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, 1998
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from ___________ to _____________
Commission file number 0-20843
POINTE COMMUNICATIONS CORPORATION
(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.)
2839 PACES FERRY ROAD, SUITE 500, ATLANTA, GEORGIA 30339
(Address of Principal Executive Offices)
(770) 432-6800
(Issuer's Telephone Number, Including Area Code)
Charter Communications International, Inc.
________________________________________________________
(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
--- ---
State the number of shares outstanding of each of the issuer's classes of
common equity, as of November 13, 1998: 44,889,839.
----------
Transitional Small Business Disclosure Format:
Yes No X
--- ---
<PAGE>
PART I
The following financial statements are for Pointe Communications Coproration,
formerly know as Charter Communications International, Inc. See Item 4 for
additional information on issure's name change.
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
POINT COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
Sept. 30, December 31,
1998 1997
------------ --------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,041,239 $ 155,503
Restricted cash 185,000 135,000
Accounts receivable, net of allowance for
doubtful accounts of $750,000 and $650,000 3,628,138 2,606,104
Accounts receivable-- affilliate 140,863 -
Inventory 613,196 252,120
Prepaid expenses and other 457,465 224,595
------------ --------------
Total current assets 6,065,901 3,373,322
------------ --------------
PROPERTY AND EQUIPMENT, at cost:
Equipment and machinery 9,751,766 6,058,943
Earth station facility 683,162 618,497
Software 1,495,026 1,121,248
Furniture and fixtures 499,564 360,694
Other 910,330 583,861
------------ --------------
13,339,848 8,743,243
Accumulated depreciation and amortization (3,284,305) (2,113,198)
------------ --------------
Property and equipment, net 10,055,543 6,630,045
------------ --------------
OTHER ASSETS:
Goodwill, net of accumulated amortization
of $1,354,156 and $865,087 17,433,508 17,391,398
Acquired customer bases, net of accumulated
amortization of $834,211 and $579,369 997,069 1,181,651
Other intangibles, net of accumulated
amortization of $995,584 and $590,884 1,895,297 1,938,582
Other 776,546 551,087
------------ --------------
Total other assets 21,102,420 21,062,718
------------ --------------
TOTAL ASSETS $37,223,864 $ 31,066,085
============ ==============
</TABLE>
The accompanying Condensed Notes to Financial Statements
are an integral part of these balance sheets.
<PAGE>
POINT COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
CURRENT LIABILITIES:
<S> <C> <C>
Current portion of notes payable $ 864,043 $ 175,001
Current portion of lease obligation 743,898 342,249
Lines of credit 450,000 485,000
Receivable purchase facility 600,000 -
Loans from shareholders 695,000 520,000
Accounts payable 5,729,387 5,139,173
Accrued liabilities 2,140,300 1,676,547
Unearned revenues 1,003,185 1,645,722
------------- -------------
Total current liabilities 12,225,813 9,983,692
------------- -------------
LONG TERM LIABILITIES:
Capital and financing lease obligation 3,375,374 1,397,473
Convertible debenture 1,180,000 1,180,000
Senior subordinated notes 682,778 660,278
Notes payable 885,753 711,110
------------- -------------
Total long term liabilities 6,123,905 3,948,861
------------- -------------
Deferred settlement gain - 2,757,132
------------- -------------
MINORITY INTEREST 2,000,000 -
------------- -------------
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value; 100,000 shares
authorized, 0 shares issued and outstanding at
September 30, 1998 and December 31, 1997 - -
Common stock, $0.00001 par value; 100,000,000
shares authorized; 44,889,839 and 34,134,776
shares outstanding at September 30, 1998 and
December 31, 1997, respectively 449 341
Additional paid-in-capital 42,629,221 35,981,440
Accumulated deficit (25,755,524) (21,605,381)
------------- -------------
Total stockholders' equity 16,874,146 14,376,400
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 37,223,864 $ 31,066,085
============= =============
</TABLE>
The accompanying Condensed Notes to Financial Statements
are an integral part of these balance sheets.
<TABLE>
<CAPTION>
POINTE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Three Months Nine Months Three Months Nine Months
Ended Ended Ended Ended
Sept. 30, 1998 Sept. 30, 1998 Sept. 30, 1997 Sept. 30, 1997
---------------- ---------------- ---------------- ----------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Communications services $ 8,270,049 $ 15,974,134 $ 2,282,078 $ 6,344,114
Hardware and software 4,498 118,745 65,509 397,049
Internet connection services 734,440 2,210,278 695,940 2,058,159
Network services - - 153,645 468,260
---------------- ---------------- ---------------- ----------------
Total Revenues 9,008,987 18,303,157 3,197,172 9,267,582
---------------- ---------------- ---------------- ----------------
COSTS AND EXPENSES:
Cost of services 7,232,073 14,220,875 1,666,176 6,137,491
Cost of hardware and software 2,679 84,107 47,960 312,684
Selling, general, and administrative 2,317,111 6,457,010 2,012,040 5,796,025
Nonrecurring charge 185,812 185,812
Depreciation and amortization 793,143 2,299,709 787,167 2,272,436
---------------- ---------------- ---------------- ----------------
Total costs and expenses 10,530,818 23,247,513 4,513,343 14,518,636
---------------- ---------------- ---------------- ----------------
OPERATING LOSS (1,521,831) (4,944,356) (1,316,171) (5,251,054)
---------------- ---------------- ---------------- ----------------
INTEREST EXPENSE, NET (313,587) (851,556) (88,838) (310,346)
LOSS ON EXTINGUISHMENT OF DEBT - - - (241,785)
OTHER INCOME, NET - 1,645,769 - -
---------------- ---------------- ---------------- ----------------
NET LOSS BEFORE INCOME TAXES (1,835,418) (4,150,143) (1,405,009) (5,803,185)
INCOME TAX BENEFIT - - - -
---------------- ---------------- ---------------- ----------------
NET LOSS $ (1,835,418) $ (4,150,143) $ (1,405,009) $ (5,803,185)
================ ================ ================ ================
BASIC AND DILUTED
NET LOSS PER SHARE $ (0.04) $ (0.10) $ (0.04) $ (0.20)
================ ================ ================ ================
SHARES USED IN COMPUTING
NET LOSS PER SHARE 44,650,816 40,800,401 31,778,443 29,721,332
================ ================ ================ ================
</TABLE>
The accompanying Condensed Notes to Financial Statements
are an integral part of these statements.
<PAGE>
<TABLE>
<CAPTION>
POINTE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Nine Months Nine Months
Ended Ended
Sept. 30, 1998 Sept. 30, 1997
---------------- ----------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,150,143) $ (5,803,185)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization 2,299,709 2,272,436
Bad debt expense 189,092 162,154
Amortization of discounts on senior
subordinated notes and financing lease obligation 143,027 22,450
Loss on extinguishment of debt - 241,785
Deferred settlement gain (2,757,132) -
Changes in operating assets and liabilities:
Accounts receivable, net (1,068,573) (898,052)
Accounts receivable-- affiliate (140,863) 206,399
Inventory (116,889) (209,307)
Prepaid expenses (232,870) (194,226)
Other assets (251,361) (214,390)
Accounts payable and accrued liabilities 902,175 (1,547,377)
Accounts payable-- affiliate (249,655) (41,000)
Unearned revenue (642,537) (254,661)
---------------- ----------------
Total Adjustments (1,925,877) (453,789)
---------------- ----------------
Net cash used in operating activities (6,076,020) (6,256,974)
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (2,145,968) (1,721,459)
Restricted cash (50,000)
Acquisition of subsidiaries (310,000) (400,000)
---------------- ----------------
Net cash used in investing activities (2,505,968) (2,121,459)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 6,000,000 6,877,518
Proceeds from issuance of preferred stock in subsidiary 2,000,000
Proceeds from issuance of convertible debenture - 1,150,000
Proceeds from exercise of warrants and options 25,517 -
Repayment on line of credit, net (50,000) (221,092)
Proceeds from/Repayment of loans from shareholders 150,000 (29,218)
Proceeds from/repayment of notes payable 682,184 436,940
Proceeds from receivable facility, net 574,500 -
Proceeds from sale and leaseback transactions, net 85,523 -
---------------- ----------------
Net cash provided by financing activities 9,467,724 8,214,148
---------------- ----------------
INCREASE IN CASH AND CASH EQUIVALENTS 885,736 (164,285)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 155,503 320,252
---------------- ----------------
END OF PERIOD $ 1,041,239 $ 155,967
================ ================
Supplemental Non-Cash Disclosures:
- - -----------------------------------------------------------
Interest Paid $ 823,812 $ 41,532
Income Taxes Paid - -
Capital Leases 2,340,173 -
Assets acquired in excess of liabilities assumed 819,684 -
Value of warrants issued 304,465 -
Value of stock issued for acquisition 203,906 -
</TABLE>
The accompanying Condensed Notes to Financial Statements
are an integral part of these statements.
<PAGE>
POINTE COMMUNICATIONS CORPORATION
CONDENSED NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
1. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to Section 310 of Regulation
S-B of the Securities and Exchange Commission. The accompanying unaudited
condensed consolidated financial statements reflect, in the opinion of
management, all adjustments necessary to achieve a fair statement of financial
position and results for the interim periods presented. All such adjustments are
of a normal recurring nature. It is suggested that these financial statements be
read in conjunction with the financial statements and notes thereto included in
the Company's Annual Report on Form 10-KSB for the year ended December 31, 1997.
2. Certain amounts in the prior period financial statements have been
reclassified to conform to the current year presentation.
3. Basic net loss per share is computed using the weighted average number of
shares outstanding. Diluted net loss per share is computed using the weighted
average number of shares outstanding, adjusted for common stock equivalents,
when dilutive. For the periods presented, the effect of common stock equivalents
was antidilutive, as a result, basic and diluted net loss per share are the
same.
4. There was no provision for or cash payment of income taxes for the three
months ended September 30, 1998 and 1997, respectively, as the Company had net
taxable losses for 1998 and 1997, respectively, and anticipates a net taxable
loss for the year ended December 31, 1998.
5. During the quarter ended September 30, 1998, the Company completed a
private placement of 600,000 shares of common stock with warrants to purchase
600,000 shares at a price of $3.00 per share. The gross proceeds from the
private placement were $750,000.
6. Also, during the quarter, the Company's subsidiary Telecommute Solutions,
Inc. ("TCS") completed a private placement of 2,000 shares of its $1.00 par
value Series A Preferred Stock. The Preferred Stock is convertible at any time
on or prior to the third anniversary date of issuance into 2,643 shares of TCS's
common stock or 666,667 shares of Company common stock. The Preferred Stock is
non-participating and does not pay dividends. The Preferred Stock is presented
as Minority Interest on the Company's balance sheet. At the same time,
purchaser also received an option to purchase 2,000 shares of Series B Preferred
Stock at any time prior to August 7, 1999, which is convertible at any time
until August 7, 2001 into 1,057 shares of TCS or 500,000 shares of the Company.
Total proceeds received in the private placement were $2,000,000.
7. On August 12, 1998, the Company acquired International Digital
Telecommunications Systems, Inc. ("IDTS"), a Florida company with its primary
place of business in Miami, Florida. IDTS is a facilities based carrier of
voice, data and other types of telecommunications. Consideration paid for IDTS
consisted of $160,000 (used to pay outstanding obligations of IDTS) and 50,000
shares of common stock, which was placed in escrow for 180 days, to secure the
indemnity obligations of the seller for any undisclosed liabilities existing as
of the acquisition date. On July 30, 1998, the Company acquired Pointe
Communications Corporation ("Pointe"), a Delaware Company. Consideration paid
for Pointe consisted of $168,000 and a warrant to purchase 590,000 shares of
common stock of the Company at a price of $1.25 per share, exercisable at any
time prior to June 30, 2003. Pointe did not have revenue from operations prior
to its acquisition. At the time of acquisition, Pointe was a sole
proprietorship. Also on the acquisition date, the Company entered into an
employment agreement with this individual.
<TABLE>
<CAPTION>
IDTS Point
<S> <C> <C>
Cash paid . . . . . . . . . . $160,000 $168,000
Value of stock & warrants 0 236,000
Net assets acquired . . . 9,524 0
Goodwill. . . . . . . . . 150,476 404,000
Amortization Period . . . 17.5yrs 30yrs
</TABLE>
8. During the quarter, the Company entered into capital lease agreements
with respect to telecommunications switch equipment valued at $2.3 million. The
leases are payable monthly over 60 to 72 months and carry a weighted average
implicit rate of 11.75%.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Pointe Communications Corporation ("PointeCom", formerly Charter
Communications International, Inc., or the "Company") is an international,
facilities-based communications company serving residential and commercial
customers in the U.S., Central America and South America. The Company's
products and services include long distance, Internet access, data transmission,
private line services and local dial tone services. The Company also offers
prepaid calling cards to specifically targeted demographic groups and
telecommuting services to corporate clients.
PointeCom began operations in 1995 predominately offering International
Private Line ("IPL") services between the U.S. and Panama. Subsequently, the
Company has secured various communications licenses in the US, Panama, Costa
Rica, Venezuela, El Salvador, Nicaragua, Mexico, Honduras, Guatemala and Peru,
acquired eight companies and grown revenue from $544,000 in 1995 to $18 million
year to date 1998. Licenses held by the Company, which vary by country,
typically allow the Company to offer an array of services includung
international private line, long distance, Internet access and data
transmission, especially between the U.S. and Latin America. The Company has
established infrastructure including satellite earth stations, interconnection
agreements, peripheral infrastructure, and sales and marketing channels in all
of the above countries except Honduras, Guatemala and Peru to service existing
and future customers. The Company also enjoys strong relationships with the
responsible government agencies, telephone company authorities and international
carriers.
Since its inception, the Company has been focused on providing businesses
with dedicated voice and data services via its private line network. The
Company's primary retail offerings have been internet access and prepaid calling
cards. The Company's strategy is to provide a full array of bundled
telecommunications and network services to both commercial and residential
customers with particular focus on ethnic communities in "paired" U.S and
international markets. In the U.S., the Company's focus is on communities with
large Hispanic populations. Internationally, the Company has targeted
complementary, markets with telecommunications traffic patterns that correspond
with the paired U.S. target markets. Management believes that originating and
terminating traffic between domestic and international cities that share the
Company as a common network carrier will provide significant competitive,
marketing and cost advantages.
The Company's strategy assumes that there exists (i) a significant
population in the U.S. that is dissatisfied with its current telecommunications
service, (ii) substantial demand for telecommunications services in the U.S.
Hispanic population, (iii) a lack of ready access to telephony services in Latin
America for a substantial portion of the population, and (iv) a natural synergy
in providing local services in both the U.S. and Latin America to meet basic
telephony needs along with bundled services to meet more advanced communications
requirements between the U.S. and Latin America.
The Company anticipates that its strategy will permit it to establish and
maintain profitable growth while developing as a local service provider and long
distance carrier. The Company is attempting to position itself as a cost
efficient, reliable alternative to incumbent local telephone companies ("ILECs")
by providing bundled telecommunication services tailored specifically to the
needs of certain ethnic groups in paired domestic and international markets.
The Company is implementing a facilities based infrastructure on a staged basis
in certainn identified markets with the ultimate objective of being a
full-service competitive local exchange carrier ("CLEC") with a low-cost base of
operations.
As part of its implementation plan, the Company is currently establishing
an international backbone for both voice and data switching in and between
Houston, Texas; Miami, Florida; San Juan, Puerto Rico; Nicaragua; and El
Salvador. Future plans include similar network infrastructure in other US and
South and Central American locations. This network will provide PointeCom with
a lower cost basis for its existing business and a unique partnering opportunity
with foreign Postal, Telephone and Telegraph companies ("PTTs"). The network
will also provide significant marketing advantages and cost savings to its
existing prepaid calling card and telecommute solutions product lines. Failure
of the Company to raise all or a significant portion of the funds needed to
build this network could materially and adversely affect the Company's planned
and continuing operations.
See "Liquidity and Capital Resources" for a discussion of the Company's
ability to meet the capital requirements associated with its expansion plans.
RESULTS OF OPERATIONS
The following table sets forth certain financial data for the quarters
ended September 30, 1998 and 1997. Operating results for any period are not
necessarily indicative of results for any future period. Dollar amounts (except
per share data) are shown in thousands.
<PAGE>
<TABLE>
<CAPTION>
September 30, September 30,
1998 1997
% of % of
Revenues Revenues
------------ --------------- ------------- --------
Revenues
<S> <C> <C> <C> <C>
Communications services. . . $ 8,270 91.8 $ 2,282 71.4
Internet connection. . . . . 734 8.1 696 21.8
Hardware and software
Sales . . . . . . . . . . 5 .1 66 2.0
Network services . . . . . . - - 154 4.8
------------ --------------- ------------- --------
Total revenues. . . . 9,009 100.0 3,198 100.0
Cost and expenses:
Cost of services. . . . . 7,232 80.3 1,666 52.1
Cost of hardware
and software. . . . 3 - 48 1.5
Selling, general,
and administrative. 2,317 25.7 2,012 62.9
Nonrecurring charge . . . 186 2.1 - -
Depreciation and
Amortization . . . . . . . . 793 8.8 788 24.6
------------ --------------- ------------- --------
Total costs
and expenses. . . . 10,531 116.9 4,514 141.1
------------ --------------- ------------- --------
Operating loss . . . . . . . (1,522) (16.9) (1,316) (41.1)
------------ --------------- ------------- --------
Interest expense, net. . . . (313) (3.5) (89) (2.8)
------------ --------------- ------------- --------
Net Income (Loss). . . . . . $ (1,835) (20.4) $ (1,405) (43.9)
------------ --------------- ------------- --------
Net loss per share . . . . . $ (0.04) $ (0.04)
Shares used in computing:
net loss per share . . . . . 44,650,816 31,778,443
</TABLE>
<PAGE>
Consolidated results for the three months ended September 30, 1998 reflect
significant improvement in most respects when compared to the same period of
1997. Consolidated revenues for the quarter increased to $9.0 million from $3.2
million. The 182% increase in revenues was principally the result of increased
prepaid calling card sales. Cost of services and hardware and software costs
were $7.2 million for the quarter and $1.7 million for the comparable period in
1997, yielding a gross profit margin of 19.7% for 1998 and 46.4% for the same
period in 1997. The decreased margin is primarily the result of a higher
proportion of revenue from prepaid calling cards in 1998, which generally carry
a lower margin. The Company anticipates that margins will improve throughout
the remainder of the year as it continues to expand its network and improve its
least cost routing.
Selling, general, and administrative expenses declined as a percentage of
revenues from 62.9% in 1997 to 25.7% in 1998. The decrease is a result of the
Company benefiting from economies of scale with respect to costs such as
salaries and wages which have not increased in direct proportion to increases in
revenues. Management anticipates additional relative cost reductions over the
next year. As explained below, the Company took a one time charge for labor
force reduction during the quarter.
The nonrecurring charge for the third quarter of 1998 was ($186,000) for costs
associated with a labor force reduction. In implementing its strategy for the
upcoming year, Management reduced staff in areas that were either overstaffed in
relation to revenues generated or which were not central to the Company's
strategy.
Depreciation and amortization expense was $793,000 for the third quarter of
1998 compared to $788,000 for the same period in the prior year. Depreciation
and amortization increased as a result of acquisitions of assets and
subsidiaries, offset by a decline in amortization attributable to a fourth
quarter 1997 write off of intangibles related to exit from the line of business
acquired in the Phoenix Data Systems acquisition. Interest expense was $313,000
and $89,000 for the three months ended September 30, 1998 and 1997,
respectively. The increase in interest expense is primarily attributable to the
financing lease obligations originated in the last quarter of 1997 and the first
quarter of 1998, capital leases entered into during the third quarter of 1998
and convertible debentures issued in the third quarter of 1997.
There was no income tax benefit recorded in either 1998 or 1997, as
management recorded a valuation allowance as a result of uncertainty in the
timing of future taxable income. The net loss for the quarter ended September
30, 1998 and 1997 was $1,835,000 and $1,405,000 respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company has not generated net cash from operations for any period
presented. The Company has primarily financed its operations to date through
private sales of equity securities and debt to affiliates and outside investors.
The Company intends to raise additional required funding through various sources
including, but not limited to, vendor lease financing, private placements of
debt and/or equity securities, and the exercise of outstanding warrants and
options. However, there can be no assurance that the Company will be able to
raise any capital on terms acceptable to the Company or at all.
During the first quarter of 1998, the Company completed a private placement
of 9,000,000 shares of common stock at a price of $.50 per share for proceeds
totaling $4,500,000 (4,000,000 shares included in this offering were purchased
by directors), entered into an additional financing lease transaction of certain
assets for proceeds totaling approximately $400,000, and entered into a
Receivable Purchase Facility Agreement which enables it to sell its receivables
to the purchaser, up to the maximum facility amount of $600,000. During the
second quarter of 1998, the Company completed private placements of 750,000
shares of common stock for gross proceeds of $750,000 and entered into a Zero
Coupon Promissory Note for gross proceeds totaling $750,000 which includes the
issuance of a warrant to purchase 545,455 shares of Common Stock at an exercise
price of $1.375 per share. During the third quarter of 1998, the Company
completed private placements of 600,000 shares of common stock for gross
proceeds of $750,000 and 2,000 shares of Telecommute Solutions, Inc. Series A
Preferred stock for gross proceeds of $2,000,000. These funds were used to
partially offset a net operating cash flow deficiency of approximately
$6,076,000 through September 30, 1998, as well as capital expenditures of
$2,146,000, the acquisition of subsidiaries of $310,000 and repayment of
financing lease obligations, lines of credit and notes payable of approximately
$350,000.
The Company estimates that it will need approximately $6,000,000 to fund
existing operations and debt due over the next twelve months. Additionally, the
Company's business plan calls for approximately $62,000,000 to fund currently
planned capital projects. The Company currently has approximately $1,000,000 on
hand and intends to fund the balance through vendor financing, additional debt
and equity security offerings, exercise of outstanding options and warrants, and
cash from operations,. As of the date hereof the Company is in negotiations with
its vendors for terms on lease financing and has engaged investment banking
firms to assist in its capital raising efforts. Failure of the Company to raise
all or a significant portion of the funds needed could materially and adversely
affect the Company's continuing and its planned operations. At September 30,
1998, the Company had a working capital deficit of $6,159,912 and at times has
borrowed funds and sold equity to affiliates/shareholders to fund essential
obligations. While the Company has been able to fund such essential obligations
to date and while management believes its current business activity and
financing plans will enable it to continue operations and to fund planned
growth, no assurance can be given that the Company will be able to achieve
anticipated operating performance or raise such funds on a timely basis or at
all. Failure to raise such funds could have material adverse consequences to the
Company and its continuing and planned operations.
Any increases in the Company's growth rate, shortfalls in anticipated
revenues, increases in anticipated expenses, or any unanticipated expenses could
have a material adverse effect on the Company's liquidity and capital resources
and would either require the Company to raise additional capital from public or
private debt or equity sources or scale back operations, or both. The Company
does not currently have adequate resources available to achieve all of the
potential expansion plans noted above and will not engage in such expansion
until adequate capital sources have been arranged. Accordingly, the Company
anticipates additional future private placements and/or public offerings of debt
or equity securities will be necessary to fund such plans. If such sources of
financing are insufficient or unavailable, the Company will be required to
significantly change or scale back its operating plans to the extent of
available funding. The Company may need to raise additional funds in order to
take advantage of unanticipated opportunities, such as acquisitions of
complementary businesses or the development of new products, or to otherwise
respond to unanticipated competitive pressures. There can be no assurance that
the Company will be able to raise any such capital on terms acceptable to the
Company or at all.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income" ( SFAS 130 ), and No. 131, "Disclosures
About Segments of an Enterprise and Related Information" ( SFAS 131 ). The
adoption of SFAS 130 did not have a material impact on the Company's financial
statements. The Company does not expect SFAS 130 or 131 to have a material
impact on the Company's financial statements.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5 (SOP 98-5), "Reporting on the Costs of
Start-Up Activities," which is effective for fiscal years beginning after
December 15, 1998. SOP 98-5 requires entities to expense certain start-up costs
and organization costs as they are incurred. The Company does not expect SOP
98-5 to have a material impact on the Company's financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133 "Accounting for Derivative Instruments and Hedging Activities," which is
effective for fiscal years beginning after June 15, 1999. FAS 133 establishes
accounting and reporting standards for derivative instruments and transactions
involving hedge accounting. The Company does not anticipate that this statement
will have a material impact on its financial statements.
YEAR 2000
The Year 2000 Issue is a problem resulting from computer programs being written
using two digits rather than four digits to define the applicable year.
Date-sensitive software may recognize a date using 00 as the year 1900 rather
than 2000. This could result in system failures or miscalculations causing
disruptions of operations including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities. The Company is addressing this issue on several different fronts.
First of all, a team has been assigned to evaluate risks to the Company's
internal systems used in the provisioning of telecommunications services through
a five phase process including Awareness, Assessment, Renovation, Validation and
Implementation. A web page has been established at www.y2k.c-com.net containing
additional information about the Year 2000 problem and the Company's compliance
program. Second, the Company has requested Year 2000 compliance certification
from each of its major vendors and suppliers for their hardware or software
products and for their internal business applications and processes. Finally,
the Company has established a team to coordinate solutions to the Year 2000
issue for its own internal information systems and physical facilities. The
Company currently does not expect that the cost of its Year 2000 compliance
program will be material to its financial condition or results of operations or
that its business will be adversely affected by the Year 2000 issue in any
material respect. Nevertheless, achieving Year 2000 compliance is dependent on
many factors, some of which are not completely within the Company's control.
Should either the Company's internal systems or the internal systems of one or
more significant vendors or suppliers fail to achieve Year 2000 compliance, the
Company's business and its results of operations could be adversely affected.
FORWARD-LOOKING STATEMENTS
This report on Form 10-QSB contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Actual results could
differ from those projected in any forward-looking statements for the reasons
set forth herein and as set forth in the "Risk Factors" as well as in other
sections of the Company's report filed on Form 10-KSB for the year ended
December 31, 1997, or for other unforseen reasons. The forward-looking
statements contained herein are made as of the date of this report and the
Company assumes no obligation to update such forward-looking statements, or to
update the reasons why actual results could differ from those projected in such
forward-looking statements.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In this quarter on July 20, 1998, the Company finalized and entered into a
settlement agreement with Sprint that required the Company to pay $100,000
immediately and $50,000 per month over the next 18 months in settlement of the
disputes between the parties.
The Company is party to several legal proceedings arising in the ordinary
course of its business. The outcome of these actions cannot be predicted, but
it is believed that such proceedings will will not materially affect the
Company's consolidated financial statements.
ITEM 2. CHANGES IN SECURITIES
(1) During the third quarter of 1998, the Company issued 500,000 and 100,000
shares of its $.00001 par value common stock in private placements to accredited
investors at prices of $1.30 and $1.00 per share, respectively. No underwriter
was used for these private placements. These private placements were intended to
be exempt from registration under the Securities Act of 1933, as amended (the
"Act") pursuant to Regulation D promulgated under the Act and Section 4(2) of
the Act. The $750,000 raised in this private offering will be used to offset the
Company's operating deficit and to fund capital expenditures as described in the
"Liquidity and Capital Resources" section of this filing.
(2) Also, during the quarter, the Company's subsidiary, Telecommute
Solutions, Inc. ("TCS"), completed a private placement of 2,000 shares of its
$1.00 par value Series A Preferred Stock. No underwriter was used for these
private placements. The Preferred Stock is convertible at any time on or prior
to the third anniversary date of issuance into 2,643 shares of TCS's common
stock or 666,667 shares of Company common stock. At the same time, purchaser
also received an option to purchase 2,000 shares of Series B Preferred Stock at
any time prior to August 7, 1999, which is convertible at any time until August
7, 2001 into 1,057 shares of TCS or 500,000 shares of the Company. The Preferred
Stock is non-redeemable, non-voting and does not pay dividends. Total proceeds
received in the private placement were $2,000,000, which will be used to fund
the working capital requirements of TCS. The amount payable on each share of
Series A and Series B Preferred Stock in the event of any voluntary or
involuntary liquidation, dissolution or winding up of affairs of TCS shall be
$1,000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
On August 31, 1998, the Company held a Special Meeting of Shareholders at
which shareholders were asked too consider and vote upon: 1) an amendment to the
Company's Articles of Incorporation to effect a change in the Company's name to
Pointe Communications Corporation; 2) an amendment to the Company's Articles of
Incorporation to increase the number of authorized shares from 45,000,000 to
100,000,000 of the Company's $.00001 par value Common Stock; 3) the election of
(i) Stephen E. Raville, (ii) Patrick E. Delaney, (iii) William P. O'Reilly, (iv)
Robert E. Conn, (v) F.Scott Yeager, (vi) Gerald F. Schmidt, and (vii) James H.
Dorsey III to serve as directors of the Company until their successors are duly
elected and qualified; 4) an increase in the number of shares of common stock
reserve under the following plans: (i) Incentive Stock Option Plan - 5,000,000
shares; (ii) Executive Long-Term Option Plan - 3,000,000 shares; and (iii)
Non-Employee Director Stock Option Plan - 2,000,000 shares. A total of
27,714,305 shares were represented at the meeting. Such shares were voted in
favor of each matter as follows:
<TABLE>
<CAPTION>
Item For Against Withheld/Abstain
- - ---- ---------- ------- ----------------
<S> <C> <C> <C>
1. . 27,712,555 1,100 650
---------- ------- ----------------
2. . 27,483,201 229,304 1,800
---------- ------- ----------------
3- . 19,070,494 - 8,643,811
---------- ------- ----------------
3ii. 26,533,862 - 1,180,443
---------- ------- ----------------
3iii 27,714,305 - -
---------- ------- ----------------
3iv. 27,714,305 - -
---------- ------- ----------------
3v . 27,714,305 - -
---------- ------- ----------------
3vi. 27,714,305 - -
---------- ------- ----------------
3vii 27,707,215 - 7,090
---------- ------- ----------------
4. . 27,238,114 219,725 256,466
- - ---- ---------- ------- ----------------
</TABLE>
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
None.
<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.
POINTE COMMUNICATIONS
CORPORATION
Date: November 13, 1998 By: /s/ Stephen E. Raville
------------------------------
Stephen E. Raville
Chief Executive Officer
Date: November 13, 1998 By: /s/ Patrick E. Delaney
------------------------------
Patrick E. Delaney
Chief Financial Officer
<PAGE>
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
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<INVENTORY> 613196
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<DEPRECIATION> 3284305
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<BONDS> 2748531
<COMMON> 449
0
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<OTHER-SE> 16873697
<TOTAL-LIABILITY-AND-EQUITY> 37223864
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<TOTAL-REVENUES> 18303157
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