USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
In 1998, the Company acquired cable systems for an aggregate purchase price, net
of cash acquired, of $228,400, comprising $167,500 in cash and $60,900 in a note
payable to Seller. The excess of cost of properties acquired over the amounts
assigned to net tangible assets at the date of acquisition was $207,600 and is
included in franchises.
The above acquisitions were accounted for using the purchase method of
accounting, and accordingly, results of operations of the acquired assets have
been included in the financial statements from the dates of acquisition. The
purchase prices were allocated to tangible and intangible assets based on
estimated fair values at the acquisition dates.
Unaudited pro forma operating results as though the acquisitions discussed
above, including the Paul Allen Transaction, had occurred on January 1, 1998,
with adjustments to give effect to amortization of franchises, interest expense
and certain other adjustments are as follows:
Loss from operations (92,014)
Net loss (192,789)
The unaudited pro forma information has been presented for comparative purposes
and does not purport to be indicative of the results of operations had these
transactions been completed as of the assumed date or which may be obtained in
3. INCOME TAXES:
Deferred tax assets and liabilities are recognized for the estimated future tax
consequence attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax basis.
Deferred income tax assets and liabilities are measured using the enacted tax
rates in effect for the year in which those temporary differences are expected
to be recovered or settled. Deferred income tax expense or benefit is the result
of changes in the liability or asset recorded for deferred taxes. A valuation
allowance must be established for any portion of a deferred tax asset for which
it is more likely than not that a tax benefit will not be realized.
No current provision (benefit) for income taxes was recorded. The effective
income tax rate is less than the federal rate of 35% primarily due to providing
a valuation allowance on deferred income tax assets.
4. RELATED PARTY TRANSACTIONS:
Charter Investment provides management services to the Company under the terms
of contracts which provide for fees from to 3% to 5% of revenues or a flat fee
plus an additional fee equal to 30% of the excess, if any, of operating cash
flows (as defined in the management agreement). The debt agreements prohibit
payment of a portion of such management fees until repayment in full of the
outstanding indebtedness. Expenses recognized under the contract for the three
months and nine months ended September 30, 1998, were $871 and $1,499,