISION> 188,164
<INTEREST-EXPENSE> 282,897
<INCOME-PRETAX> (3,698,760)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,698,760)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,685,977)
<EPS-PRIMARY> (0.31)
<EPS-DILUTED> (0.31)
</TABLE>
