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 March 31, 1998
/ / Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from ___________ to _____________
Commission file number 0-20843
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.)
2839 PACES FERRY ROAD, SUITE 500, ATLANTA, GEORGIA 30339
(Address of Principal Executive Offices)
(770) 432-6800
(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______
-----
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 43,134,776.
-----------------------
Traditional Small Business Disclosure Format:
Yes X No______
-----
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CHARTER COMMUNICATIONS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
March 31, December 31,
1998 1997
------------ --------------
(Unaudited) (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents. . . . . . . . . . $ 1,211,328 $ 155,503
Restricted cash. . . . . . . . . . . . . . . 135,000 135,000
Accounts receivable, net of allowance for
doubtful accounts of $706,940 and $650,000 . 2,384,032 2,606,104
Accounts receivable-- affilliate . . . . . . 513,505 -
Inventory. . . . . . . . . . . . . . . . . . 295,694 252,120
Prepaid expenses and other . . . . . . . . . 199,793 224,595
------------ --------------
Total current assets . . . . . . . . . . . 4,739,352 3,373,322
------------ --------------
PROPERTY AND EQUIPMENT, at cost:
Equipment and machinery. . . . . . . . . . . 6,494,385 6,058,943
Earth station facility . . . . . . . . . . . 618,061 618,497
Software . . . . . . . . . . . . . . . . . . 1,271,895 1,121,248
Furniture and fixtures . . . . . . . . . . . 403,079 360,694
Other. . . . . . . . . . . . . . . . . . . . 626,163 583,861
------------ --------------
9,413,583 8,743,243
Accumulated depreciation and amortization. . (2,498,373) (2,113,198)
------------ --------------
Property and equipment, net. . . . . . . . 6,915,210 6,630,045
------------ --------------
OTHER ASSETS:
Goodwill, net of accumulated amortization
of $1,026,623 and $865,087 . . . . . . . . . 17,229,862 17,391,398
Acquired customer bases, net of accumulated
amortization of $664,011 and $579,369. . . . 1,097,009 1,181,651
Other intangibles, net of accumulated
amortization of $747,077 and $590,884. . . . 1,819,057 1,938,582
Other. . . . . . . . . . . . . . . . . . . . 608,615 551,087
------------ --------------
Total other assets . . . . . . . . . . . . 20,754,543 21,062,718
------------ --------------
TOTAL ASSETS . . . . . . . . . . . . . . . $32,409,105 $ 31,066,085
============ ==============
<FN>
The accompanying Condensed Notes to Financial Statements
are an integral part of these balance sheets.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CHARTER COMMUNICATIONS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of notes payable . . . . . . . . $ 169,877 $ 175,001
Current portion of lease obligation. . . . . . . 386,456 342,249
Lines of credit. . . . . . . . . . . . . . . . . 470,000 485,000
Receivable purchase facility . . . . . . . . . . 600,000 -
Loans from shareholders. . . . . . . . . . . . . 520,000 520,000
Accounts payable . . . . . . . . . . . . . . . . 4,122,233 4,889,518
Accounts payable-- affiliate . . . . . . . . . . 73,001 249,655
Accrued liabilities. . . . . . . . . . . . . . . 1,616,113 1,676,547
Unearned revenues. . . . . . . . . . . . . . . . 894,871 1,645,722
------------- -------------
Total current liabilities. . . . . . . . . . . 8,852,551 9,983,692
------------- -------------
LONG TERM LIABILITIES:
Financing lease obligation . . . . . . . . . . . 1,679,074 1,397,473
Convertible debenture. . . . . . . . . . . . . . 1,180,000 1,180,000
Senior subordinated notes. . . . . . . . . . . . 667,779 660,278
Notes payable. . . . . . . . . . . . . . . . . . 718,869 711,110
------------- -------------
Total long term liabilities. . . . . . . . . . 4,245,722 3,948,861
------------- -------------
Deferred settlement gain . . . . . . . . . . . . 2,757,132 2,757,132
------------- -------------
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value; 100,000 shares
authorized, 0 shares issued and outstanding at
March 31, 1998 and December 31, 1997 . . . . . . - -
Common stock, $0.00001 par value; 45,000,000
shares authorized; 43,134,776 and 34,134,776
shares outstanding at March 31, 1998 and
December 31, 1997, respectively. . . . . . . . . 431 341
Additional paid-in-capital . . . . . . . . . . . 40,481,350 35,981,440
Accumulated deficit. . . . . . . . . . . . . . . (23,928,081) (21,605,381)
------------- -------------
Total stockholders' equity . . . . . . . . . . . 16,553,700 14,376,400
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . $ 32,409,105 $ 31,066,085
============= =============
<FN>
The accompanying Condensed Notes to Financial Statements
are an integral part of these balance sheets.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CHARTER COMMUNICATIONS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Three Months Three Months
Ended Ended
March 31, 1998 March 31, 1997
---------------- ----------------
(Unaudited) (Unaudited)
<S> <C> <C>
REVENUES:
Communications services. . . . . . . $ 3,332,636 $ 1,912,281
Hardware and software. . . . . . . . 12,069 169,479
Internet connection services . . . . 754,161 667,595
---------------- ----------------
Total Revenues . . . . . . . . . . . 4,098,866 2,749,355
---------------- ----------------
COSTS AND EXPENSES:
Cost of services . . . . . . . . . . 3,404,937 2,154,123
Cost of hardware and software. . . . 5,455 140,994
Selling, general, and administrative 1,998,123 1,930,978
Depreciation and amortization. . . . 751,984 680,107
---------------- ----------------
Total costs and expenses . . . . . . 6,160,499 4,906,202
---------------- ----------------
OPERATING LOSS . . . . . . . . . . . . (2,061,633) (2,156,847)
---------------- ----------------
INTEREST EXPENSE, NET. . . . . . . . . (261,067) (141,989)
LOSS ON EXTINGUISHMENT OF DEBT . . . . - (241,785)
---------------- ----------------
NET LOSS BEFORE INCOME TAXES . . . . . (2,322,700) (2,540,621)
INCOME TAX BENEFIT . . . . . . . . . . - -
---------------- ----------------
NET LOSS . . . . . . . . . . . . . . . $ (2,322,700) $ (2,540,621)
================ ================
BASIC & DILUTED NET LOSS PER SHARE . . $ (0.06) $ (0.09)
================ ================
SHARES USED IN COMPUTING
NET LOSS PER SHARE . . . . . . . . . . 35,928,109 27,836,826
================ ================
<FN>
The accompanying Condensed Notes to Financial Statements
are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CHARTER COMMUNICATIONS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Three Months Three Months
Ended Ended
March 31, 1998 March 31, 1997
---------------- ----------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss. . . . . . . . . . . . . . . . . . . . . . . . $ (2,322,700) $ (2,540,621)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization. . . . . . . . . . . . 751,984 680,107
Bad debt expense . . . . . . . . . . . . . . . . . . 56,940 52,888
Amortization of discounts on senior
subordinated notes and financing lease obligation 38,475 7,458
Loss on extinguishment of debt . . . . . . . . . . . - 241,785
Changes in operating assets and liabilities:
Accounts receivable, net. . . . . . . . . . . . . 165,132 (462,139)
Accounts receivable-- affiliate . . . . . . . . . (513,505) (10,963)
Inventory . . . . . . . . . . . . . . . . . . . . (43,574) (41,223)
Prepaid expenses. . . . . . . . . . . . . . . . . 24,802 (31,680)
Other assets. . . . . . . . . . . . . . . . . . . (24,768) (240,059)
Accounts payable and accrued liabilities. . . . . (827,719) (1,479,420)
Accounts payable-- affiliate. . . . . . . . . . . (176,654) (101,847)
Unearned revenue. . . . . . . . . . . . . . . . . (750,851) (54,853)
---------------- ----------------
Total Adjustments. . . . . . . . . . . . . . (1,299,738) (1,439,946)
---------------- ----------------
Net cash used in operating activities. . . . (3,622,438) (3,980,567)
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment. . . . . . . . . . . (670,340) (506,586)
---------------- ----------------
Net cash used in investing activities. . . . (670,340) (506,586)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock . . . . . . . . 4,500,000 4,842,518
Repayment on line of credit, net . . . . . . . . . . . (15,000) (100,000)
Repayment of loans from shareholders . . . . . . . . . - (125,000)
Proceeds from/repayment of notes payable . . . . . . . 1,533 (8,619)
Proceeds from receivable facility, net . . . . . . . . 574,500 -
Proceeds from sale and leaseback transactions, net . . 287,570 -
---------------- ----------------
Net cash provided by financing activities. . 5,348,603 4,608,899
---------------- ----------------
INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . 1,055,825 121,746
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . 155,503 320,252
---------------- ----------------
END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . $ 1,211,328 $ 441,998
================ ================
Supplemental Non-Cash Disclosures:
- ----------------------------------------------------------
Interest Paid. . . . . . . . . . . . . . . . . . . . . . . $ 196,526 $ 48,391
Taxes Paid . . . . . . . . . . . . . . . . . . . . . . . . - -
<FN>
The accompanying Condensed Notes to Financial Statements
are an integral part of these statements.
</TABLE>
<PAGE>
CHARTER COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED NOTES TO FINANCIAL STATEMENTS
MARCH 31, 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 year 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. Diluted net loss per share is computed using the weighted average number
of shares outstanding, adjusted for common stock equivalents, when dilutive.
For both 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 March 31, 1998 and 1997, respectively, as the Company had net
taxable loss for these periods and anticipates a net taxable loss for the year
ended December 31, 1998.
5. During the first quarter of 1998, the Company completed a private
placement offering of 9,000,000 shares of common stock at a price of $.50 per
share. Also during the first quarter, the Company entered into a Receivable
Purchase Facility Agreement, which enables it to sell its receivables to the
purchaser up to a maximum facility amount of $600,000. Receivables are sold at
60% of book value with the additional 40% representing collateral until the
receivables are paid, repurchased or substituted with other receivables, at
which time the 40% is returned to the Company. Interest accrues on the purchase
amount at a rate of prime (8.5% at March 31, 1998) plus 2% per annum for the
period outstanding. Receivables recorded under the receivable purchase facility
are included with the Company owned receivables. The Company also entered into
additional sale leaseback financing of certain assets for proceeds of
approximately $384,000. Property and equipment recorded under the financing
leases are included with the Company's owned assets.
6. During the first quarter of 1998, the Company granted 157,000 options,
under its Incentive Stock Option Plan, at a weighted average exercise price of
$1. Additionally during the first quarter of 1998, 407,000 options with a
weighted average exercise price of $1 were forfeited.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Over the next twelve months, the Company plans to pursue the expansion of
its International Private Lines, Telecommute Solutions, 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
intends to expand in major cities in the United States ( US ) and Latin America.
Strategic alliances have been and will continue to be formed with local business
groups and individuals to create successful operations within the respective
target Latin Countries.
Subject to the capital limitations discussed below, 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's objective of providing Internet access services.
The Company is currently licensed to provide various telecommunication services
in the US, Peru, Honduras, Venezuela, Mexico, El Salvador, Guatemala, Costa
Rica, and Panama. As of March 31, 1998, the Company is providing
telecommunication and/or Internet service in the United States, Panama,
Venezuela, El Salvador, Costa Rica and Mexico and will shortly begin providing
service in Nicaragua. Construction of three new teleports, in Costa Rica,
Panama and Nicaragua, is expected to be completed during the second quarter of
1998, which will significantly increase the Company's capacity to provide
private line service to these countries. While the Company's telecommunication
business in Latin America is currently focused on the provision of international
private lines and internet services, it is actively pursuing other opportunities
to provide long distance services in Latin American countries.
The Company intends to vigorously pursue expansion of its telecommuting
services through its subsidiary Telecommute Solutions. The Company believes
demand for telecommuting services in the US will grow significantly as a result
of corporate pressure to reduce operating costs, comply with government
regulation, and attract and retain employees. The Company has developed a
complete turnkey telecommuting solution which is scalable and can be deployed
nationally. In November 1997, the Company signed a master agreement with a
Fortune 100 financial services corporation to provide telecommuting outsourcing
services. The first telecommuters were brought online under this agreement in
February of 1998. The Company intends to expand this line of business through
its direct sales force, located in major metropolitan areas (Atlanta, Houston,
New York, Chicago, Los Angeles, Dallas and Washington, D.C.), where
telecommuting is of greatest demand, and through strategic alliances with
equipment vendors, consultants and Regional Bell Operating Companies. The
initial product strategy has been focused on the business issues of
telecommuting- program design, implementation and support. As a second phase of
its product strategy, the Company intends to build a private internet protocol
(IP) network, specifically designed for telecommuting. In order to facilitate
expansion of its services into additional cities and to build the telecommuting
network, the Company intends to seek $5-$10 million through public and private
markets. The Company will begin expansion only upon securing appropriate
financing.
The Company's calling card business is expanding. Over the last year, by
leveraging its relationship with certain Latin American carriers, the Company
was able to introduce calling cards with originating access from certain Latin
American countries. During the first quarter of 1998, the Company has added an
enhanced self-contained calling card platform to its network in order to provide
additional capacity, speed and reliability. Also, the Company has formed
strategic alliances with certain facilities based carriers in Colorado, Florida
and California in order to expand its network and product offerings.
The Company's Internet business continues to expand both domestically and
in Latin America. In March of 1996, the Company formed Phoenix DataNet de
Panama, S.A. and commenced the offering of Internet services to business and
residential customers in Panama City, Panama. In December of 1996, the Company
began offering Internet Service in Caracas, Venezuela. Shortly, the Company
will begin to offer Internet service in Colon, Panama. The Company anticipates
it will be required to spend approximately $130,000 per site in order to provide
Internet services in the other Latin American sites targeted for private line
services.
See "Liquidity and Capital Resources" for a discussion of the Company's
ability to meet these capital needs.
RESULTS OF OPERATIONS
The following table sets forth certain financial data for the quarters
ended March 31, 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.
<TABLE>
<CAPTION>
March 31, March 31,
1998 1997
% of Revenues % of Revenues
<S> <C> <C> <C> <C>
Revenues
Communications services. . . . . . . . . . . . . . . . . . . . $ 3,333 81.3% $ 1,912 69.5%
Hardware and software
sales. . . . . . . . . . . . . . . . . . . . . . . . . . . 12 .3 170 6.1
Internet connection services . . . . . . . . . . . . . . . . . 754 18.4 667 24.4
----------- ------------ ------------- -------------
Total revenues . . . . . . . . . . . . . . . . . . . 4,099 100.0 2,749 100.0
Cost and expenses:
Cost of services. . . . . . . . . . . . . . . . . . . . . . 3,405 83.1 2,154 78.4
Cost of hardware
and software . . . . . . . . . . . . . . . . . . . . . 5 .1 141 5.1
Selling, general, and administrative. . . . . . . . . . . . 1,998 48.8 1,931 70.2
Depreciation and
Amortization . . . . . . . . . . . . . . . . . . . . . 752 18.3 680 24.8
----------- ------------ ------------- -------------
Total costs
and expenses. . . . . . . . . . . . . . . . . . . . . 6,160 150.3 4,906 178.5
----------- ------------ ------------- -------------
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . <2,061> <50.3> <2,157> <78.5>
----------- ------------ ------------- -------------
Interest expense, net. . . . . . . . . . . . . . . . . . . . . <262> <6.4> <142> <5.2>
Extinguisment of
debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . - - <241> <8.7>
----------- ------------ ------------- -------------
Net Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . <2,323> <56.7> <2,540> <92.4>
----------- ------------ ------------- -------------
Net loss per share . . . . . . . . . . . . . . . . . . . . . . $ <.06> $ <.09>
Shares used in computing:
net loss per share . . . . . . . . . . . . . . . . . . . . . . 35,928,109 27,836,826
</TABLE>
Consolidated revenues for the combined lines of business for the three
months ended March 31, 1998 and 1997 were $4,098,866 and $2,749,355,
respectively. The 49% increase in revenues is principally related to increases
in prepaid calling card and international private line sales. Cost of services
and hardware and software costs were $3,410,392 in 1998 and $2,295,117 for the
comparable period in 1997, yielding a gross profit margin of 16.8% for 1998 and
16.5% for the same period in 1997. Gross profit margins in the first quarters
of 1998 and 1997 were adversely affected by negative margin incurred on prepaid
calling card traffic to a few select countries and by a delay in the
implementation of the Company's least cost routing plan to improve network
costs, respectively. The Company has taken measures to correct the items
adversely affecting margins in these select countries. As a result of these
measures and through continued refining of its least cost routing plan, the
Company expects gross profit margins to improve during the remainder of 1998.
Anticipated increases in sales of the Company's higher margin products, such as
private line and telecommuting services, are also expected to increase the
Company's overall gross profit margin.
Selling, general, and administrative ( "SG&A" ) expenses for the first
quarter of 1998 were $1,998,123 or 48.8% of sales compared to $1,930,978 or
70.2% of sales for the same period in 1997. While the amount of SG&A was
relatively flat, SG&A as a percentage of revenue decreased during the first
quarter of 1998 from the first quarter of 1997. This decrease is a result of
the Company benefiting from economies of scale with regard to costs such as
salaries and wages which have not increased in direct proportion to increases in
revenues. Management anticipates additional cost reductions as a result of
certain cost control efforts, including a reduction of the workforce,
implemented during the first quarter of 1998.
Depreciation and amortization expense was $751,984 for the first three
months of 1998 compared to $680,107 for the same period in the prior year. The
increase is mainly attributable to the increase in property, plant and equipment
related to the expansion of operations.
Interest expense was $261,067 and $141,989 for the three months ended March
31, 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 and the convertible debentures issued in
the third quarter of 1997. In the first quarter of 1997, the Company incurred a
$242,000 loss on extinguishment of debt in relation to the conversion of a
portion of its 12% senior subordinated debentures, which had been reported net
of discount at the time of the conversion.
There was no income tax benefit recorded in either 1998 or 1997, as
management recorded a valuation reserve due to the uncertainty of the timing of
future taxable income. The net losses for the quarter ended March 31, 1998 and
1997 were $2,322,700 and $2,540,621, 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, the exercise of warrants and private placements
of debt and/or equity. However, 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.
During the first quarter of 1998, the Company completed a private placement
offering 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 sale leaseback 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.
Receivables are sold at 60% of book value with the additional 40% representing
collateral until the receivables are paid, repurchased or substituted with other
receivables, at which time the 40% is returned to the Company. Interest accrues
on the purchase amount at a rate of prime (8.5% at March 31, 1998) plus 2% per
annum on the outstanding amount. As of March 31, 1998, the Company has received
$600,000 for receivables sold under this facility. These funds were used to
offset a net operating cash flow deficiency of approximately $3,622,000
through March 31, 1998, as well as capital expenditures of $670,000, and
repayment of financing lease obligations, lines of credit and notes payable of
approximately $110,000.
The Company estimates that it will need approximately $4.5 million to fund
existing operations over the next twelve months including approximately $.7
million through June 1998 to fund operating cash deficiencies, $1.6 million to
fund debt due in the next twelve months, $1.0 million to fund the Sprint and
employment arbitration settlements and $1.2 million to fund capital
expenditures. The Company currently has $1.2 million on hand and intends to
raise the balance through cash generated from operations subsequent to June
1998, additional debt and equity private placements and exercise of warrants.
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 March 31, 1998, the Company had a significant working capital
deficit 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 is such that operating funds
will be available to it as needed to continue operations and to fund planned
growth, no assurance can be given that the Company will be able to 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 significant acquisition or
expansion opportunities 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. The Company does not currently have adequate resources available to
achieve all of the potential expansion plans noted in Management's Discussion
and Analysis 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 ). Both
statements are effective for fiscal years beginning after December 15, 1997.
SFAS 130 did not have an impact on the Company, and the Company does not expect
SFAS 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.
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 has addressed and continues to assess the impact of the
Year 2000 Issue on its reporting and operating systems. Due to the proprietary
nature of many of the Company's operating platforms, including its billing and
accounts receivable systems, the Company has limited reliance on external
vendors and third party network providers with Year 2000 exposure. The Company
has addressed programming issues to ensure that its programs are capable of
handling the change that will result from the turn of the century. Any costs
incurred with the Year 2000 compliance are being expensed as incurred and are
not expected to be material to the financial statements.
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
detailed 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. 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. Investors should consult the Risk
Factors and the other information set forth from time to time in the Company's
reports on Forms 10-QSB, 8-K, 10-KSB and Annual Report to Stockholders.
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
During the first quarter of 1998, the Company issued shares of its
$.00001 par value common stock in a private placement to accredited investors.
No underwriter was used for this private placement. Nine million (9,000,000)
shares were privately placed in the offering at $.50 per share. This private
placement was offered under Regulation D promulgated pursuant to the Securities
Act of 1933, as amended (the "Act"). The $4,500,000 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.
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
The Company filed a report on Form 8-K on August 15, 1997, reporting the sale of
equity securities under Regulation S on May 15, 1997. On March 5, 1998, the
Company filed a Form 8-K/A amending its previously filed Form 8-K dated August
15, 1997.
<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: May 15, 1998 By: /s/ Stephen E. Raville
Chief Executive Officer
Date: May 15, 1998 By: /s/ Patrick E. Delaney
Chief Financial Officer
<PAGE>
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