UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8K-A
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 17, 1998
Convergence Communications, Inc.
(Exact name of registrant as specified in its charter)
Nevada 00-21143 87-0545056
(State or other jurisdiction of (Commission File Number) (IRS Employer
incorporation) Identification No.)
102 West 500 South, Suite 320, Salt Lake City, Utah 84101
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code (801) 328-5618
Wireless Cable & Communications, Inc.
(Former name or former address, if changed since last report)
Amendment No. 1
Convergence Communications, Inc. (the "Company") hereby amends the
following items, financial statements, exhibits or other portions of its Current
Report on Form 8-K dated July 17, 1998 as follows:
Item 7. Financial Statements and Exhibits.
Item 7(a). Financial Statements of businesses acquired.
Attached as Exhibit 7(a) are the Cablevisa, S.A. de C.V. and Multicable,
S.A. de C.V. audited combined balance sheets as of June 30, 1998 and 1997, and
the related combined statements of operations, stockholders' equity and of cash
flows for each of the two years in the period ended June 30, 1998 and related
notes to the combined financial statements and independent auditors' report.
Item 7(b). Unaudited Pro forma financial information.
Attached as Exhibit 7(b) are the unaudited pro forma consolidated
balance sheet of the Company as of June 30, 1998 and unaudited pro forma
consolidated statements of operations for the year ended December 31, 1997 and
the six-month period ended June 30, 1998.
Item 7(c). Exhibits.
Exhibit
No Exhibit Page
- - -- ------- ----
7(a) Cablevisa,S.A. de C.V. and Multicable, S.A. de C.V. 3
audited combined balance sheets as of June 30, 1998
and 1997, and the related combined statements of
operations, stockholders' equity and of cash flows for
each of the two years in the period ended June 30, 1998
and related notes to the combined financial statements
and independent auditors' report.
7(b) Unaudited pro forma consolidated balance sheet of the 17
Company as of June 30, 1998 and unaudited pro forma
consolidated statements of operations for the year
ended December 31, 1997 and the six-month period ended
June 30, 1998.
Signatures
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
CONVERGENCE COMMUNICATIONS, INC.
/s/Anthony Sansone
----------------------------------------------------------
By: Anthony Sansone, Treasurer (Chief Accounting Officer)
Dated: September 30, 1998
Exhibit 7(a): Financial statements of businesses acquired
Cablevisa, S.A. de C.V. and Multicable, S.A. de C.V. audited combined
balance sheets as of June 30, 1998 and 1997 and the related combined statements
of operations, stockholders' equity and of cash flows for each of the two years
in the period ended June 30, 1998, and the related notes to the combined
financial statements and independent auditors' report.
[THIS SPACE INTENTIONALLY LEFT BLANK]
CABLEVISA, S.A. DE C.V. AND MULTICABLE EL SALVADOR, S.A. DE C.V.
(Wholly-Owned Subsidiaries of Chispa Dos, Inc.)
Combined Financial Statements for the Years Ended June 30, 1998 and 1997
Independent Auditors' Report
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Cablevisa, S.A. de C.V. and Multicable El Salvador, S.A. de C.V.
We have audited the accompanying combined balance sheets of Cablevisa, S.A.
de C.V. and Multicable El Salvador, S.A. de C.V. (wholly-owned subsidiaries of
Chispa Dos, Inc.) (collectively, the "Company") as of June 30, 1998 and 1997 and
the related combined statements of operations, stockholders' equity, and cash
flows for the years then ended (all expressed in El Salvador Colons). These
combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in El Salvador and the United States of America. Those standards require that we
plan and perform the audit to obtain a reasonable assurance about whether the
combined financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the combined financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provided a reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the financial position of the Company as of June 30, 1998 and
1997, and the combined results of their operations and their combined cash flows
for the years then ended in conformity with the accounting principles generally
accepted in the United States of America.
Our audits also comprehended the translation of the El Salvador Colon
amounts into U.S. dollar amounts and, in our opinion, such translation has been
made in conformity with the basis stated in Note 1. The translation of the
combined financial statement amounts into U.S. dollars and the translation of
the combined financial statements into English have been made solely for the
convenience of readers in the United States of America.
As explained in Note 12, the Company was acquired on July 17, 1998 by Chispa
Dos, Inc.
DELOITTE & TOUCHE LLP
August 31, 1998
San Salvador, El Salvador
CABLEVISA, S.A. DE C.V. AND
MULTICABLE EL SALVADOR, S. A. DE C.V.
(Wholly-Owned Subsidiaries of Chispa Dos, Inc.)
COMBINED BALANCE SHEETS, JUNE 30, 1998 AND 1997
(Expressed in U.S. Dollars)
- - --------------------------------------------------------------------------------
ASSETS 1998 1997
CURRENT ASSETS:
Cash and cash equivalents (Note 1b) ..................... $ 233,659 $ 53,972
Accounts receivable:
Trade (less allowance for doubtful accounts of $66,799 289,629 313,500
and $23,192, respectively) (Notes 1c and 2)
Due from affiliates (Notes 1d and 3) .................. 495,568 308,425
Other ................................................. 36,260 47,477
Inventories - net (Notes 1e and 4) ...................... 116,213 174,520
Prepaid expenses ........................................ 7,986 10,814
Deferred income tax (Note 10) ........................... 84,249 67,747
Total current assets .......................... 1,263,564 976,455
PROPERTY, EQUIPMENT AND FURNITURE - Net (Notes 1g and 5) ... 1,388,771 1,794,668
INVESTMENTS (Note 1f) ...................................... -- 2,844
OTHER ASSETS (Note 1h) ..................................... 3,050 47,726
TOTAL ...................................................... $ 2,655,385 $ 2,821,693
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade (Note 6) ....................... $ 185,558 $ 147,490
Short-term debt (Note 7) ............................... -- 10,529
Other accounts payable and accrued expenses (Note 8) .... 321,490 251,812
Current portion of long-term debt (Note 9) .............. 69,209 61,750
Total current liabilities .................... 576,257 471,581
LONG-TERM DEBT (Note 9) .................................... 360,716 452,364
SEVERANCE COMPENSATION (Note 1j) ........................... 19,666 20,536
Total liabilities ............................. 956,639 944,481
STOCKHOLDERS' EQUITY:
Capital stock (Note 11) ................................ 1,865,803 1,865,803
Foreign currency translation adjustment ................ (20,443) (22,290)
Retained earnings (deficit) ............................ (146,614) 33,699
Total stockholders'equity ................... 1,698,746 1,877,212
TOTAL ...................................................... $ 2,655,385 $ 2,821,693
See notes to combined financial statements.
CABLEVISA, S.A. DE C.V. AND
MULTICABLE EL SALVADOR, S. A. DE C.V.
(Wholly-Owned Subsidiaries of Chispa Dos, Inc.)
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
(Expressed in U.S. Dollars)
- - -------------------------------------------------------------------------------
1998 1997
REVENUES:
Cable television service ...................... $ 3,169,055 $ 3,685,557
Advertising and cable guide ................... 387,110 148,243
Total revenues ....................... 3,556,165 3,833,800
COSTS AND OPERATING EXPENSES:
Operating costs ............................... 3,195,028 2,576,025
Sales and administration expenses (Note 3) .... 154,266 1,059,489
Total costs and operating expenses ... 3,349,294 3,635,514
INCOME FROM OPERATIONS ......................... 206,871 198,286
OTHER EXPENSES (INCOME):
Interest expense .............................. 79,802 81,160
Other expenses ................................ 19,029 30,573
Other income .................................. (5,376) (23,719)
Total other expenses, net ............. 93,455 88,014
INCOME BEFORE TAXES .............................. 113,416 110,272
INCOME TAX EXPENSE (Notes 1k and 10) ............. 28,887 27,810
NET INCOME ....................................... $ 84,529 $ 82,462
See notes to combined financial statements.
CABLEVISA, S.A. DE C.V. AND
MULTICABLE EL SALVADOR, S. A. DE C.V.
(Wholly-Owned Subsidiaries of Chispa Dos, Inc.)
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
(Expressed in U.S. Dollars)
- - --------------------------------------------------------------------------------
Common Stock Foreign Retained
------------------------------- Currency
Shares Amount Translation Earnings
(Note 11) (Note 11) Adjustment (Note 1n) Total
BALANCES AS OF
JULY 1, 1996 ............. 162,700 $ 1,865,803 $ (48,763) $ 1,817,040
Net income .............. -- 82,462 82,462
Foreign currency
translation adjustment -- -- $ (22,290) -- (22,290)
------- ---------- ------------ ------------ ------------
BALANCES AS OF
JUNE 30, 1997 ........... 162,700 1,865,803 (22,290) 33,699 1,877,212
Dividends paid .......... -- (264,842) (264,842)
Net income .............. -- 84,529 84,529
Foreign currency
translation adjustment -- -- 1,847 -- 1,847
-------- ---------- ------------ ----------- -----------
BALANCES AS OF
JUNE 30, 1998 ........... 162,700 $ 1,865,803 $ (20,443) $ (146,614) $ 1,698,746
See notes to combined financial statements.
CABLEVISA, S.A. DE C.V. AND
MULTICABLE EL SALVADOR, S. A. DE C.V.
(Wholly-Owned Subsidiaries of Chispa Dos, Inc.)
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
(Expressed in U.S. Dollars)
- - --------------------------------------------------------------------------------
1998 1997
OPERATING ACTIVITIES:
Net income ................................................ $ 84,529 $ 82,462
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization ......................... 561,980 540,279
Increase in allowance for doubtful debts .............. 43,607 23,192
Increase (decrease) in estimated severance compensation (870) 20,422
Increase for inventory obsolescence
Deferred income taxes ................................. (16,502) (67,747)
Changes in operating assets and liabilities:
Accounts receivable ................................... (195,662) (57,968)
Inventories ........................................... 58,307 23,442
Prepaid expenses ...................................... 2,828 (8,479)
Accounts payable - trade .............................. 38,068 (182,423)
Other accounts payable and accrued expenses ........... 69,678 98,545
Other assets .......................................... 44,676 (45,774)
Net cash provided by operating activities ................ 690,639 425,951
INVESTING ACTIVITIES
Acquisition of property, equipment and furniture ........... (275,585) (462,333)
Proceeds from sale of property, equipment and furniture .... 119,502 162,545
Proceeds from sale of investments .......................... 2,844 11,279
Net cash used in investing activities ..................... (153,239) (288,509)
FINANCING ACTIVITIES
Proceeds from issuance of long term debt ................... 90,844 44,501
Repayment of long term debt ................................ (185,562) (169,833)
Dividends paid ............................................. (264,842)
Net cash used in financing activities ..................... (359,560) (125,332)
EFFECT OF EXCHANGE RATES ON CASH .............................. 1,847 (22,290)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .............. 179,687 (10,180)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR .................. 53,972 64,152
CASH AND CASH EQUIVALENTS, END OF YEAR ........................ $ 233,659 $ 53,972
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Income tax ............................................. $ 41,780 $ 53,256
Interest ............................................... $ 79,802 $ 81,160
See notes to combined financial statements.
CABLEVISA, S.A. DE C.V. AND
MULTICABLE EL SALVADOR, S. A. DE C. V.
(Wholly-Owned Subsidiaries of Chispa Dos, Inc.)
NOTES TO THE COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
(Expressed in U.S. Dollars)
- - --------------------------------------------------------------------------------
1. OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES
Operations - Cablevisa, S.A. de C.V. and Multicable El Salvador, S.A. de
C.V. (collectively, the "Company") were established on June 3, 1983 and
September 28, 1990, respectively, as corporations in accordance with El
Salvadorian law. The main activity of the Company is to provide cable
television services.
Significant Accounting Policies - A summary of significant accounting
policies used to prepare the financial statements follows:
a. Principles of Combination - The accompanying combined financial
statements have been prepared in accordance with generally
accepted accounting principles in the United States of America.
The financial statements include the accounts of Cablevisa, S.A.
de C.V and Multicable El Salvador, S.A. de C.V., companies with
common control, property and administration. All significant
inter-company balances and transactions have been eliminated in
combination.
b. Cash and Cash Equivalents - The Company considers as cash
equivalents all certified deposits with original maturities of
three months or less at date of purchase. These deposits can be
translated immediately into cash without any restriction.
c. Accounts Receivable - The allowance for doubtful accounts includes
all balances that are more than ninety days overdue.
d. Accounts Due From Affiliates - The accounts receivable due from
affiliates represents the balance due from Unicable S.A. de C.V.
(See Note 3).
e. Inventories - Inventories of spare parts, accessories and
installation materials are stated at the lower of cost or market.
Cost is determined on the average cost method.
f. Investments - The investments in affiliated companies are stated
at cost.
g. Property, Equipment and Furniture - These assets are stated at
acquisition or construction cost. The construction and improvement
costs are recorded to in-process accounts and are capitalized to
the respective asset account when the construction is completed.
Gains or losses on sale or disposal of assets are recorded as they
occur. Expenditures for maintenance and repairs are charged to
expense as incurred, whereas major improvements are capitalized.
The depreciation is computed on the straight-line method over the
estimated useful lives of the assets.
h. Other Assets - Other assets principally consist of deposits in the
ordinary course of business.
i. Recognition of Revenues, Costs, and Expenses - Revenues for cable
television services are recognized in the period during which the
services are provided. Costs and expenses are recorded on the
accrual basis.
j. Severance Compensation - According to the El Salvador Labor Law,
companies are required to accrue a severance compensation, up to
four times of the current minimum salary, to those employees
dismissed without fair cause. The Company has recorded a provision
to cover this liability.
k. Income Taxes - The Company uses the asset and liability method to
account for income taxes. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their existing tax bases.
l. 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, disclosure of
contingent assets and liabilities and reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from these estimates.
m. Fair Value of Financial Instruments - The carrying amounts of cash
and cash equivalents, accounts receivable, accounts payable and
debt are reasonable estimates of their fair value.
n. Legal Reserve - In accordance with El Salvadorian Law, 7% of
income before provision for income taxes must be transferred to
the legal reserve each year until the legal reserve is equal to
20% of the capital. The legal reserve is not available for
dividends. The legal reserves for the years ended June 30, 1998
and 1997 are $73,719 and $47,588, respectively.
o. Translation of El Salvadorian Colon Statements to U.S. Dollar
Statements - The financial statements are stated in Colons, the
currency of the country in which the Company is incorporated and
operates. The translation of El Salvadorian Colon amounts into
U.S. dollar amounts are included solely for the convenience of
readers in the United States of America and have been made at the
rate of 8.76 colons and 8.74 colons to $1 U.S., the approximate
free rate of exchange at June 30, 1998 and 1997, respectively.
Such translations should not be construed as representations that
the Colon amounts could be converted into U.S. dollars at the
above or any other rate.
2. ACCOUNTS RECEIVABLE
1998 1997
Accounts receivable:
Subscribers ................................. $ 165,032 $ 257,330
Sundry debtors .............................. 185,783 76,670
Credit cards ................................ 5,613 2,692
356,428 336,692
Less allowance for doubtful accounts............ (66,799) (23,192)
Total accounts receivable .......... $ 289,629 $ 313,500
3. AFFILIATED COMPANIES
Balances between affiliated companies as of June 30, 1998 and 1997 are as
follows:
1998 1997
Accounts receivable:
Unicable, S.A. de C.V ...................... $ 495,568 $ 808,260
Invercable, S.A. de C.V .................... 162,116
Total accounts receivable ........... 495,568 970,376
Accounts payable:
Unicable, S.A. de C.V ...................... (661,951)
Total accounts payable .............. (661,951)
Net amount receivable ......................... $ 495,568 $ 308,425
The Company provided certain administrative services to affiliated
companies which were reimbursed to the Company. During 1998, the
reimbursement exceeded the cost of services provided to affiliates in the
amount of $340,919. During 1997, the cost of services provided to
affiliates exceeded the reimbursement by $534,761. This reimbursement
activity is reflected in administration expenses.
4. INVENTORIES
1998 1997
Spare parts and accessories ................ $ 4,007 $ 294,783
Installation materials ..................... 360,004 127,535
364,011 422,318
Less: obsolescence allowance ............... (247,798) (247,798)
Total inventories .......................... $ 116,213 $ 174,520
5. PROPERTY, EQUIPMENT AND FURNITURE
Estimated
Useful Life
(In Years) 1998 1997
Cost:
Land ..................................... $ 178,047 $ 141,229
Buildings and improvements ............... 20 3,211,961 3,157,116
Vehicles ................................. 5 to 10 171,290 169,272
Furniture and equipment .................. 2 to 10 257,653 261,964
Tools and small equipment ................ 5 to 10 5,201 5,201
3,824,152 3,734,782
Less accumulated depreciation ........... (2,435,381) (1,940,114)
Total property, equipment and furniture, net $ 1,388,771 $ 1,794,668
6. ACCOUNTS PAYABLE - TRADE
1998 1997
Suppliers:
Local suppliers ...................... $ 16,282 $ 12,880
Foreign suppliers .................... 169,276 134,610
Total accounts payable ................... $185,558 $147,490
7. SHORT TERM DEBT
At June 30, 1997, the short-term debt is payable in El Salvadorian colons
at an 18% interest rate.
8. OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES
1998 1997
Sundry creditors ............................. $ 74,923 $103,676
Withholdings payable ......................... 8,579 3,918
Valued Added Tax - VAT ....................... 41,849 28,262
Customer deposits ............................ 71,329 73,655
Other taxes .................................. 124,810 42,301
Total other accounts payable ................. $321,490 $251,812
8. LONG-TERM DEBT
1998 1997
Banco Agricola Comercial - Loan approved on August 11,
1995, for a five and a half year period with an
annual interest of 16.5%; collateralized with a
first mortgage on land and buildings, and
transmission equipment. Loan payable in 66 monthly
payments of $3,083 plus interest; maturity date of
loan March 7, 2001. $338,834 $458,909
Loan approved October 10, 1997, for a three year
period with an annual interest of 16.5%;
collateralized with a first mortgage on land and
buildings, and transmission equipment. Loan payable
in 36 monthly payments of $1,154 plus interest;
maturity date of loan October 10, 2001. 34,970
Loan approved on February 26, 1997, for a three year
period, with an annual interest of 22%;
collateralized by the vehicles acquired and a
promissory note signed by the Company. Loan payable
in 36 monthly payments of $700 plus interest;
maturity date of loan February 26, 2000. 14,000 21,787
Savings bank Atlacatl - Loan approved on March 14,
1996 for a three year period, with an annual
interest of 24%; collateralized by the vehicles
acquired by the Company and with the cession of
insurance policy benefits. Loan payable in 36
monthly payments of $782 plus interest; maturity
date of loan January 31, 1999. 18,022
BANCASA - Loan approved on January 31, 1996, for a
three year period, with an annual interest of 24%;
collateralized by the vehicles acquired by the
Company; cession of insurance policy benefits and
personal guarantees of the shareholders. Loan
payable in 36 monthly payments of $386 plus
interest; maturity date of loan January 30, 1999. 4,374 12,253
Banco de Comercio loan approved June 8, 1995 for a
three year period with an annual interest rate of
22%; with personal guarantees supported by General
Automotriz, S.A. de C.V., an unrelated party. Loan
payable in 36 monthly payments of $195; maturity
date of loan June 8, 1998. 3,143
BANCASA - Loan approved on August 22, 1997, for a
three year period, with an annual interest of 18%;
collateralized by the vehicles acquired by the
Company, cession of insurance policy benefits and
personal guarantees of the shareholders. Loan
payable in 36 monthly payments of $796 plus
interest; maturity date of loan August 22, 2000. 5,321
BANCASA - Loan approved on November 14, 1997, for a
three year period, with an annual interest of 18%;
collateralized by the vehicles acquired by the
company, cession of insurance policy benefits and
personal guarantees of the shareholders. Loan
payable in 36 monthly payments of $120 plus
interest; maturity date of loan November 14, 2000.
4,337
Banco Comercio - Loan approved February 28,1998 for a
three year period with an annual interest rate of
18%; with personal guarantees supported by General
Automotriz, S.A. de C.V., an unrelated party.Loan
payable in 36 monthly payments of $1,412; maturity
date of loan February 28, 2001. 19,069
Financiera Cred-o-Matic - Loan approved April 1, 1998
for a three year period with an annual interest
rate of 18%; with personal guarantees supported by
General Automotriz, S.A. de C.V., an unrelated
party. Loan payable in 36 monthly payments of
$257; maturity date of loan April 1, 2001. 9,020
-------------
Total debt 429,925 514,114
Current portion of long term debt 69,209 61,750
----------- ----------
Total long-term debt $ 360,716 $ 452,364
=========== ===========
10. INCOME TAXES
The accompanying combined financial statements have been prepared in
accordance with accounting principles generally accepted in the United
States; however, the Company's accounting records are maintained in
accordance with accounting practices set by tax regulations in El Salvador.
For June 1998 and 1997, income tax expense (benefit) consists of the
following:
1998 1997
Current ............................ $ 45,389 $ 95,557
Deferred ........................... (16,502) (67,747)
Total .............................. $ 28,887 $ 27,810
The income tax effects of temporary differences that give rise to current
deferred tax assets (liabilities) are as follows:
1998 1997
Allowance for doubtful accounts ................. $ 16,700 $ 5,798
Inventory obsolescence reserve ................... 61,949 61,949
Other
5,600 --
Total deferred income taxes....................... $ 84,249 $67,747
======== =======
The Company's effective tax rate of 25.47% and 25.22% for the years ended
June 30, 1998 and 1997, respectively, differs from the El Salvador
statutory tax rate of 25% due to the nondeductibility of certain business
expenses.
11. CAPITAL STOCK
At June 30, 1998 and 1997 the capital stock is composed as follows:
Detail:
Cablevisa S.A. de C.V. - 61,000 common shares authorized, issued,
and outstanding with a nominal value of $11.47 each ............ $ 699,530
Multicable, S.A. de C.V. - 101,700 common shares authorized,
issued, and outstanding with a nominal value of $11.47 each .... 1,166,273
---------
Total ............................................................. $1,865,803
==========
12. SUBSEQUENT EVENT
Effective July 17, 1998, all of the outstanding stock of the Company was
acquired by Convergence Communications, Inc. ("CCI") and FondElec
Essential Services Growth Fund, L.P. ("FondElec") from Star Industries,
S.A. ("Star"), a Panamanian Corporation.
The purchaser of the Company was Chispa Dos, Inc., a company formed under
the laws of the Cayman Islands ("Chispa"). CCI and FondElec own,
respectively, 49.5% and 50.5% of the outstanding capital stock of Chispa.
Under the terms of the parties' agreements regarding Chispa, CCI will have
operating control of Chispa, will hold a majority of the Board of
Directors' seats for Chispa, and will have the right to acquire FondElec's
interest in Chispa under certain conditions. The total purchase price for
Cablevisa and Multicable was approximately $16.91 million. Approximately
$4.77 million of the purchase price was paid in cash at closing, and the
balance of the purchase price (approximately $12.14 million) was paid
through Chispa's delivery of three promissory notes. The first promissory
note, in the original principal amount of approximately $5.2 million, is
due on February 17, 1999. The second promissory note, in the approximate
principal amount of $3.47 million, is due on May 17, 1999. The final
promissory note, in the original principal amount of $3.47 million, is due
on July 17, 2000. The amounts payable under the first and second
promissory notes are non-interest bearing (except in the event of default
by Chispa, in which case the notes will bear interest at the rate of 7%
per annum from the date of default), but the amounts payable under the
third promissory note bear interest at the rate of 7% per annum. If Chispa
defaults on the payment of any amounts due under any of the notes, Star
may accelerate all remaining amounts due under all of the notes. In
connection with the closing, Chispa also paid $428,206 of outstanding debt
of the Company to third party banks.
******
Exhibit 7(b): Unaudited Pro forma financial information
The accompanying unaudited pro forma consolidated balance sheet as of
June 30, 1998 and unaudited pro forma statements of operations for the year
ended December 31, 1997 and the six month period ended June 30, 1998 are
presented to reflect the acquisition of all of the outstanding shares of capital
stock of Cablevisa, S.A. de C.V. and Multicable, S.A. de C.V. by Chispa Dos,
Inc., ("Chispa") a controlled subsidiary of convergence Communications, Inc.
("CCI") (the "Acquisition") from Star Industries, S.A., a Panamanian Corporation
("Star"), for a purchase price of $16,909,930 in cash and notes payable, subject
to adjustments for undisclosed liabilities and certain other changes to the
combined financial statements. The Acquisition was effected pursuant to the
terms of a Stock Purchase Agreement, dated as of July 17, 1998, among the
Chispa, Star and other parties (the "Agreement"). The Acquisition was accounted
for under the purchase method of accounting. The accompanying unaudited pro
forma consolidated financial statements reflect the effects of a preliminary
allocation of the purchase price.
The accompanying unaudited pro forma consolidated financial statements
should be read in conjunction with the respective companies' historical
consolidated or combined financial statements and notes thereto. The unaudited
pro forma consolidated financial statements are presented for informational
purposes only and are not necessarily indicative of actual results had the
foregoing transaction occurred as described in the following paragraph, nor do
they purport to represent results of future operations of the merged companies.
The unaudited pro forma consolidated balance sheet assumes the
Acquisition occurred on June 30, 1998. The unaudited pro forma consolidated
statements of operations present the CCI's historical consolidated statements of
operations for the fiscal year ended December 31, 1997 and the six months ended
June 30, 1998, along with the CCI's statements of operations for the same
periods adjusted to give effect to the Acquisition as if the Acquisition had
occurred on January 1, 1997. Unaudited pro forma consolidated financial
information presented herein reflects adjustments for (i) the estimated
allocation of purchase price to the fair value of assets acquired and
liabilities assumed, (ii) the effect of recurring charges related to the
Acquisition, primarily the amortization of subscriber rights, and interest
expense (iii) the recording of the minority interest of the other Chispa.
shareholder. The unaudited pro forma consolidated financial information
presented herein do not reflect any adjustments for certain subscribers acquired
from Unicable, S.A. de C.V. as of the Acquisition. Information regarding the
service revenues and expenses related to such acquired subscribers was not
sufficient to develop reasonable estimates.
The preliminary allocation of the purchase price resulted in
approximately $15.6 million of subscriber rights. The actual amount of
subscriber rights recorded will vary based upon the final purchase price
allocation resulting from settlement of any financial statement adjustments
under the Agreement and completion of asset and technology valuations which will
occur prior to reporting the audited financial results for the year ended
December 31, 1998. Changes in subscriber rights and the related amortization
expense resulting from these plans and assessments may be material.
CONVERGENCE COMMUNICATIONS, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
- - ----------------------------------------------------------------------------------------------------------------
Pro Forma
Convergence Multicable & Purchase Adjusted
Communications Cablevisa Adjustments Balance
------------------- -------------- --------------- --------------
ASSETS (a) (b)
CURRENT ASSETS:
Cash and cash equivalents ............ $ 8,770,012 $ 233,659 -- $ 9,003,671
Accounts receivable - net ............ 479 325,889 -- 326,368
Due from affiliaties ................. 39,071 495,568 -- 534,639
Inventory ............................ 24,395 116,213 -- 140,608
Deferred income tax .................. -- 84,249 -- 84,249
Prepaid license fees ................. 201,751 -- -- 201,751
Other current assets ................. 9,170 7,986 -- 17,156
------------ --------------- ------------ ------------
Total current assets ........... 9,044,878 1,263,564 -- 10,308,442
INVESTMENT IN CENTURION ................ 845,955 -- -- 845,955
EQUIPMENT - net ........................ 1,049,682 1,388,771 -- 2,438,453
LICENSE RIGHTS - net ................... 749,167 -- -- 749,167
CONTRACT RIGHTS - net .................. 8,247,042 -- -- 8,247,042
SUBSCRIBER RIGHTS - net ................ -- $ -- 15,585,740(e),(f) 15,585,740
OTHER ASSETS ........................... 181,796 3,050 -- 184,846
============ =============== ============ ============
TOTAL ASSETS ........................... $ 20,118,520 $ 2,655,385 $ 15,585,740 $ 38,359,645
============ =============== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and
accrued liabilities ............... $ 1,058,707 $ 507,048 $ 376,142 $ 1,941,897
Note payable ......................... 350,000 -- -- 350,000
Accrued license lease fees ........... 142,594 -- -- 142,594
Accrued consulting fees
(payable to related party) ........ 100,000 -- -- 100,000
Due to affiliates .................... 810,224 -- -- 810,224
Customer deposits .................... 36,030 -- -- 36,030
Current portion of long-term debt .... -- 69,209 (69,209)(g) --
------------ --------------- ------------ ------------
Total current liabilities ...... 2,497,555 576,257 306,933 3,380,745
LONG-TERM LIABILITIES:
Long-term debt (owed to related party) 1,176,263 -- 1,176,263
Long-term debt - acqusition .......... -- -- 12,136,788(c) 12,136,788
Long-term debt ....................... -- 360,716 (360,716)(g) --
Severance payable .................... -- 19,666 -- 19,666
MINORITY INTEREST IN SUBSIDIARIES ...... 9,991 -- 2,626,748(h) 2,636,739
------------ ------------- ------------ ------------
Total liabilities .............. 3,683,809 956,639 14,709,753 19,350,201
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Series "A" Preferred stock ........... 32,575 -- -- 32,575
Series "B" Preferred stock ........... 3,548 -- -- 3,548
Common stock ......................... 82,099 1,865,803 (1,865,803) 82,099
Additional paid-in capital ........... 24,473,111 -- 2,574,733(i) 27,047,844
Translation loss ..................... -- (20,443) 20,443(d) --
Deficit accumulated during
the development stage .............. (8,156,622) (146,614) 146,614(d) (8,156,622)
------------ --------------- ------------ ------------
Total stockholders' equity .... 16,434,711 1,698,746 875,987 19,009,444
------------ --------------- ------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY .................. $ 20,118,520 $ 2,655,385 $ 15,585,740 $ 38,359,645
============ =============== ============ ============
See notes to unaudited pro forma consolidated financial statements.
CONVERGENCE COMMUNICATIONS, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
- - ---------------------------------------------------------------------------------------------------
Pro Forma
Convergence Multicable & Purchase Adjusted
Communications Cablevisa Adjustments Balance
------------------ ------------- ---------------- ---------
REVENUES (a) (b)
Services ........................ $ 44,911 $ 1,584,528 $ -- 1,629,439
Advertising ..................... -- 193,555 -- 193,555
------------ ------------ ------------ ------------
Total ............... 44,911 1,778,083 -- 1,822,994
COST OF SERVICE .................. 197,553 1,597,514 -- 1,795,067
------------ ------------ ------------ ------------
GROSS MARGIN ...................... (152,642) 180,569 -- 27,927
OPERATING EXPENSES:
Professional fees ............... 710,275 -- -- 710,275
Depreciation and amortization ... 865,555 $ -- 778,616(j) 1,644,171
Leased license expense .......... 83,037 -- -- 83,037
General and administrative ...... 1,234,474 77,133 -- 1,311,607
Stock option compensation expense -- -- -- --
------------ ------------ ------------ ------------
Total .............. 2,893,341 77,133 778,616 3,749,090
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) ........... (3,045,983) 103,436 (778,616) (3,721,163)
OTHER INCOME AND(EXPENSES):
Interest income ................. 194,155 2,688 -- 196,843
Interest expense ................ (57,129) (39,901) (606,839)(k) (703,869)
Other expenses .................. -- (9,515) -- (9,515)
------------ ------------ ------------ ------------
Total .............. 137,026 (46,728) (606,839) (516,541)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE TAXES ........ (2,908,957) 56,708 (1,385,455) (4,237,704)
INCOME TAX EXPENSE (BENEFIT) ...... -- 14,443 --(l) 14,443
------------ ------------ ------------ ------------
NET INCOME (LOSS) BEFORE
MINORITY INTEREST ............... (2,908,957) 42,265 (1,385,455) (4,252,147)
MINORITY INTEREST IN
INCOME (LOSS) OF SUBSIDIARIES ... 8,076 -- 678,311 686,387
============ ============ ============ ============
NET INCOME (LOSS) ................. $ (2,900,881) $ 42,265 $ (707,144) $ (3,565,760)
============ ============ ============ ============
Net loss per basic common share ... $ (0.07) $ (0.32)
============ ============
Net loss per diluted common share . $ (0.07) $ (0.32)
============ ============
Weighted-average common shares
Basic ........................... 11,286,279 11,286,279
============ ============
Diluted ......................... 12,019,649 12,019,649
============ ============
See notes to unaudited pro forma consolidated financial statements.
CONVERGENCE COMMUNICATIONS, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
- - -------------------------------------------------------------------------------------------------
Pro Forma
Convergence Multicable & Purchase Adjusted
Communications Cablevisa Adjustments Balance
----------------- --------------- -------------- ------------
REVENUES (a) (b)
Services ........................ $ 40,186 $ 3,369,091 $ -- 3,409,277
Advertising ..................... -- 263,233 -- 263,233
------------ ------------ ------------ ------------
Total ........... 40,186 3,632,324 -- 3,672,510
COST OF SERVICE ..................... -- 2,794,408 -- 2,794,408
------------ ------------ ------------ ------------
GROSS MARGIN ........................ 40,186 837,916 -- 878,102
OPERATING EXPENSES:
Professional fees ............... 873,052 -- -- 873,052
Depreciation and amortization ... 619,182 -- 1,557,233(j) 2,176,415
Leased license expense .......... 116,161 -- -- 116,161
General and administrative ...... 1,220,474 778,378 -- 1,998,852
Stock option compensation expense 962,738 -- -- 962,738
------------ ------------ ------------ ------------
Total ........... 3,791,607 778,378 1,557,233 6,127,218
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) ............. (3,751,421) 59,538 (1,557,233) (5,249,116)
OTHER INCOME AND EXPENSE:
Interest income ................. 116,367 5,508 -- 121,875
Interest expense ................ (807,203) (92,248) (939,156)(k) (1,838,607)
------------ ------------ ------------ ------------
Total ........... (690,836) (86,740) (939,156) (1,716,732)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE TAXES .......... (4,442,257) (27,202) (2,496,389) (6,965,848)
INCOME TAX EXPENSE (BENEFIT) ........ -- 6,800 --(l) 6,800
------------ ------------ ------------ ------------
NET INCOME (LOSS)
BEFORE MINORITY INTEREST .......... (4,442,257) 34,002 (2,496,389) (6,972,648)
MINORITY INTEREST IN
INCOME (LOSS) OF SUBSIDIARIES ...... 13,011 -- 1,231,210 1,244,221
============ ============ ============ ============
NET INCOME (LOSS) ................... $ (4,429,246) $ 34,002 $(1,265,179) $(5,728,427)
============ ============ ============ ============
Net loss per basic common share ..... $ (0.16) $ (0.72)
============ ============
Net loss per diluted common share ... $ (0.16) $ (0.72)
============ ============
Weighted-average common shares
Basic ........................... 7,970,801 7,970,801
============ ============
Diluted ......................... 8,445,529 8,445,529
============ ============
See notes to unaudited pro-forma consolidated financial statements.
CONVERGENCE COMMUNICATIONS, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1997
AND THE SIX MONTHS ENDED JUNE 30, 1998
The unaudited pro forma consolidated balance sheet as of June 30, 1998 reflects
the adjustments necessary to record the Acquisition as though it had occurred on
June 30, 1998.
The unaudited pro forma consolidated statements of operations for the year ended
December 31, 1997 and the six month period ended June 30, 1998 have been
prepared assuming the Acquisition had occurred on January 1, 1997 and 1998,
respectively, and reflect the effects of certain adjustments to the historical
consolidated financial statements that result from the Acquisition between the
Company, Star Industries, Inc. and other parties.
Based upon the terms of the Acquisition, the transaction is accounted for as a
purchase of Cablevisa, S.A. de C.V. and Multicable, S.A. de C.V. (collectively,
the "Acquired Companies") by Chispa a controlled subsidiary of CCI, for
financial reporting and accounting purposes. Accordingly, the CCI adjusted the
basis of the acquired assets and assumed liabilities to fair value. The purchase
price of $16,909,930 is calculated as the cash paid and notes payable issued
plus the CCI's transaction costs. The difference between the purchase price and
the fair value of the identifiable tangible assets acquired and liabilities
assumed is recorded as subscriber rights and will be amortized up to a period of
10 years. The preliminary allocation of the purchase price is subject to the
settlement of any financial statement adjustments under the transaction
agreement and the completion of certain asset valuations. Changes to the
preliminary purchase price allocation resulting from any financial statement
adjustments or the finalization of the valuations may be material. The
preliminary allocation of the purchase price to the fair value of assets
acquired and liabilities assumed is as follows:
Fair Value of assets acquired
Current assets $ 1,222,829
Non-current assets 1,391,821
Subscriber rights 15,585,740
Fair value of liabilities assumed (1,290,460)
------------
$ 16,909,930
THE UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1998 GIVE
EFFECT TO THE FOLLOWING PRO FORMA ADJUSTMENTS:
(a) The historical combined financial statements of the CCI have
been adjusted to reflect the assets and liabilities and results
of operations of the Company. The column "Multicable & Cablevisa"
represents the historical combined financial position and results
of operations that were acquired by CCI.
(b) The "Pro Forma Adjusted Balance" column represents the sum of the
amounts included in the following columns: "Convergence
Communications, Inc.", "Multicable & Cablevisa", and "Purchase
Adjustments".
(c) Represents notes to Star Industries, S.A., to finance the
Acquisition.
(d) Represents the elimination of the Company's common stock, foreign
currency translation adjustment, and deficit.
(e) Represents the capitalization of $430,443 in acquisition costs
related to the Acquisition, less liabilities of $54,301 not
assumed by the Chispa.
(f) Represents the recording of estimated subscriber rights resulting
from the Acquisition which will be amortized for a period up to
10 years.
(g) Represents the payment of all the Company's outstanding debt at
the time of the Acquisition. (h) Represents the minority interest
that FondElec holds in Chispa (i) Represents the additional
paid-in-capital contributed by CCI at the time of the
Acquisition.
(h) Represents the minority interest that Fon dElec holds in Chispa
Dos, Inc.
(i) Represents the additional paid-in capital contributed by the
Company at the time of the Acquisition.
THE UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1997 AND THE SIX MONTHS ENDED JUNE 30, 1998 GIVE EFFECT TO THE
FOLLOWING PRO FORMA ADJUSTMENTS:
(j) Represents subscriber rights amortization expense, calculated as
of January 1, 1997 over the estimated useful life of 10 years for
both the year ended December 31, 1997 and the six-months ended
June 30, 1998.
(k) Represents the adjustments to interest expense related to notes
to finance the Acquisition using an estimated implicit borrowing
rate of 10%.
(l) Represents the estimated income tax expense of the CCI,
including pro forma effects of the Acquisition, at an estimated
rate of 25%.
CONVERGENCE COMMUNICATIONS, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
- - ----------------------------------------------------------------------------------------------------------------
Pro Forma
Convergence Multicable & Purchase Adjusted
Communications Cablevisa Adjustments Balance
------------------- -------------- --------------- --------------
ASSETS (a) (b)
CURRENT ASSETS:
Cash and cash equivalents ............ $ 8,770,012 $ 233,659 -- $ 9,003,671
Accounts receivable - net ............ 479 325,889 -- 326,368
Due from affiliaties ................. 39,071 495,568 -- 534,639
Inventory ............................ 24,395 116,213 -- 140,608
Deferred income tax .................. -- 84,249 -- 84,249
Prepaid license fees ................. 201,751 -- -- 201,751
Other current assets ................. 9,170 7,986 -- 17,156
------------ --------------- ------------ ------------
Total current assets ........... 9,044,878 1,263,564 -- 10,308,442
INVESTMENT IN CENTURION ................ 845,955 -- -- 845,955
EQUIPMENT - net ........................ 1,049,682 1,388,771 -- 2,438,453
LICENSE RIGHTS - net ................... 749,167 -- -- 749,167
CONTRACT RIGHTS - net .................. 8,247,042 -- -- 8,247,042
SUBSCRIBER RIGHTS - net ................ -- $ -- 15,585,740(e),(f) 15,585,740
OTHER ASSETS ........................... 181,796 3,050 -- 184,846
============ =============== ============ ============
TOTAL ASSETS ........................... $ 20,118,520 $ 2,655,385 $ 15,585,740 $ 38,359,645
============ =============== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and
accrued liabilities ............... $ 1,058,707 $ 507,048 $ 376,142 $ 1,901,162
Note payable ......................... 350,000 -- -- 350,000
Accrued license lease fees ........... 142,594 -- -- 142,594
Accrued consulting fees
(payable to related party) ........ 100,000 -- -- 100,000
Due to affiliates .................... 810,224 -- -- 810,224
Customer deposits .................... 36,030 -- -- 36,030
Current portion of long-term debt .... -- 69,209 (69,209)(g) --
------------ --------------- ------------ ------------
Total current liabilities ...... 2,497,555 576,257 306,933 3,380,745
LONG-TERM LIABILITIES:
Long-term debt (owed to related party) 1,176,263 -- 1,176,263
Long-term debt - acqusition .......... -- -- 12,136,788(c) 12,136,788
Long-term debt ....................... -- 360,716 (360,716)(g) --
Severance payable .................... -- 19,666 -- 19,666
MINORITY INTEREST IN SUBSIDIARIES ...... 9,991 -- 2,626,748(h) 2,636,739
------------ ------------- ------------ ------------
Total liabilities .............. 3,683,809 956,639 14,709,753 19,350,201
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Series "A" Preferred stock ........... 32,575 -- -- 32,575
Series "B" Preferred stock ........... 3,548 -- -- 3,548
Common stock ......................... 82,099 1,865,803 (1,865,803) 82,099
Additional paid-in capital ........... 24,473,111 -- 2,574,733(i) 27,047,844
Translation loss ..................... -- (20,443) 20,443(d) --
Deficit accumulated during
the development stage .............. (8,156,622) (146,614) 146,614(d) (8,156,622)
------------ --------------- ------------ ------------
Total stockholders' equity .... 16,434,711 1,698,746 875,987 19,009,444
------------ --------------- ------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY .................. $ 20,118,520 $ 2,655,385 $ 15,585,740 $ 38,359,645
============ =============== ============ ============
See notes to unaudited pro forma consolidated financial statements.
CONVERGENCE COMMUNICATIONS, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
- - ---------------------------------------------------------------------------------------------------
Pro Forma
Convergence Multicable & Purchase Adjusted
Communications Cablevisa Adjustments Balance
------------------ ------------- ---------------- ---------
REVENUES (a) (b)
Services ........................ $ 44,911 $ 1,584,528 $ -- 1,629,439
Advertising ..................... -- 193,555 -- 193,555
------------ ------------ ------------ ------------
Total ............... 44,911 1,778,083 -- 1,822,994
COST OF SERVICE .................. 197,553 1,597,514 -- 1,795,067
------------ ------------ ------------ ------------
GROSS MARGIN ...................... (152,642) 180,569 -- 27,927
OPERATING EXPENSES:
Professional fees ............... 710,275 -- -- 710,275
Depreciation and amortization ... 865,555 $ -- 778,616(j) 1,644,171
Leased license expense .......... 83,037 -- -- 83,037
General and administrative ...... 1,234,474 77,133 -- 1,311,607
Stock option compensation expense -- -- -- --
------------ ------------ ------------ ------------
Total .............. 2,893,341 77,133 778,616 3,749,090
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) ........... (3,045,983) 103,436 (778,616) (3,721,163)
OTHER INCOME AND(EXPENSES):
Interest income ................. 194,155 2,688 -- 196,843
Interest expense ................ (57,129) (39,901) (606,839)(k) (703,869)
Other expenses .................. -- (9,515) -- (9,515)
------------ ------------ ------------ ------------
Total .............. 137,026 (46,728) (606,839) (516,541)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE TAXES ........ (2,908,957) 56,708 (1,385,455) (4,237,704)
INCOME TAX EXPENSE (BENEFIT) ...... -- 14,443 --(l) 14,443
------------ ------------ ------------ ------------
NET INCOME (LOSS) BEFORE
MINORITY INTEREST ............... (2,908,957) 42,265 (1,385,455) (4,252,147)
MINORITY INTEREST IN
INCOME (LOSS) OF SUBSIDIARIES ... 8,076 -- 678,311 686,387
============ ============ ============ ============
NET INCOME (LOSS) ................. $ (2,900,881) $ 42,265 $ (707,144) $ (3,565,760)
============ ============ ============ ============
Net loss per basic common share ... $ (0.07) $ (0.32)
============ ============
Net loss per diluted common share . $ (0.07) $ (0.32)
============ ============
Weighted-average common shares
Basic ........................... 11,286,279 11,286,279
============ ============
Diluted ......................... 12,019,649 12,019,649
============ ============
See notes to unaudited pro forma consolidated financial statements.
CONVERGENCE COMMUNICATIONS, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
- - -------------------------------------------------------------------------------------------------
Pro Forma
Convergence Multicable & Purchase Adjusted
Communications Cablevisa Adjustments Balance
----------------- --------------- -------------- ------------
REVENUES (a) (b)
Services ........................ $ 40,186 $ 3,369,091 $ -- 3,409,277
Advertising ..................... -- 263,233 -- 263,233
------------ ------------ ------------ ------------
Total ........... 40,186 3,632,324 -- 3,672,510
COST OF SERVICE ..................... -- 2,794,408 -- 2,794,408
------------ ------------ ------------ ------------
GROSS MARGIN ........................ 40,186 837,916 -- 878,102
OPERATING EXPENSES:
Professional fees ............... 873,052 -- -- 873,052
Depreciation and amortization ... 619,182 -- 1,557,233(j) 2,176,415
Leased license expense .......... 116,161 -- -- 116,161
General and administrative ...... 1,220,474 778,378 -- 1,998,852
Stock option compensation expense 962,738 -- -- 962,738
------------ ------------ ------------ ------------
Total ........... 3,791,607 778,378 1,557,233 6,127,218
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) ............. (3,751,421) 59,538 (1,557,233) (5,249,116)
OTHER INCOME AND EXPENSE:
Interest income ................. 116,367 5,508 -- 121,875
Interest expense ................ (807,203) (92,248) (939,156)(k) (1,838,607)
------------ ------------ ------------ ------------
Total ........... (690,836) (86,740) (939,156) (1,716,732)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE TAXES .......... (4,442,257) (27,202) (2,496,389) (6,972,648)
INCOME TAX EXPENSE (BENEFIT) ........ -- 6,800 --(l) 85,551
------------ ------------ ------------ ------------
NET INCOME (LOSS)
BEFORE MINORITY INTEREST .......... (4,442,257) 34,002 (2,496,389) (6,972,648)
MINORITY INTEREST IN
INCOME (LOSS) OF SUBSIDIARIES ...... 13,011 -- (29,466) (16,455)
============ ============ ============ ============
NET INCOME (LOSS) ................... $ (4,429,246) $ 34,002 $(1,265,179) $(5,728,427)
============ ============ ============ ============
Net loss per basic common share ..... $ (0.16) $ (0.72)
============ ============
Net loss per diluted common share ... $ (0.16) $ (0.72)
============ ============
Weighted-average common shares
Basic ........................... 7,970,801 7,970,801
============ ============
Diluted ......................... 8,445,529 8,445,529
============ ============
See notes to unaudited pro-forma consolidated financial statements.