U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 12 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO ________.
Commission file number 21143
CONVERGENCE COMMUNICATIONS, INC.
--------------------------------
(Exact name of small business issuer as specified in its charter)
Nevada 87-0545056
------------------------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
102 West 500 South, Suite 320
Salt Lake City, Utah 84101
------------------------------ --------
(Address of Principal Executive Offices) (Zip Code)
(801) 328-5618
--------------
(Issuer's telephone number)
Not Applicable
----------------
(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
--- ----
As of October 31, 1999, 11,738,277 shares of registrant's Common Stock, par
value $.001 per share, 101,379 shares of the registrant's Series B Preferred
Stock, par value $.001 per share, and 6,395,577 shares of the registrant's
Series C Preferred Stock, par value $.001 per share, were outstanding.
PART I: FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS REQUIRED BY FORM 10-QSB
The accompanying unaudited consolidated financial statements of
Convergence Communications, Inc. (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
reporting and pursuant to the rules and regulations of the Securities and
Exchange Commission. They do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. These financial statements should be read in conjunction with Note 1
herein and the consolidated financial statements and notes thereto included in
the Company's annual report on Form 10-KSB for the year ended December 31, 1998,
which are incorporated herein by reference. The accompanying financial
statements have not been examined by independent accountants in accordance with
generally accepted auditing standards, but in the opinion of management, all
adjustments (consisting of normal recurring entries) necessary for the fair
presentation of the Company's results of operations, financial position and
changes therein for the periods presented have been included. The results of
operations for the three and nine months ended September 30, 1999 may not be
indicative of the results that may be expected for the year ending December 31,
1999.
[THIS SPACE INTENTIONALLY LEFT BLANK]
CONVERGENCE COMMUNICATIONS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
- --------------------------------------------------------------------------------------------------------------
September 30, December 31,
1999 1998
--------------- --------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 543,510 $ 4,315,281
Accounts receivable - net 624,161 432,868
Note proceeds due from affiliate - 5,000,000
Inventory 380,973 205,408
Prepaid license fees - 57,359
Other current assets 275,264 115,801
--------------- --------------
Total current assets 1,823,908 10,126,717
INVESTMENT IN CENTURION 845,955 845,955
PROPERTY AND EQUIPMENT - net 18,351,638 8,524,521
INTANGIBLE ASSETS - net 19,582,353 22,650,040
OTHER ASSETS 969,087 325,811
--------------- --------------
TOTAL ASSETS $ 41,572,941 $ 42,473,044
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 5,995,340 $ 3,603,165
Notes payable 4,861,599 8,676,722
Notes payable (payable to related parties) 7,165,925 -
Foreign bank lines of credit outstanding - 27,281
Accrued consulting fees (payable to related parties) 522,240 340,629
Due to affiliates 835,138 1,074,855
Unearned revenue 386,568 373,486
--------------- --------------
Total current liabilities 19,766,810 14,096,138
LONG-TERM LIABILITIES:
Long-term debt (payable to related parties) 6,069,249 1,224,504
Subordinated exchangeable promissory notes (payable to related parties) 10,000,000 10,000,000
Notes payable 3,497,500 3,987,268
Accrued foreign severance 224,286 135,091
--------------- --------------
Total long-term liabilities 19,791,035 15,346,863
MINORITY INTEREST IN SUBSIDIARIES 1,288,180 2,345,517
--------------- --------------
Total liabilities 40,846,025 31,788,518
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY* :
Series "B" Preferred stock; $0.001 par value; 750,000 shares authorized:
101,374 shares issued and outstanding in 1999 and 1998. 101 101
Common stock; $0.001 par value; 100,000,000 shares authorized:
11,738,277 shares issued and outstanding in 1999 and 1998. 11,738 11,738
Additional paid-in capital 27,349,360 26,179,739
Accumulated deficit (26,605,221) (15,486,537)
Accumulated other comprehensive loss (29,062) (20,515)
--------------- --------------
Total stockholders' equity 726,916 10,684,526
--------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 41,572,941 $ 42,473,044
=============== ==============
* Retroactively restated for the 1 to 3.5 reverse stock split approved by the Company's shareholders on August 17, 1998.
See notes to consolidated financial statements.
CONVERGENCE COMMUNICATIONS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
- ----------------------------------------------------------------------------------------------------------------------
Nine Months Nine Months Nine Months
Ended Ended Ended
September 30, September 30, September 30,
1999 1998 1997
--------------- -------------- ---------------
NET REVENUES $ 6,455,538 $ 1,249,446 $ 38,648
COST OF SERVICE 2,371,382 1,073,862 24,106
--------------- -------------- ---------------
GROSS MARGIN 4,084,156 175,584 14,542
OPERATING EXPENSES:
Professional fees 2,028,151 1,380,187 229,571
Depreciation and amortization 3,661,625 1,673,461 235,903
Leased license expense 66,796 123,447 61,370
General and administrative 6,606,920 2,477,689 490,145
Stock-based compensation expense 1,015,101 - -
--------------- -------------- ---------------
Total 13,378,593 5,654,784 1,016,989
--------------- -------------- ---------------
OPERATING LOSS (9,294,437) (5,479,200) (1,002,447)
OTHER INCOME AND (EXPENSES):
Interest income 82,458 251,321 34,839
Interest expense (3,029,268) (333,926) (116,861)
--------------- -------------- ---------------
Total (2,946,810) (82,605) (82,022)
--------------- -------------- ---------------
NET LOSS BEFORE INCOME TAX AND MINORITY INTEREST (12,241,247) (5,561,805) (1,084,469)
INCOME TAX 134,774 - -
--------------- -------------- ---------------
NET LOSS BEFORE MINORITY INTEREST (12,376,021) (5,561,805) (1,084,469)
MINORITY INTEREST IN LOSS OF SUBSIDIARIES 1,257,337 259,063 8,665
--------------- -------------- ---------------
NET LOSS $ (11,118,684) $ (5,302,742) $ (1,075,804)
=============== ============== ===============
Net loss per basic common share* $ (0.92) $ (0.47) $ (0.15)
=============== ============== ===============
Net loss per diluted common share* $ (0.92) $ (0.47) $ (0.15)
=============== ============== ===============
Weighted-average common shares*
Basic 12,022,728 11,356,162 7,204,602
=============== ============== ===============
Diluted 14,108,533 12,191,132 10,589,750
=============== ============== ===============
* Retroactively restated for the 1 to 3.5 reverse stock split approved by the Company's shareholders on August 17, 1998.
See notes to consolidated financial statements.
CONVERGENCE COMMUNICATIONS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
- ----------------------------------------------------------------------------------------------------------------------
Three Months Three Months Three Months
Ended Ended Ended
September 30, September 30, September 30,
1999 1998 1997
--------------- -------------- ---------------
NET REVENUES $ 2,310,963 $ 1,204,535 $ 38,648
COST OF SERVICE 931,577 876,309 24,106
--------------- -------------- ---------------
GROSS MARGIN 1,379,386 328,226 14,542
OPERATING EXPENSES:
Professional fees 715,548 669,912 138,919
Depreciation and amortization 1,240,640 807,906 187,353
Leased license expense 21,967 40,410 28,884
General and administrative 2,172,790 1,243,215 306,826
Stock-based compensation expense 381,092 - -
--------------- -------------- ---------------
Total 4,532,037 2,761,443 661,982
--------------- -------------- ---------------
OPERATING LOSS (3,152,651) (2,433,217) (647,440)
OTHER INCOME AND (EXPENSES):
Interest income 3,329 57,166 34,839
Interest expense (1,508,433) (276,797) (47,348)
--------------- -------------- ---------------
Total (1,505,104) (219,631) (12,509)
--------------- -------------- ---------------
NET LOSS BEFORE INCOME TAX AND MINORITY INTEREST (4,657,755) (2,652,848) (659,949)
INCOME TAX 100,000 - -
--------------- -------------- ---------------
NET LOSS BEFORE MINORITY INTEREST (4,757,755) (2,652,848) (659,949)
MINORITY INTEREST IN LOSS OF SUBSIDIARIES 503,381 250,987 3,237
--------------- -------------- ---------------
NET LOSS $ (4,254,374) $ (2,401,861) $ (656,712)
=============== ============== ===============
Net loss per basic common share* $ (0.35) $ (0.21) $ (0.08)
=============== ============== ===============
Net loss per diluted common share* $ (0.35) $ (0.21) $ (0.08)
=============== ============== ===============
Weighted-average common shares*
Basic 12,022,728 11,693,557 8,691,374
=============== ============== ===============
Diluted 14,120,621 12,528,527 8,691,924
=============== ============== ===============
* Retroactively restated for the 1 to 3.5 reverse stock split approved by the Company's shareholders on August 17, 1998.
See notes to consolidated financial statements.
CONVERGENCE COMMUNICATIONS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Series "A" Preferred Stock Series "B" Preferred Stock
----------------------------- -----------------------------
Total Shares * Amount Shares * Amount
------------- ------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 1996 $ (661,018)
Reverse acquisition of TIC:
Exchange of TIC common shares for CCI
Series "A" Preferred shares 14,571 685,063 $ 685
Addition of CCI common stock 86,990
Exchange of CVV common stock for CCI common
shares and Series "B" Preferred shares 7,096,500 101,374 $ 101
Issuance of CCI common stock and Series
"A" Preferred shares for cash 10,000,000 150,380 150
Issuance of warrants below fair value 657,143
Issuance of CCI common stock and Series
"A" Preferred shares for cash 300,000 4,083 4
Issuance of options for common shares and
Series "A" Preferred shares below fair value 1,479,074
Net loss for the year ended December 31, 1997 (4,594,294)
------------- ------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 1997 14,378,966 839,526 839 101,374 101
Comprehensive loss:
Net loss for the year ended December 31, 1998 (10,230,796)
Other comprehensive loss consisting of
foreign currency translation adjustment (20,515)
------------- ------------- ------------- ------------- -------------
Total comprehensive loss (10,251,311) - - - -
Issuance of CCI common stock and Series
"A" Preferred shares for cash 4,956,626 91,180 91
Conversion of Series "A" Preferred shares into
common shares - (930,706) (930)
Exchange of Telecom common stock for CCI
common shares 600,000
Issuance of options for common shares
below fair value 1,000,245
------------- ------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 1998 10,684,526 - - 101,374 101
Comprehensive loss:
Net loss for the nine months ended
September 30, 1999 (11,118,684)
Other comprehensive loss consisting of
foreign currency translation adjustment (8,547)
------------- ------------- ------------- ------------- -------------
Total comprehensive loss (11,127,231) - - - -
Stock-based compensation expense activity 1,015,101
Interest expense from issuance of warrants 154,520
------------- ------------- ------------- ------------- -------------
BALANCE, SEPTEMBER 30, 1999 $ 726,916 - $ - 101,374 $ 101
============= ============= ============= ============= =============
* Retroactively restated for the 1 to 3.5 reverse stock split approved by the Company's shareholders on August 17, 1998.
See notes to consolidated financial statements.
CONVERGENCE COMMUNICATIONS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
CONTINUED
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock Additional Accumulated
---------------------------- Paid-in Accumulated Other Compre-
Shares * Amount Capital Deficit hensive Loss
------------- ------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 1996 428,571 $ 429 $ (661,447)
Reverse acquisition of TIC:
Exchange of TIC common shares for CCI
Series "A" Preferred shares (428,571) (429) $ 14,315
Addition of CCI common stock 1,041,494 1,041 85,949
Exchange of CVV common stock for CCI common
shares and Series "B" Preferred shares 450,563 451 7,095,948
Issuance of CCI common stock and Series
"A" Preferred shares for cash 228,658 229 9,999,621
Issuance of warrants below fair value 657,143
Issuance of CCI common stock and Series
"A" Preferred shares for cash 24,284 24 299,972
Issuance of options for common shares and
Series "A" Preferred shares below fair value 1,479,074
Net loss for the year ended December 31, 1997 (4,594,294)
------------- ------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 1997 1,744,999 1,745 19,632,022 (5,255,741)
Comprehensive loss:
Net loss for the year ended December 31, 1998 (10,230,796)
Other comprehensive loss consisting of
foreign currency translation adjustment $ (20,515)
------------- ------------- ------------- ------------- -------------
Total comprehensive loss - - - (10,230,796) (20,515)
Issuance of CCI common stock and Series
"A" Preferred shares for cash 600,504 600 4,955,935
Conversion of Series "A" Preferred shares into
common shares 9,307,060 9,307 (8,377)
Exchange of Telecom common stock for CCI
common shares 85,714 86 599,914
Issuance of options for common shares
below fair value 1,000,245
------------- ------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 1998 11,738,277 11,738 26,179,739 (15,486,537) (20,515)
Comprehensive loss:
Net loss for the nine months ended September 30, 1999 (11,118,684)
Other comprehensive loss consisting of
foreign currency translation adjustment (8,547)
------------- ------------- ------------- ------------- -------------
Total comprehensive loss - - - (11,118,684) (8,547)
Stock-based compensation expense activity 1,015,101
Interest expense from issuance of warrants 154,520
------------- ------------- ------------- ------------- -------------
BALANCE, SEPTEMBER 30, 1999 11,738,277 $ 11,738 $ 27,349,360 $(26,605,221) $ (29,062)
============= ============= ============= ============= =============
* Retroactively restated for the 1 to 3.5 reverse stock split approved by the Company's shareholders on August 17, 1998.
See notes to consolidated financial statements.
CONVERGENCE COMMUNICATIONS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
- ---------------------------------------------------------------------------------------------------------------
Nine Months Nine Months Nine Months
Ended Ended Ended
September 30, September 30, September 30,
1999 1998 1997
------------- ------------ --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(11,118,684) $(5,302,742) $ (1,075,804)
Adjustments to reconcile net loss to net cash used in
development activities:
Depreciation and amortization 3,661,625 1,673,461 235,903
Minority interest in loss of subsidiaries (1,057,337) (259,063) (8,665)
Stock-based compensation expense 1,015,101 - -
Amortization of discount on notes payable 588,525 244,508 -
Imputed interest expense for warrants 154,520 - -
Change in assets and liabilities:
Accounts receivable - net (192,668) 27,435 -
Due from affiliates 5,000,000 76,523 (40,127)
Inventory (176,419) 18,064 -
Prepaid license fees 57,359 (41,759) (44,567)
Other current assets (159,463) 11,688 -
Other assets (643,278) (289,420) 585,396
Accounts payable and accrued liabilities 2,484,256 710,822 (338,186)
Accrued consulting fees 181,611 (7,407) -
Due to affiliates (240,874) 146,913 100,000
Unearned revenue 13,082 - -
Accrued foreign severance 89,195 - -
------------- ------------ --------------
Net cash provided by (used in) operating
activities (343,449) (2,990,977) (586,050)
------------- ------------ --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Centurion - - (1,648,455)
Reverse acquisition of WCCI - - 56,582
Acquisition of CVV (net of cash acquired) - - (200,000)
Acquisition of interests in Chispa Dos (net of cash acquired) - (2,341,074) -
Acquisition of IAN (net of cash acquired) - (961,412) -
Purchases of property and equipment (10,940,574) (1,605,959) -
------------- ------------ --------------
Net cash used in investing activities (10,940,574) (4,908,445) (1,791,873)
------------- ------------ --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock - 3,161,661 1,800,686
Proceeds from issuance of Series A preferred stock - 1,794,965 8,199,314
Increase in minority interest from issuance of subsidiary
common stock 200,000 - -
Proceeds from related party note 11,935,422 60,510 58,960
Payments on related parties borrowings (52,500) - (175,319)
Payments on foreign bank line of credit (27,281) - -
Proceeds from promissory notes 3,746,475 - 2,985,600
Payments on promissory notes (8,284,799) - (2,253,217)
------------- ------------ --------------
Net cash provided by financing activities 7,517,317 5,017,136 10,616,024
------------- ------------ --------------
EFFECT OF EXCHANGE RATES ON CASH (5,065) (579) -
------------- ------------ --------------
NET INCREASE (DECREASE) IN CASH (3,771,771) (2,882,865) 8,238,101
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,315,281 6,171,515 8,902
------------- ------------ --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 543,510 $ 3,288,650 $ 8,247,003
============= ============ ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 276,236 $ - $ -
============= ============ ==============
Cash paid during the period for income tax $ 86,133 $ - $ -
============= ============ ==============
See notes to consolidated financial statements.
CONVERGENCE COMMUNICATIONS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(Unaudited)
1. Basis of Presentation
---------------------
Convergence Communications, Inc. (the "Company") is a provider of data
and video telecommunications service to business and residential customers over
metropolitan area networks ("MAN") in Latin American.
The consolidated financial statements of the Company include the
accounts of the Company's subsidiaries, including (i) a 44.03% interest in
Chispa Dos, Inc. ("Chispa") which is a holding company for three subsidiaries
that provide multi-channel television and Internet services in El Salvador (the
"El Salvador Entities"); (ii) a 100% interest in Interamerican Telecom, Inc.,
the parent company of Interamerican Net de Venezuela, S.A. ("Inter@net"), which
is providing Internet services in Venezuela; (iii) a 78.14% interest in Caracas
Viva Vision TV, S.A. ("CVV"), a local multi-point distribution service ("LMDS")
wireless communications system in Venezuela, (iv) a 100% interest in Wireless
Communications Holding - Guatemala, S.A. ("WCH - Guatemala"), a corporation
which holds LMDS license rights in Guatemala, (v) a 100% interest in Sociedad
Television Interactiva, S.A. ("TISA"), a corporation that intends to operate a
wireless telecommunications system in Costa Rica, (vi) a 90% interest in
Wireless Communications Panama, S.A. ("WC - Panama"), which is acting as the
operating company for an LMDS system in Panama, (vii) a 95% interest in
Convergence Communications de Mexico, S.A. ("CCI Mexico"), which will act as the
operating company for a telecommunications system in Mexico and which owns fiber
optic network capacity in Mexico City, (viii) an 80% interest in WCI de
Argentina ("WCIA"), which holds a value added license to provide
telecommunications services in Argentina, (ix) a 94.9% interest in Auckland
Independent Television Services, Ltd. ("AITS"), which holds license and lease
rights in two multi-channel, multi-point distribution service ("MMDS") channels,
and (x) a 100% interest in Transworld Wireless Television, Inc. ("TWTV"), a
corporation that holds four MMDS channels and a leased transmitter in Park City,
Utah. All significant intercompany accounts and transactions have been
eliminated in consolidation. All capitalized terms not defined in this report
have the meanings given them in the Company's annual report on Form 10-KSB for
the year ended December 31, 1998.
2. Net loss per common share and common share equivalent
-----------------------------------------------------
Net loss per common share and common share equivalents is computed by
both the basic method, which uses the weighted average number of common shares
and the common stock equivalents on a voting basis for the Series "B" preferred
stock outstanding, and the diluted method, which includes the dilutive common
shares from stock options and warrants, as calculated using the treasury stock
method.
3. Use of Estimates in Preparing Financial Statements
--------------------------------------------------
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.
4. Debt Obligations
----------------
December 1998 Convertible Notes - In December 1998, the Company
borrowed $5 million from each of FondElec Essential Services Growth Fund L.P.
("FondElec") and Internexus, S.A. ("Internexus") (see the Company's report on
Form 10-KSB for the year ended December 31, 1998 for a more detailed
description). In October 1999, (i) FondElec exchanged the $5 million of
principal represented by its note into 666,666 shares of the Company's newly
designated Series C Convertible Preferred Stock (the "Series C Stock") and was
paid $419,178 of accrued interest in cash, and (ii) Internexus exchanged the
principal and accrued interest on its note, totaling $5,419,178, into 722,556
shares of Series C Stock. Under the terms of the December notes, FondElec and
Internexus each received warrants to acquire 227,311 shares of the Company's
common stock. The warrants are accompanied by demand and "piggy-back"
registration rights. See Items 2 and 5 below and the Company's report on Form
8-K dated November 2, 1999 for a more detailed description of these
transactions.
FondElec and Internexus are shareholders of the Company, and, pursuant
to agreements among the Company and certain of its shareholders, a designee for
each of FondElec and Internexus currently sits on the Company's Board of
Directors.
El Salvador Acquisition Note Refinancing - In May 1999, Chispa obtained
a long-term loan from a third party lender totaling $4,335,000, of which a
portion ($3,607,134) was used to pay the second note payable payment to the
sellers of the El Salvador Entities. The loan is due in May 2004, bears interest
at LIBOR plus 4.75% quarterly and has mandatory annual payments. In conjunction
with the third party loan, a loan that FondElec made to Chispa in the amount of
$4,769,497 was refinanced under the same terms as the third party loan, except
that the FondElec loan was subordinated to the third party lender's position and
the due date for the FondElec loan was changed to January 1, 2000, with an
annual renewal until the third party lender is repaid (see the Company's report
on Form 10-QSB for the quarter ended June 30, 1999 for a more detailed
description of these loan transactions).
Under the terms of the loans, the Company is required to refrain from
engaging in certain types of business activities (including sales of its assets,
mergers or other fundamental corporate transactions) without the consent of the
lenders. The loans are secured by the assets and capital stock of Cablevisa,
S.A. de C.V. and Multicable, S.A. de C. V., which are the two companies
providing telecommunications service to subscribers in El Salvador.
MetroNet Transaction Loan - The Company financed the purchase of the
MetroNet acquired network capacity agreement through a $2,615,925 loan from
FondElec and a $2,550,000 loan from Internexus (see the Company's report on Form
10-QSB for the quarter ended June 30, 1999 for a more detailed description). In
October 1999, the Company repaid the amounts due under the FondElec loan,
together with accrued interest totaling $489,698, and Internexus exchanged the
amounts of its loan principal and interest totaling $3,027,357, into 403,648
shares of the Company's Series C Stock (see Item 5 below). In conjunction with
the MetroNet transaction loans, FondElec and Internexus also received warrants
to acquire 49,053 and 47,817 shares, respectively, of the Company's common
stock. The warrants are accompanied by demand and "piggy-back" registration
rights.
FondElec Loan Transaction - On August 6, 1999, the Company borrowed $1
million from FondElec (see the Company's report on Form 10-QSB for the quarter
ended June 30, 1999 for a more detailed description). In October 1999, the
Company repaid the principal and $24,932 of accrued interest (see Item 5 below).
In connection with the loan, FondElec also acquired five-year warrants to
purchase 10,688 shares of the Company's common shares at an exercise price of
$7.50 per share. The warrants are accompanied by demand and "piggy-back"
registration rights.
Internexus Loan Transactions - On September 3, 1999, and October 1,
1999, the Company borrowed $1 million and $500,000, respectively, from
Internexus (see the Company's report on Form 8-K dated October 6, 1999 for a
more detailed description). In October 1999, Internexus converted the principal
and $20,301 of accrued interest under the loans into 202,707 shares of Series C
Stock (see Item 5 below). In connection with the loans, Internexus also acquired
five-year warrants to purchase 7,516 shares of the Company's common shares at an
exercise price of $7.50 per share. The warrants are accompanied by demand and
"piggy-back" registration rights.
5. CVV Financial Results
---------------------
The Company owns approximately 78% of the stock of CVV, a Venezuelan
corporation that acts as the operating company for a multi-channel television
system in Caracas, Venezuela. The Company reports the operating results of CVV
on a consolidated basis. During the four months immediately proceeding April
1999, CVV has generated losses of approximately $25,000 per month. On July 28,
1999 (after repeated requests by the Company for CVV's financial information for
the period covered by this report), Donald Williams, the president of CVV,
notified the Company that CVV's monthly financial information was current only
through April 1999, and declined to release any operating information to the
Company. The Company is currently pursuing two arbitration proceedings against
Mr. Williams. See the Company's annual report on Form 10-KSB for the period
ended December 31, 1998. As a result, the financial information set forth in
this report does not include actual operating result information for CVV. The
Company has, however, included estimates for CVV's operating results during the
period, based on its historical operating results. The Company believes CVV's
operations are not material to its consolidated financial operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis relates to the financial
condition and results of operations of the Company for the nine months ended
September 30, 1999 and 1998. This information should be read in conjunction with
the Company's consolidated financial statements and the notes related thereto
appearing elsewhere in the document.
A. OVERVIEW
--------
The Company is a provider of data and video telecommunications services
to business and residential customers over MANs in Latin America. From its
inception, the Company has focused on providing telecommunications services in
emerging markets, primarily in Latin America, using a high speed transmission
network within and across national borders. The Company intends to capitalize on
the rapidly growing demand for telecommunications services in countries emerging
from developing and state-controlled economies and where there is growing
liberalization of regulations governing the provision of telecommunications
services.
As part of the Company's business strategy, it expects to continue to
expand through additional significant acquisitions and strategic alliances. The
Company believes that additional attractive acquisition opportunities currently
exist in Latin America and it is continually evaluating these opportunities.
Certain of these transactions, if consummated, may be material to the Company's
operations and financial condition. Those acquisitions may not be successfully
integrated into the Company's business operations or result in projected
benefits.
B. MATERIAL CHANGES IN RESULTS OF OPERATIONS
-----------------------------------------
Nine months ended September 30, 1999 compared to the nine months ended September
30, 1998:
For the nine months ended September 30, 1999, the Company had revenues
of $6,455,538 as compared to $1,249,446 for the same period in 1998, for an
increase of $5,206,092. The increase is primarily related to the inclusion of
the full nine months of revenues from the El Salvador Entities and Inter@net
operations (1998 includes revenues from the El Salvador Entities from July 17,
1998 and Inter@net from August 17, 1998), which were acquired in the third
quarter of 1998.
The Company's cost of service increased $1,297,520, from $1,073,862 for
the nine months ended September 30, 1998, to $2,371,382 in 1999. The increase is
primarily related to the additional revenues the Company earned in 1999. The
Company's gross margin was $4,084,156 for the nine months ended September 30,
1999, compared to $175,584 for the same period in 1998.
Operating expenses for the nine months ended September 30, 1999 were
$13,378,593 compared to $5,654,784 for 1998, for an increase of $7,723,809. This
increase was primarily due to an increase in general and administrative and
professional fees related to the Company's acquisitions, the addition of new
employees, the additional depreciation and amortization from the Company's
acquired operations and the recognition of stock-based compensation expense for
options with exercise prices below fair market value. The Company's operating
loss was $9,294,437 for the nine months ended September 30, 1999, compared to
$5,479,200 for the nine months ended September 30, 1998.
Interest income for the nine months ended September 30, 1999 was
$82,458, compared to $251,321 in 1998. The $168,863 decrease is primarily
related to the lower cash balances in 1999. Interest expense increased
$2,695,342 from $333,926 for the nine months ended September 30, 1998 to
$3,029,268 for the nine months ended September 30, 1999. The increase was due
primarily to the interest expense from the debt used to acquire the El Salvador
Entities ("Chispa Acquisition Debt") and the fiber optic network capacity in
Mexico City the Company acquired in June 1999 (see the Company's report on Form
8-K dated September 23, 1999 for a more detailed description), the accrual of
interest expense for the subordinated exchangeable promissory notes the Company
issued in December 1998 and the recording of imputed interest expense for
warrants issued in conjunction with the December 1998 notes.
Income tax expense was $134,774 for the nine months ended September 30,
1999, which was related to the El Salvador Entities. There was no income tax
expense in 1998. Minority interest in loss of subsidiaries was $1,257,337 for
the nine months ended September 30, 1999, compared to $259,063 for the nine
months ended September 30, 1998 for an increase of $998,274. The increase was
primarily due to the recording of the minority interest for the El Salvador
Entities for a full nine months in 1999.
As a result of the foregoing, the Company's net loss for the nine
months ended September 30, 1999 was $11,118,684, compared to $5,302,742 for
1998, for an increase of $5,815,942.
Nine months ended September 30, 1998 compared to the nine months ended September
30, 1997:
For the nine months ended September 30, 1998, the Company had revenues
of $1,249,446, which includes revenues from the El Salvador acquisitions from
July 17, 1998 and the Inter@net acquisition from August 17, 1998. This compares
to revenues of $38,648 for the nine months ended September 30, 1997. The 1997
revenues were generated from the multi-channel television service provided in
Caracas, Venezuela by CVV, for the period from August 17, 1997 (date of
acquisition) to September 30, 1997. The cost of service for the nine months
ended September 30, 1998 was $1,073,862, compared to $24,106 for the nine months
ended September 30, 1997.
Operating expenses for the nine months ended September 30, 1998 were
$5,654,784 compared to $1,016,989 for the same period in 1997, for an increase
of $4,637,795. This increase was primarily due to costs associated with
negotiating and completing the Acquisitions, start-up expenses associated with
the Company's current telecommunications projects and the depreciation,
amortization and lease expense from the Company's telecommunications assets and
subscriber rights. The Company's operating loss was $5,479,200 for the nine
months ended September 30, 1998, compared to $1,002,447 for the same period in
1997.
Interest income for the nine months ended September 30, 1998 was
$251,321, compared to $34,839 for the same period in 1997, for an increase of
$216,482. The increase was primarily due to higher cash balances related to cash
received for equity investments in August 1997 and February 1998. Interest
expense increased $217,065 from $116,861 for the nine months ended September 30,
1997, to $333,926 for the same period in 1998. The increase was due primarily to
interest associated with the notes payable related to the El Salvador and
Inter@net acquisitions.
Minority interest in loss of subsidiaries was $259,063 for the nine
months ended September 30, 1998, compared to $8,665 for the same period in 1997,
for an increase of $250,398. The increase primarily relates to the loss
attributable to the minority shareholder's interest in Chispa Dos.
As a result of the foregoing, the Company's net loss for the nine
months ended September 30, 1998 was $5,302,742, compared to $1,075,804 for the
nine months ended September 30, 1997, for an increase in net loss of $4,226,938.
C. LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The telecommunications industry is capital intensive. In order for the
Company to successfully compete, it will require substantial capital to continue
to develop its networks and meet the funding requirements of its operations
(including losses from operations), as well as to provide capital for its
acquisitions and business development initiatives. The Company expects that it
will spend over $200 million over the next two years to meet its capital
requirements as it implements its business plan.
Since inception, the Company has funded its cash requirements at the
parent company level through debt and equity transactions. The proceeds from
these transactions were primarily used to fund the Company's investments in, and
acquisition of, start-up network operations, to provide working capital, and for
general corporate purposes, including the expenses incurred in seeking and
evaluating new business opportunities. The Company's foreign subsidiary
interests have been financed by the Company through a combination of equity
investments and shareholder loans from the Company.
As of September 30, 1999, the Company had current assets of $1,823,908,
compared to $10,126,717 as of December 31, 1998, for a decrease of $8,302,809.
The decrease in current assets was primarily due to a decrease in note proceeds
due from affiliate and a decrease in cash. The note proceeds due from affiliate
was received in the form of cash in the first week of January 1999 and then cash
totaling $8,771,771 was used to make capital expenditures and purchase
inventory, pay accounts payable and pay corporate expenses associated with the
development of the Company's telecommunications operations during the nine
months ended September 30, 1999.
The Company had current liabilities of $19,766,810 as of September 30,
1999, compared to $14,096,138 as of December 31, 1998, for an increase of
$5,670,672. The increase in current liabilities was due to an increase in
accounts payable for equipment purchases and operating expenses, an increase in
accrued liabilities for accrued interest on the Company's December 1998 notes,
an increase in related party accrued consulting and an increase in related party
notes payable in conjunction with the MetroNet transaction and two bridge notes
from current shareholders (see Note 4 above). Long term debt increased
$4,444,172, from $15,346,863 at December 31, 1998 to $19,791,035 at September
30, 1999. The increase was due primarily to the refinancing of the Chispa
Acquisition Debt through FondElec, a shareholder in the Company and Chispa, and
a third party commercial lender.
The Company's principal sources of funds are its available resources of
cash and cash equivalents. At September 30, 1999, the Company had cash and cash
equivalents of $543,510. The cash flow generated by the Company's operations and
projected network launches will not be sufficient to cover the Company's
projected operating expenses, general and administrative expenses and capital
expenditures. The Company also expects acquisitions will constitute a major part
of its business strategy, so it is likely the Company will seek additional
financing in the future for these purposes.
The Company's ability to provide the services contemplated by its
business plan will be dependent upon the Company obtaining substantial
additional sources of funds. As noted below, the Company has recently completed
a $109.5 million private equity and credit facility financing. While the Company
believes that it may be able to obtain financing through additional equity or
debt financing or otherwise, no assurances can be given that any such financing
will be available, or that the Company will be able to obtain any such financing
on favorable terms. Also, the actual amount and timing of the Company's future
capital requirements may differ materially from its current estimates. In
particular, the accuracy of the Company's estimates is subject to changes and
fluctuations in the Company's revenues, operating costs and development
expenses, which can be affected by its ability to (1) effectively and
efficiently manage the build-out of the MANs in each of its markets, (2) obtain
infrastructure contracts, rights-of-way, licenses, interconnection agreements
and other regulatory approvals necessary to complete and operate the MANs, (3)
negotiate favorable contracts with suppliers, including large volume discounts
on purchases of capital equipment and (4) access markets, attract sufficient
numbers of customers and provide and develop services for which customers will
subscribe. The Company's revenue and costs are also dependent upon a number of
factors that are not within its control, such as political, economic and
regulatory changes, changes in technology, increased competition and various
factors such as strikes, weather, and performance by third parties in connection
with our operations. Due to the uncertainty of these factors, the Company's
actual revenues and costs may vary from expected amounts, possibly to a material
degree, and those variations are likely to affect the Company's future capital
requirements. In addition, if the Company expands its operations at an
accelerated rate or consummates acquisitions, its funding needs will likely
increase, possibly to a significant degree, and it would, therefore, expend its
capital resources sooner than currently expected. If the Company's capital
resources prove to be insufficient, it will need to raise additional capital to
execute its current business plan and to fund expected operating losses, as well
as to consummate future acquisitions and exploit opportunities to expand and
develop its businesses.
To the extent the Company acquires the amounts necessary to fund its
business plan through the issuance of equity securities, the then-current
shareholders of the Company may experience dilution in the value per share of
their equity securities. The acquisition of funding through the issuance of debt
could result in a substantial portion of the Company's cash flow from operations
being dedicated to the payment of principal and interest on that indebtedness,
and could render the Company more vulnerable to competitive and economic
downturns. Financing could also be obtained by the Company's subsidiaries or
affiliates from third parties, although there can be no assurance the Company's
subsidiaries or affiliates will be able to obtain the financing required to make
planned capital expenditures, provide working capital or meet other cash needs
on terms which are economically acceptable to the Company.
The Company has taken steps which it believes will improve its
short-term and ongoing liquidity and cash flow, including the following:
- On October 15, 1999, the Company entered into an agreement with six
accredited investors for a $109.5 million private equity and credit facility
financing package. On October 18, 1999, the Company closed the first portion of
these transactions and sold 4,400,000 shares of its Series C Preferred stock to
three of the accredited investors for a total of $33 million in cash. The
Company also exchanged approximately $15 million of debt it previously issued to
two of the accredited investors into 1,995,577 shares of Series C Stock. See
Note 4 above and Items 2 and 5 below.
- The Company is currently conducting a formal bid and proposal process
for the selection of a technology partner that would provide a vendor financing
package for the Company's capital equipment, professional engineering services
and systems integration expenditures.
D. THE YEAR 2000 ISSUE
-------------------
The Company has completed a review of its computer systems and
operations to determine the extent to which its systems will be vulnerable to
potential errors and failures as a result of the "year 2000" problem. The year
2000 problem results from the use of computer programs which were written
employing only two digits (rather than four digits) to define applicable years.
On January 1, 2000, any clock or date recording mechanism, including
date-sensitive software which uses only two digits to represent the year, could
recognize a date using "00" as the year "1900", rather the year "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, provide services or engage in similar activities.
These failures, miscalculations, and disruptions could have a material adverse
effect on the Company's business, operations and financial condition.
The Company has concluded, based on its review of its operations and
computer systems, that its significant computer programs and operations will not
be materially affected by the year 2000 problem and that the programs that will
be affected can be properly modified or replaced by the end of 1999 at an
estimated cost of approximately $100,000. Under a reasonably likely worst-case
scenario, the Company's computer systems and operations could be materially
affected by the year 2000 problem. In addition to its own operations and
computer systems, the Company relies on operations and computer systems of
third-party customers, financial institutions, vendors and other parties with
and through which it conducts business (such as national telephone systems under
the Company's interconnect agreements, and the owners of communications
backbones utilized by the Company).
The Company intends to prioritize its year 2000 efforts to protect, to
the extent possible, its business and operations. The Company's first priority
will be to protect its mission-critical operations--such as those systems and
applications that are vital to the provision by the Company of voice, video and
data switching, processing and transport services to customers--from incurring
material service interruptions that could occur as the result of the year 2000
transition. To this end, the Company has attempted to identify any element
within its business operations (including elements relating to third party
relationships) that could be impacted by the year 2000 date change, and has
attempted to determine the risks to its continuing business operations as a
result of an adverse effect resulting from that date change.
The Company generally requires that its key vendors and suppliers
warrant in writing that they are year 2000 ready. The Company has purchased or
acquired most of its mission-critical systems from such third-party vendors.
Unfortunately, like other telecommunications providers (and, in particular,
telecommunications providers operating outside of the United States), the
Company's products and services are dependent upon third parties which may not
be fully year 2000 compliant. The Company has attempted to identify the vendors
and third-parties with which it has contractual relationships that may not be
year 2000 compliant by the end of 1999, and has adopted contingency plans which
it believes will mitigate any adverse impact to its business operations
resulting from those vendors' or third-parties' inability to perform in
accordance with their contractual obligations. These contingency plans include
the preparation and use of backup copies of financial records, installing
portable diesel generators, determining the availability and reliability of
alternate networks, and scheduling additional phone center, network operating
center, and repair personnel.
Although the Company's efforts to be Year 2000 compliant are intended
to minimize the adverse effects of the Year 2000 issue on its business and
operations, the actual effects of the issue will not be known until 2000.
Difficulties in implementing the remediation or prevention phases or failure by
the Company's major vendors, third party network service providers, and other
material service providers and customers to adequately address their respective
Year 2000 issues in a timely manner could have a material adverse effect on the
Company's business, results of operations, and financial conditions.
E. SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
-------------------------------------------------
Certain statements contained in "Management's Discussion and Analysis"
constitute forward-looking statements concerning the Company's operations,
economic performance and financial condition. Because those statements involve
risks and uncertainties, actual results may differ materially from those
expressed or implied by those forward-looking statements.
In addition, any statements that express or involve discussions as to
expectations, beliefs, plans, objectives, assumptions or future events or
performance are not historical facts and may be forward-looking and,
accordingly, those statements involve estimates, assumptions and uncertainties
which could cause actual results to differ materially from those expressed in
the forward-looking statements. Accordingly, those types of statements are
qualified in their entirety by reference to, and are accompanied by, the factors
discussed throughout this report. Among the key factors that have a direct
bearing on the Company's results of operations are the potential risk of delay
in implementing the Company's business plan; the political, economic and legal
aspects of the markets in which the Company operates; competition; and the
Company's need for additional substantial financing. The Company has no control
over some of these factors.
The factors described in this report could cause the Company's actual
operating results to differ materially from those expressed in any
forward-looking statements of the Company made by or on behalf of the Company.
Persons reviewing this report, therefore, should not place undue reliance on
those forward-looking statements. Further, to the extent this report contains
forward-looking statements, they speak only as of the date of this report, and
the Company undertakes no obligation to update any forward-looking statement or
statements to reflect the occurrence of unanticipated events. New factors may
emerge from time to time, and it is not possible for management to predict all
of such factors. Further, management cannot assess the impact of each such
factor on the Company's business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.
PART II: OTHER INFORMATION
-----------------
ITEM 1. LEGAL PROCEEDINGS
See the section entitled "Legal Proceedings" in the Company's reports
on Form 8-K dated November 2, 1999, Form 10-QSB for the quarters ended June 30,
1999 and March 31, 1999 and the Company's report on Form 10-KSB for the year
ended December 31, 1998.
ITEM 2. CHANGES IN SECURITIES
In conjunction with the equity financing described in Item 5 below, on
October 12, 1999, the Company's Board of Directors designated the Series C Stock
as a new series of the Company's authorized preferred stock. The certificate
designating the rights and preferences of the Series C Stock was filed with the
Nevada Secretary of State's Office on October 13, 1999 and declared effective on
October 14, 1999.
The Series C Stock consists of 14,250,000 shares of preferred stock,
par value $.001 per share, and has the following general rights and preferences:
- It votes with the outstanding shares of the Company's common stock
and Series B Preferred Stock (unless otherwise required by law), and has one
vote per share.
- It is convertible into shares of the Company's common stock,
initially on a one-for-one basis. The conversion ratio is subject to adjustment
for fundamental corporate transactions. Conversion is generally optional, but is
mandatory upon the occurrence of a Disposition Event.
- It has a liquidation preference which is superior to the Company's
common shares, but subordinate to the Company's Series B Preferred Stock. The
initial liquidation preference is $7.50 per share.
- It is not redeemable.
- Its holders are entitled to receive cash dividends or distributions
of property when, as and if declared by the Board of Directors. If the Company
declares a dividend or distribution on its common stock, it is required to pay a
dividend or distribution to the holders of the Series C Stock in an amount equal
to what they would have received had the holders converted their Series C Stock
into common stock.
- Its holders have a preemptive right to purchase their prorata share
of any new securities issued by the Company. The preemptive rights do not apply
to issuances of stock to management or employees, any merger or similar
transaction approved by the Board of Directors, to securities issued in a stock
split or dividend, or certain other transactions approved by the Board of
Directors. The preemptive rights terminate on the effective date of a public
offering meeting certain size requirements.
See the Company's report on Form 8-K dated November 2, 1999 and the
exhibit thereto for a more detailed description of the Series C Stock.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MATTERS SUBMITTED TO A VOTE OF THE COMPANY'S SHAREHOLDERS
None.
ITEM 5. OTHER INFORMATION
Equity and Debt Financing - On October 18, 1999, the Company closed the
first portion of a $109.5 million private equity and credit facility financing
package with six accredited investors. At the closing, the Company received $33
million in cash from the sale of 4,400,000 shares of its Series C Stock from
three of the six accredited investors and exchanged approximately $15 million of
debt it previously issued to two of the accredited investors into 1,995,577
shares of Series C Stock. Two of these parties are obligated to purchase, for
cash, an additional 2,666,666 shares of Series C Stock for $20 million at a
second closing that will be held after the parties receive clearance under the
Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended (the "HSR
Laws"). The parties expect clearance under the HSR Laws from the Department of
Justice and the Federal Trade Commission in November 1999. Another party is
obligated to purchase 666,666 shares of Series C Stock for $5 million in cash if
it joins in the execution of the Agreement by November 19, 1999.
Under the terms of the agreement, one of the parties also agreed to (i)
invest, at the second closing, $5.25 million dollars in Chispa, a controlled
subsidiary of the Company which conducts telecommunications operations in El
Salvador, for approximately 32.64% of the outstanding stock of Chispa, and (ii)
to negotiate in good faith with the Company the terms of a joint venture
pursuant to which each party will invest $5 million to conduct
telecommunications operations in the Republic of Colombia. The same investor
also entered into a long-term $26 million credit facility with InterAmerica Net
de Venezuela, S.A., the Company's wholly-owned Venezuelan operating subsidiary.
See the Company's report on Form 8-K dated November 2, 1999 for a more detailed
description of these transactions.
ITEM 6. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
A. EXHIBITS.
--------
Exhibit No. Exhibit
- ----------- -------
10.14 Participation Agreement, dated October 15, 1999, among
Telematica EDC, C.A., TCW/CCI Holding LLC, Glacier
Latin-America Ltd., the International Finance Corporation,
FondElec Essential Services Growth Fund, L.P., Internexus S.A.
(collectively, the "Investors"), the Company and other parties
10.15 Option Agreement, dated October 18, 1999, among the Company and
the Investors
10.16 Form of Series C Warrant, dated October 18, 1999, as issued in
favor of each Investor
10.17 CCI Shareholders' Agreement, dated October 18, 1999, among the
Company, the Investors, and other parties
10.18 Amended and Restated Registration Rights Agreement, dated
October 18, 1999, among the Company, the Investors and other
parties
10.24 Unofficial English Translation of Venezuela Financing
Agreement, dated October 18, 1999, between a Subsidiary of the
Company and one of the Investors
27.1 Financial Data Schedule
B. REPORTS ON FORM 8-K
-------------------
The Company filed two reports on Form 8-K since the filing of the
Company's report on Form 10-QSB for the quarter ended June 30, 1999.
1. On October 6, 1999, the Company filed a report on Form 8-K
describing loans totaling $1.5 million it had secured from
Internexus.
2. On November 2, 1999, the Company filed a report on Form 8-K
describing a private equity and debt financing transaction
involving six accredited investors.
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.
CONVERGENCE COMMUNICATIONS, INC.
Date: November 15, 1999 BY /s/ JERRY SLOVINSKI
-----------------------------
Jerry Slovinski
Chief Financial Officer
Exhibit No. Exhibit
- ----------- -------
10.14 Participation Agreement, dated October 15, 1999, among
Telematica EDC, C.A., TCW/CCI Holding LLC, Glacier
Latin-America Ltd., the International Finance Corporation,
FondElec Essential Services Growth Fund, L.P., Internexus S.A.
(collectively, the "Investors"), the Company and other parties
10.15 Option Agreement, dated October 18, 1999, among the Company and
the Investors
10.16 Form of Series C Warrant, dated October 18, 1999, as issued in
favor of each Investor
10.17 CCI Shareholders' Agreement, dated October 18, 1999, among the
Company, the Investors, and other parties
10.18 Amended and Restated Registration Rights Agreement, dated
October 18, 1999, among the Company, the Investors and other
parties
10.24 Unofficial English Translation of Venezuela Financing
Agreement, dated October 18, 1999, between a Subsidiary of the
Company and one of the Investors
27.1 Financial Data Schedule