<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
----------------
FORM 10-Q
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 333-22585
VIALOG Corporation
(Exact name of registrant as specified in its charter)
Massachusetts 04-3305282
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
35 New England Business Center, Suite 160
Andover, Massachusetts 01810
(Address of principal executive offices, including Zip Code)
(978) 975-3700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for the past 90 days. Yes [X] No [_]
At August 9, 1999 the registrant had outstanding an aggregate of 8,668,088
shares of its Common Stock, $.01 par value.
- -------------------------------------------------------------------------------
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<PAGE>
VIALOG CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Item 1. Financial Statements
HISTORICAL FINANCIAL STATEMENTS
Consolidated Balance Sheets at December 31, 1998 and June 30, 1999
(Unaudited)........................................................... 3
Consolidated Statements of Operations (Unaudited) for the Three and Six
Months Ended June 30, 1998 and 1999................................... 4
Consolidated Statements of Cash Flows (Unaudited) for the Six Months
Ended June 30, 1998 and 1999.......................................... 5
Notes to Consolidated Financial Statements (Unaudited)................. 6-9
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
Basis of Presentation.................................................. 10
Pro Forma Consolidated Statements of Operations (Unaudited) for the Six
Months Ended June 30, 1999 and 1998................................... 11
Notes to Pro Forma Consolidated Statements of Operations (Unaudited)... 12
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................ 13-17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................... 18
Item 6. Exhibits and Reports on Form 8-K................................ 18
Signatures............................................................... 19
Exhibit Index............................................................ 20
</TABLE>
2
<PAGE>
VIALOG CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 232 $ 1,426
Accounts receivable, net of allowance for doubtful
accounts of $164 and $380, respectively............ 7,391 11,183
Prepaid expenses.................................... 425 388
Deferred offering costs............................. 596 --
Other current assets................................ 165 640
-------- --------
Total current assets.............................. 8,809 13,637
Property and equipment, net........................... 11,987 16,054
Deferred debt issuance costs.......................... 5,429 4,690
Goodwill and intangible assets, net................... 41,679 67,346
Other assets.......................................... 1,362 639
-------- --------
Total assets...................................... $ 69,266 $102,366
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Revolving line of credit............................ $ 2,057 $ 4,169
Current portion of long-term debt................... 1,465 1,841
Accounts payable.................................... 3,064 2,765
Accrued interest expense............................ 1,215 1,215
Accrued expenses and other liabilities.............. 3,386 5,521
-------- --------
Total current liabilities......................... 11,187 15,511
Long-term debt, less current portion.................. 74,189 74,118
Other long-term liabilities........................... 482 2,782
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, $0.01 par value; 10,000,000 shares
authorized; none issued and outstanding............ -- --
Common stock, $0.01 par value; 30,000,000 shares
authorized; issued: 3,693,672 and 8,672,353 shares,
respectively; outstanding: 3,693,672 and 8,661,722
shares, respectively............................... 37 87
Additional paid-in capital.......................... 11,854 45,323
Accumulated deficit................................. (28,483) (35,408)
Treasury stock, at cost; 0 and 10,631 shares,
respectively....................................... -- (47)
-------- --------
Total stockholders' equity (deficit).............. (16,592) 9,955
-------- --------
Total liabilities and stockholders' equity
(deficit)........................................ $ 69,266 $102,366
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
VIALOG CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- --------------------------
1998 1999 1998 1999
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Net revenues............ $ 11,878 $ 18,031 $ 23,168 $ 33,913
Cost of revenues,
excluding
depreciation........... 6,012 8,251 12,134 15,884
Selling, general and
administrative
expense................ 4,437 6,649 7,942 11,483
Depreciation expense.... 651 1,019 1,235 1,900
Amortization of goodwill
and intangibles........ 623 999 1,251 1,829
Non-recurring charge.... -- 2,982 -- 2,982
------------- ------------- ------------ ------------
Operating income
(loss)............... 155 (1,869) 606 (165)
Interest expense, net... (3,109) (3,339) (6,154) (6,710)
------------- ------------- ------------ ------------
Loss before income tax
expense.............. (2,954) (5,208) (5,548) (6,875)
Income tax expense...... -- -- -- (50)
------------- ------------- ------------ ------------
Net loss.............. $ (2,954) $ (5,208) $ (5,548) $ (6,925)
============= ============= ============ ============
Net loss per share--
basic and diluted...... $ (0.81) $ (0.61) $ (1.55) $ (0.97)
============= ============= ============ ============
Weighted average shares
outstanding............ 3,628,072 8,562,249 3,585,370 7,140,146
============= ============= ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
VIALOG CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------
1998 1999
------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(5,548) $ (6,925)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation............................................ 1,235 1,900
Amortization of goodwill and intangibles................ 1,251 1,829
Amortization of debt issuance costs and debt discount... 1,496 1,574
Provision for doubtful accounts......................... 131 169
Compensation expense for issuance of common stock and
options................................................ -- 52
Non-cash portion of non-recurring charge................ -- 797
Changes in operating assets and liabilities, net of
effects from acquisitions of businesses:
Accounts receivable..................................... (1,058) (2,316)
Prepaid expenses and other current assets............... (100) (363)
Other assets............................................ (199) 525
Accounts payable........................................ 490 (838)
Accrued expenses........................................ (151) 1,829
Other long-term liabilities............................. 31 1,125
------- --------
Cash flows used in operating activities............... (2,422) (642)
------- --------
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired.......... -- (29,095)
Additions to property and equipment....................... (3,087) (4,310)
Deferred acquisition costs................................ (119) --
------- --------
Cash flows used in investing activities............... (3,206) (33,405)
------- --------
Cash flows from financing activities:
Advances on line of credit, net........................... -- 2,112
Payments of long-term debt, net........................... (198) (871)
Proceeds from issuance of common stock.................... 41 33,420
Deferred offering costs................................... (174) 596
Deferred debt issuance costs.............................. -- (16)
------- --------
Cash flows provided by (used in) financing
activities........................................... (331) 35,241
------- --------
Net increase (decrease) in cash and cash equivalents........ (5,959) 1,194
Cash and cash equivalents at beginning of period............ 9,567 232
------- --------
Cash and cash equivalents at end of period.................. $ 3,608 $ 1,426
======= ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest................................................ $ 4,934 $ 5,142
======= ========
Acquisitions of businesses:
Assets acquired......................................... $ -- $ 31,041
Liabilities assumed and issued.......................... -- (1,855)
Common stock issued..................................... -- --
------- --------
Cash paid............................................... -- 29,186
Less cash acquired...................................... -- (91)
------- --------
Net cash paid for acquisitions of businesses.......... $ -- $ 29,095
======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission, and reflect all adjustments (all of which
are of a normal recurring nature) which, in the opinion of management, are
necessary for a fair statement of the results of the interim periods
presented. The unaudited results of operations for the three and six months
ended June 30, 1999 are not necessarily an indication of the results of
operations for the full year. These financial statements do not include all
disclosures associated with annual financial statements and, accordingly,
should be read in conjunction with the financial statements and footnotes for
the year ended December 31, 1998 included in the Company's Form 10-K. The
consolidated financial statements include the accounts of the Company and its
subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation.
(2) Description of Business
VIALOG Corporation (the "Company") was incorporated in Massachusetts on
January 1, 1996. The Company was formed to create a national independent
provider of audioconferencing, videoconferencing and Internet conferencing
services. On November 12, 1997, the Company sold $75.0 million in senior notes
due 2001 (the "Senior Notes"), in a private placement (the "Private
Placement"). Contemporaneously with the closing of the Private Placement, the
Company acquired, in separate transactions (the "Original Acquisitions"), six
private conference service bureaus in exchange for cash and shares of its
common stock.
Prior to November 12, 1997, the Company did not conduct any operations, and
all activities conducted by it related to the Original Acquisitions and the
completion of financing transactions to fund the Original Acquisitions.
(3) Initial Public Offering
On February 10, 1999, the Company completed an initial public offering for
the sale of 4,600,000 shares of common stock. The net proceeds from this
offering, after deducting underwriting discounts, commissions and offering
expenses were approximately $32.7 million. Of the net proceeds, approximately
$29.2 million was used to acquire three private conference service bureaus (as
discussed in Note 4). In addition, approximately $305,000 of indebtedness was
paid to the former stockholder of one of the acquisitions. The remaining net
proceeds of $3.2 million were used for working capital and general corporate
purposes.
(4) Acquisitions
On February 10, 1999, the Company acquired all of the issued and outstanding
stock of A Business Conference-Call, Inc. ("ABCC"), Conference Pros
International, Inc. ("CPI"), and A Better Conference, Inc. ("ABCI"). These
acquisitions occurred contemporaneously with the closing of the initial public
offering of the Company's common stock. Each of the acquisitions (together
with the Original Acquisitions, each an "Operating Center"; collectively, the
"Operating Centers") is a wholly-owned subsidiary of the Company. The
acquisitions were accounted for using the purchase method of accounting.
The total purchase price of the acquired companies was $29.2 million and
consisted of $28.4 million in cash paid to the stockholders of the acquired
companies, approximately $460,000 of acquisition costs and approximately
$300,000 related to tax reimbursements. The total purchase price was
allocated, on a preliminary basis, as follows (in thousands):
6
<PAGE>
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
<TABLE>
<S> <C>
Working capital.................................................. $ 967
Property and equipment, net...................................... 1,657
Goodwill and intangible assets................................... 27,494
Other assets..................................................... 78
Long-term liabilities............................................ (1,010)
-------
$29,186
=======
</TABLE>
The purchase price exceeded the fair value of the net assets by an estimated
$27.5 million. The excess was allocated to goodwill and other intangibles on a
preliminary basis, and is being amortized over periods from 5 to 25 years. In
management's opinion, the preliminary estimates regarding allocation of the
purchase price are not expected to differ materially from the final
adjustments. In addition, the Company repaid $305,000 of long-term debt of the
acquired companies.
(5) Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ --------
(in thousands)
<S> <C> <C>
12 3/4% Senior Notes Payable, due 2001, net of
unamortized discount of $3,115 and $2,571,
respectively......................................... $71,885 $72,429
Term loans............................................ 3,030 2,479
Capitalized lease obligations......................... 669 424
Other long-term debt.................................. 70 627
------- -------
Total long-term debt................................ 75,654 75,959
Less current portion................................ 1,465 1,841
------- -------
Total long-term debt, less current portion.......... $74,189 $74,118
======= =======
</TABLE>
Senior Notes Payable
The Senior Notes issued in the Private Placement bear interest at 12 3/4%
per annum, payable semi-annually on May 15 and November 15 of each year. The
Senior Notes, which are guaranteed by each of the Operating Centers, mature on
November 15, 2001 and are redeemable in whole or in part at the option of the
Company on or after November 15, 1999 at 110% of the principal amount thereof,
and on or after November 15, 2000 at 105% of the principal amount thereof, in
each case together with accrued interest to the date of redemption. In
addition, there are certain other early redemption options available to the
Company at any time on or prior to November 15, 1999 at certain premiums, as
specified in the indenture pursuant to which the Senior Notes were issued.
(6) Net Loss Per Share
As the Company was in a net loss position for the three and six months ended
June 30, 1998 and 1999, common stock equivalents of 1,971,468, 1,475,073,
1,904,365 and 1,573,254 for the three months ended June 30, 1998 and 1999 and
the six months ended June 30, 1998 and 1999, respectively, were excluded from
the diluted net loss per share calculation as they would be antidilutive. As a
result, diluted net loss per share for the three and six months ended June 30,
1998 and 1999 is the same as basic net loss per share and, therefore, has not
been presented separately.
7
<PAGE>
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
(7) Non-recurring Charges
During the third quarter of 1998, the Company incurred a $1.2 million non-
recurring charge related to the consolidation of the Atlanta and Montgomery
Operating Centers. In accordance with the consolidation plan, the Atlanta
Operating Center remained staffed through January, 1999, after which time the
Atlanta facility was vacated and its traffic managed by conference
coordinators in the Montgomery Center as well as other Operating Centers.
During the three and six months ended June 30, 1999, the Company paid out
approximately $91,000 and $335,000, respectively, related to personnel
reductions and the facility closing. At June 30, 1999, approximately $542,000
of the non-recurring charge was outstanding.
The results for the three months ended June 30, 1999 include a non-recurring
charge of approximately $3.0 million related to the consolidation of four of
the Company's Operating Centers. The Operating Centers affected include
Oradell, New Jersey and Danbury, Connecticut which the Company expects to
close in the third quarter of 1999; and Houston, Texas, and Palm Springs,
California which are expected to close by the end of 1999. In conjunction with
these closings, the Company is expanding its other facilities to accommodate
the transitioned business. In addition, the Company plans to combine its
Corporate offices and its Cambridge Center in the first half of 2000. The non-
recurring charge includes (i) approximately $1.2 million associated with
facility lease costs from the exit dates through the lease termination dates
(net of estimated sublease income), (ii) $860,000 associated with personnel
reductions of approximately 130 conference coordinators, customer service,
technical support, and general and administrative positions, (iii) $683,000
associated with the impairment of intangible assets, (iv) $150,000 associated
with legal fees and other exit costs, and (v) $114,000 associated with the
write-off of leasehold improvements. No amounts have been paid as of June 30,
1999.
(8) Officer Resignation
Selling, general and administrative expenses for the three months ended June
30, 1999 include approximately $1.2 million in increased operating expenses
due to costs associated with the departure of the Company's former Chief
Executive Officer and other management staff. Approximately $298,000 has been
paid as of June 30, 1999.
(9) Supplemental Consolidating Condensed Financial Information
The 12 3/4% Senior Notes due November 15, 2001, in the aggregate principal
amount of $75.0 million, are fully and unconditionally guaranteed, on a joint
and several basis, by all of the Company's subsidiaries. Each of the
guarantors is a wholly-owned subsidiary of the Company. Summarized financial
information of the Company and its subsidiaries is presented below as of and
for the six months ended June 30, 1999. Separate financial statements and
other disclosures concerning the guarantor subsidiaries are not presented
because management has determined that they are not material to investors.
8
<PAGE>
<TABLE>
<CAPTION>
VIALOG Call
Corp. Access CSI Points ABCC TCC ABCI CPI Americo CDC Eliminations
-------- ------- -------- -------- ------- ------ ------ ------ ------- ------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet
Information as
of June 30, 1999
(unaudited)
Total current
assets.......... $(10,216) $ 9,246 $ -- $ 7,089 $ 2,978 $2,792 $ 935 $ 508 $ (484) $ 789 $ --
Property and
equipment, net.. 713 6,821 -- 4,992 753 1,109 430 455 597 184 --
Investment in
subsidiaries.... 86,307 -- -- -- -- -- -- -- -- -- (86,307)
Goodwill and
intangible
assets, net..... -- 14,585 -- 17,184 15,003 3,635 5,876 6,024 2,733 2,306 --
Other assets..... 4,869 260 -- 64 -- 10 55 -- 65 6 --
-------- ------- -------- -------- ------- ------ ------ ------ ------ ------ --------
Total assets.... $ 81,673 $30,912 $ -- $ 29,329 $18,734 $7,546 $7,296 $6,987 $2,911 $3,285 $(86,307)
======== ======= ======== ======== ======= ====== ====== ====== ====== ====== ========
Current
liabilities..... $ 8,304 $ 1,433 $ -- $ 2,236 $ 351 $ 584 $ 811 $ 840 $ 473 $ 479 $ --
Long-term debt,
excluding
current
portion......... 73,806 -- -- 107 -- 52 (55) 151 57 -- --
Other
liabilities..... 566 271 -- 264 -- -- 316 427 741 197 --
Stockholders'
equity
(deficit)....... (1,003) 29,208 -- 26,722 18,383 6,910 6,224 5,569 1,640 2,609 (86,307)
-------- ------- -------- -------- ------- ------ ------ ------ ------ ------ --------
Total
liabilities and
stockholders'
equity
(deficit)...... $ 81,673 $30,912 $ -- $ 29,329 $18,734 $7,546 $7,296 $6,987 $2,911 $3,285 $(86,307)
======== ======= ======== ======== ======= ====== ====== ====== ====== ====== ========
Statement of
Operations
Information for
the Six Months
Ended June 30,
1999 (unaudited)
Net revenues..... $ -- $12,978 $ 374 $ 7,942 $ 3,705 $3,669 $1,544 $1,347 $1,342 $1,435 $ (423)
Cost of revenues,
excluding
depreciation.... -- 5,868 236 4,416 1,119 1,723 530 699 745 971 (423)
Selling, general
and
administrative
expenses........ 7,418 912 26 722 513 533 535 353 228 243 --
Depreciation
expense......... 79 803 40 482 79 131 74 62 60 90 --
Amortization of
goodwill and
intangibles..... -- 437 72 481 331 102 130 132 78 66 --
Non-recurring
charge.......... 454 -- -- -- -- -- 329 721 911 567
-------- ------- -------- -------- ------- ------ ------ ------ ------ ------ --------
Operating income
(loss)......... (7,951) 4,958 -- 1,841 1,663 1,180 (54) (620) (680) (502) --
Interest income
(expense), net.. (6,665) -- (4) (19) -- (12) (22) 18 (6) -- --
-------- ------- -------- -------- ------- ------ ------ ------ ------ ------ --------
Loss before
income tax
expense........ (14,616) 4,958 (4) 1,822 1,663 1,168 (76) (602) (686) (502) --
Income tax
expense......... -- (50) -- -- -- -- -- -- -- -- --
-------- ------- -------- -------- ------- ------ ------ ------ ------ ------ --------
Net income
(loss)......... $(14,616) $ 4,908 $ (4) $ 1,822 $ 1,663 $1,168 $ (76) $ (602) $ (686) $ (502) $ --
======== ======= ======== ======== ======= ====== ====== ====== ====== ====== ========
Cash Flow
Information for
the Six Months
Ended June 30,
1999 (unaudited)
Cash flows
provided by
(used in)
operating
activities...... $ (4,297) $ 366 $ 17,687 $(15,541) $ 136 $ 165 $ 624 $ 104 $ 43 $ 71 $ --
Cash flows
provided by
(used in)
investing
activities...... (29,326) (1,710) 1,602 (3,420) (70) (246) (46) (80) (52) (57) --
Cash flows
provided by
(used in)
financing
activities...... 35,059 503 (19,350) 19,228 -- (59) (176) 49 (13) -- --
-------- ------- -------- -------- ------- ------ ------ ------ ------ ------ --------
Net increase
(decrease) in
cash and cash
equivalents..... 1,436 (841) (61) 267 66 (140) 402 73 (22) 14 --
Cash and cash
equivalents at
the beginning of
period.......... 90 -- 61 61 -- -- -- -- -- 20 --
-------- ------- -------- -------- ------- ------ ------ ------ ------ ------ --------
Cash and cash
equivalents at
the end of
period.......... $ 1,526 $ (841) $ -- $ 328 $ 66 $ (140) $ 402 $ 73 $ (22) $ 34 $ --
======== ======= ======== ======== ======= ====== ====== ====== ====== ====== ========
<CAPTION>
Consolidated
------------
<S> <C>
Balance Sheet
Information as
of June 30, 1999
(unaudited)
Total current
assets.......... $ 13,637
Property and
equipment, net.. 16,054
Investment in
subsidiaries.... --
Goodwill and
intangible
assets, net..... 67,346
Other assets..... 5,329
------------
Total assets.... $102,366
============
Current
liabilities..... $ 15,511
Long-term debt,
excluding
current
portion......... 74,118
Other
liabilities..... 2,782
Stockholders'
equity
(deficit)....... 9,955
------------
Total
liabilities and
stockholders'
equity
(deficit)...... $102,366
============
Statement of
Operations
Information for
the Six Months
Ended June 30,
1999 (unaudited)
Net revenues..... $ 33,913
Cost of revenues,
excluding
depreciation.... 15,884
Selling, general
and
administrative
expenses........ 11,483
Depreciation
expense......... 1,900
Amortization of
goodwill and
intangibles..... 1,829
Non-recurring
charge.......... 2,982
------------
Operating income
(loss)......... (165)
Interest income
(expense), net.. (6,710)
------------
Loss before
income tax
expense........ (6,875)
Income tax
expense......... (50)
------------
Net income
(loss)......... $ (6,925)
============
Cash Flow
Information for
the Six Months
Ended June 30,
1999 (unaudited)
Cash flows
provided by
(used in)
operating
activities...... $ (642)
Cash flows
provided by
(used in)
investing
activities...... (33,405)
Cash flows
provided by
(used in)
financing
activities...... 35,241
------------
Net increase
(decrease) in
cash and cash
equivalents..... 1,194
Cash and cash
equivalents at
the beginning of
period.......... 232
------------
Cash and cash
equivalents at
the end of
period.......... $ 1,426
============
</TABLE>
9
<PAGE>
VIALOG CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
BASIS OF PRESENTATION
The following unaudited pro forma consolidated Statements of Operations give
effect to (i) the acquisitions by VIALOG Corporation on February 10, 1999 of
all of the stock of ABCC, CPI, and ABCI, and (ii) the consummation of an
initial public offering of common stock as if they had occurred on January 1,
1998. The pro forma statements are based on the historical financial
statements of VIALOG Corporation, ABCC, CPI and ABCI and include pro forma
adjustments based upon estimates, currently available information and certain
assumptions that management deems appropriate. The unaudited pro forma
statements presented herein are not necessarily indicative of the results that
would have been obtained had such events occurred on January 1, 1998 as
assumed, or of future results. The unaudited pro forma consolidated Statements
of Operations should be read in conjunction with the other financial
statements and notes thereto included elsewhere in this Report.
10
<PAGE>
VIALOG CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
1/1/99-2/10/99 Pro Forma
VIALOG ----------------- ------------------------------
Corp. ABCC CPI ABCI Adjustments(1) Consolidated(1)
---------- ------ ---- ---- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues............ $ 33,913 $1,058 $444 $408 $ -- $ 35,823
Cost of revenues,
excluding
depreciation........... 15,884 295 214 137 -- 16,530
Selling, general and
administrative
expense................ 11,483 224 136 145 (98)(a) 11,890
Depreciation expense.... 1,900 23 15 26 1,964
Amortization of goodwill
and intangibles........ 1,829 -- -- -- 170 (b) 1,999
Non-recurring charge.... 2,982 2,982
---------- ------ ---- ---- ----- ----------
Operating income
(loss)............... (165) 516 79 100 (72) 458
Interest expense, net... (6,710) -- (5) (9) -- (6,724)
---------- ------ ---- ---- ----- ----------
Income (loss) before
income taxes......... (6,875) 516 74 91 (72) (6,266)
Income tax expense...... (50) -- -- -- -- (50)
---------- ------ ---- ---- ----- ----------
Net income (loss)..... $ (6,925) $ 516 $ 74 $ 91 $ (72) $ (6,316)
========== ====== ==== ==== ===== ==========
Net loss per share--
basic and diluted...... $ (0.97) $ (0.75)(c)
========== ==========
Weighted average shares
outstanding............ 7,140,146 8,454,432 (c)
========== ==========
</TABLE>
VIALOG CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Pro Forma
VIALOG ------------------------------
Corp. ABCC CPI ABCI Adjustments(1) Consolidated(1)
--------- ------ ------ ------ -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues............ $ 23,168 $3,590 $1,228 $1,383 $ -- $ 29,369
Cost of revenues,
excluding
depreciation........... 12,134 1,181 621 482 -- 14,418
Selling, general and
administrative
expense................ 7,942 754 437 505 (158)(a) 9,480
Depreciation expense.... 1,235 74 75 80 1,464
Amortization of goodwill
and intangibles........ 1,251 -- -- -- 762 (b) 2,013
--------- ------ ------ ------ ----- ----------
Operating income
(loss)............... 606 1,581 95 316 (604) 1,994
Interest expense, net... (6,154) 4 (4) (66) -- (6,220)
--------- ------ ------ ------ ----- ----------
Income (loss) before
income taxes......... (5,548) 1,585 91 250 (604) (4,226)
Income tax expense...... -- -- -- -- -- --
--------- ------ ------ ------ ----- ----------
Net income (loss)..... $ (5,548) $1,585 $ 91 $ 250 $(604) $ (4,226)
========= ====== ====== ====== ===== ==========
Net loss per share--
basic and diluted...... $ (1.55) $ (0.52)(c)
========= ==========
Weighted average shares
outstanding............ 3,585,370 8,186,645 (c)
========= ==========
</TABLE>
- --------
(1) See Note 3 to unaudited pro forma consolidated financial statement.
11
<PAGE>
VIALOG CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(1) VIALOG Corporation Background
VIALOG Corporation was formed on January 1, 1996 to create a national
independent provider of conferencing services, consisting primarily of
operator-assisted and operator-on-demand audioconferencing, as well as
videoconferencing and Internet conferencing services. On February 10, 1999,
VIALOG Corporation completed an initial public offering of its common stock
and on that date consummated agreements to acquire three private conference
service bureaus.
(2) Acquisitions
Concurrent with the closing of the initial public offering, VIALOG
Corporation acquired all of the issued and outstanding stock of ABCC, CPI, and
ABCI. The acquisitions were accounted for using the purchase method of
accounting.
The following table sets forth for each acquired company the consideration
paid its common stockholders.
<TABLE>
<CAPTION>
Cash(1)
--------------
(in thousands)
<S> <C>
ABCC....................................................... $16,226
CPI........................................................ 6,000
ABCI....................................................... 6,200
-------
Total Consideration...................................... $28,426
=======
</TABLE>
- --------
(1) Excludes tax reimbursements of approximately $300,000 to certain
stockholders of certain of the acquired companies.
The total purchase price of the acquired companies was $29.2 million and
consisted of $28.4 million in cash paid to the stockholders of the acquired
companies, approximately $460,000 of acquisition costs and approximately
$300,000 related to tax reimbursements. Of the purchase price, $1.7 million
has been allocated to the identifiable assets acquired and liabilities assumed
and the balance of $27.5 million has been allocated to intangible assets on a
preliminary basis. In management's opinion, the preliminary estimates
regarding allocation of the purchase price are not expected to differ
materially from the final adjustments.
(3) Unaudited Pro Forma Consolidated Statements of Operations Adjustments
(a) As a condition to closing the acquisitions, certain officers and
employees agreed to accept reduced compensation and benefits subsequent to the
acquisitions. The adjustment reflects the difference between the historical
compensation and benefits of officers and employees of ABCC, CPI and ABCI and
the compensation and benefits they agreed to accept subsequent to the
acquisitions.
(b) Adjustment reflects the amortization of goodwill and intangible assets,
which are amortized over periods ranging from 5 to 25 years.
(c) The pro forma loss per share is computed by dividing the net loss by the
weighted average number of shares outstanding. The calculation of the weighted
average number of shares outstanding assumes that the 4,600,000 shares of the
Company's common stock issued in connection with the initial public offering
were outstanding for the entire period.
12
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
This Management's Discussion and Analysis of Financial Condition and Results
of Operations should be read in conjunction with the financial statements and
footnotes for the three and six months ended June 30, 1999 and the Form 10-K
for the year ended December 31, 1998 filed with the Securities and Exchange
Commission.
VIALOG Corporation
Results of Operations
The Company was incorporated on January 1, 1996. On February 10, 1999, the
Company completed an initial public offering of common stock and
contemporaneously acquired three private conference service bureaus.
Net revenues. Net revenues increased approximately $6.1 million, or 52%,
from $11.9 million to $18.0 million for the three months ended June 30, 1998
and 1999, respectively, and increased $10.7 million, or 46%, from $23.2
million to $33.9 million for the six months ended June 30, 1998 and 1999,
respectively. The increase was primarily due to increased call volumes for
audioconferencing and videoconferencing services during the three and six
months ended June 30, 1999, as well as the acquisition of three private
conference service bureaus on February 10, 1999. The major components of this
increase were (i) an increase in the Reston Center's net revenues of $2.1
million and $4.2 million for the three and six months ended June 30, 1999,
respectively, which consisted of increased sales of teleconferencing services
of approximately $1.2 million to existing customers and $871,000 to new
customers for the three months ended June 30, 1999, and $2.0 million to
existing customers and $2.2 million to new customers for the six months ended
June 30, 1999, (ii) a net decrease in the combined Atlanta-Montgomery Center's
revenues of $495,000 and $635,000 for the three and six months ended June 30,
1999, respectively, which consisted of a decrease in the Atlanta Center's
revenues of approximately $2.1 million and $3.8 million due to the closing of
the Atlanta facility in January, 1999, and an increase in the Montgomery
Center's revenues of $1.6 million and $3.2 million related to the
consolidation of the Atlanta Center's traffic with Montgomery, (iii) an
increase in the Cambridge Center's revenues of $425,000 and $857,000 for the
three and six months ended June 30, 1999, respectively, which consisted of
increased audio teleconferencing services to existing and new customers, and
(iv) an increase of $4.2 million and $6.6 million for the three and six months
ended June 30, 1999, respectively, relating to the Chaska, Houston and Palm
Springs Operating Centers which were acquired on February 10, 1999 and
included in the Company's consolidated results beginning February 11, 1999.
The Company's largest outsourcing customer has acquired a competitor of the
Company. The customer, representing approximately 9% of the Company's 1998
consolidated net revenues, has verbally informed the Company that it will
honor its current outsourcing contract with the Company, which expires in
August, 1999. Although a significant reduction in or loss of net revenues from
this customer could reduce the Company's expected net revenues and operating
results in the near term, the Company believes that the long-term impact to
net revenues and results of operations will not be significant.
Cost of revenues, excluding depreciation. Cost of revenues, excluding
depreciation, increased approximately $2.2 million, or 37%, from $6.0 million
to $8.2 million for the three months ended June 30, 1998 and 1999,
respectively, and increased $3.8 million, or 31%, from $12.1 million to $15.9
million for the six months ended June 30, 1998 and 1999, respectively, but
decreased as a percentage of revenue from 50.6% to 45.8% for the three months
ended June 30, 1998 and 1999, respectively, and from 52.4% to 46.8% for the
six months ended June 30, 1998 and 1999, respectively. The dollar increase was
primarily due to (i) an increase in the Reston Center's cost of revenues,
excluding depreciation, of $1.0 million and $1.8 million for the three and six
months ended June 30, 1999, respectively, resulting from increased
telecommunications costs and personnel and related costs associated with
increased call volumes, (ii) a net decrease in the combined Atlanta-Montgomery
Center's cost of revenues, excluding depreciation, of $365,000 and $428,000
for the three and six months ended June 30, 1999, respectively, which
consisted of decreases in the Atlanta Center of $862,000 and $1.5 million due
13
<PAGE>
to the closing of the Atlanta Center in January, 1999, and increases in the
Montgomery Center of $497,000 and $1.1 million related to the consolidation of
the Atlanta and Montgomery Centers, (iii) an increase in the Cambridge
Center's cost of reveneues, excluding depreciation, of $100,000 and $247,000
for the three and six months ended June 30, 1999, respectively, resulting from
increased telecommunications costs associated with increased call volumes, and
(iv) an increase of $1.5 million and $2.3 million for the three and six months
ended June 30, 1999, respectively, relating to the Chaska, Houston and Palm
Springs Operating Centers which were acquired on February 10, 1999 and
included in the Company's consolidated results beginning February 11, 1999.
The decrease as a percentage of revenues was primarily due to an overall
reduction in telecommunications cost per minute resulting from negotiating
telecommunications contracts with lower prices and the favorable impact
resulting from the addition of the Chaska, Houston and Palm Springs Operating
Centers.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $2.2 million, or 50%, from $4.4 million to
$6.6 million for the three months ended June 30, 1998 and 1999, respectively,
and increased $3.5 million, or 45%, from $7.9 million to $11.4 million, for
the six months ended June 30, 1998 and 1999, respectively. The increase was
due to (i) an increase in selling expense of $413,000 and $1.2 million for the
three and six months ended June 30, 1999, respectively, due to the deployment
of a national sales force throughout 1998, (ii) an increase of $788,000 and
$1.1 million for the three and six months ended June 30, 1999, respectively,
relating to the Chaska, Houston and Palm Springs Operating Centers which were
acquired on February 10, 1999 and included in the Company's consolidated
results beginning February 11, 1999, and (iii) an increase of approximately
$1.2 million for the three and six months ended June 30, 1999 due to costs
associated with the departure of the former Chief Executive Officer and other
management staff.
Depreciation and amortization expense. Depreciation and amortization expense
increased $744,000 from $1.3 million to $2.0 million for the three months
ended June 30, 1998 and 1999, respectively, and increased $1.2 million from
$2.5 million to $3.7 million for the six months ended June 30, 1998 and 1999,
respectively. The increase was primarily due to additions to property and
equipment throughout 1998. In addition, amortization of goodwill and
intangibles increased $376,000 and $578,000 for the three and six months ended
June 30, 1999, respectively, which represents amortization expense related to
the three Operating Centers acquired on February 10, 1999.
Non-recurring charge. The results for the three months ended June 30, 1999
include a non-recurring charge of approximately $3.0 million related to the
consolidation of four of the Company's Operating Centers. The Operating
Centers affected include Oradell, New Jersey and Danbury, Connecticut, which
the Company expects to close in the third quarter of 1999; and Houston, Texas,
and Palm Springs, California, which are expected to close by the end of 1999.
In conjunction with these closings, the Company is expanding its other
facilities to accommodate the transitioned business. The Company anticipates
that it will realize annual cost savings beginning in the year 2000 in the
range of $1.5 million to $2.0 million as a result of the consolidation. In
1999, the Company anticipates that the cost savings will be offset by
incremental costs associated with executing the consolidation plan. In
addition, the Company plans to combine its Corporate offices and its Cambridge
Center in the first half of 2000. The non-recurring charge includes (i)
approximately $1.2 million associated with facility lease costs from the exit
dates through the lease termination dates (net of estimated sublease income),
(ii) $860,000 associated with personnel reductions of approximately 130
conference coordinators, customer service, technical support, and general and
administrative positions, (iii) $683,000 associated with the impairment of
intangible assets, (iv) $150,000 associated with legal fees and other exit
costs, and (v) $114,000 associated with the write-off of leasehold
improvements. No amounts have been paid as of June 30, 1999.
Interest expense, net. Interest expense, net increased $230,000 from $3.1
million to $3.3 million for the three months ended June 30, 1998 and 1999,
respectively, and increased $556,000 from $6.1 million to $6.7 million for the
six months ended June 30, 1998 and 1999, respectively. The increase was
primarily due to the following: (i) $154,000 and $298,000 for the three and
six months ended June 30, 1999, respectively, of interest expense related to
the Company's revolving credit facility executed in the fourth quarter of
1998, (ii) $44,000
14
<PAGE>
and $89,000 for the three and six months ended June 30, 1999, respectively, of
non-cash interest expense related to the amortization of deferred debt
issuance costs, and (iii) decreased interest income of approximately $32,000
and $169,000 for the three and six months ended June 30, 1999, respectively,
due to reduced cash balances.
Liquidity and Capital Resources
The Company generated positive cash flows of $1.2 million for the six months
ended June 30, 1999 as compared to negative cash flows of $6.0 million for the
six months ended June 30, 1998. For the six months ended June 30, 1999, the
Company generated negative cash flows from operations of $642,000 compared to
negative cash flows from operations of $2.4 million for the six months ended
June 30, 1998. Cash used in investing activities of $33.4 million for the six
months ended June 30, 1999 included $29.1 million related to the acquisitions
of ABCC, CPI and ABCI, as well as $4.3 million related to the acquisition of
property and equipment. Cash provided by financing activities of $35.2 million
for the six months ended June 30, 1999 includes $33.4 million in proceeds from
the issuance of common stock, the majority of which relates to the initial
public offering of common stock which was completed on February 10, 1999.
On November 12, 1997, the Company completed a Private Placement of $75.0
million of Senior Notes. The Senior Notes bear interest at 12 3/4% per annum,
payable semi-annually on May 15 and November 15 of each year. The Senior Notes
are guaranteed by the Operating Centers and mature on November 15, 2001. The
Senior Notes are redeemable in whole or in part at the option of the Company
on or after November 15, 1999 at 110% of the principal amount thereof, and on
or after November 15, 2000 at 105% of the principal amount thereof until
maturity, in each case together with accrued interest to the date of
redemption. In addition, there are certain other early redemption options
available to the Company at any time on or prior to November 15, 1999 at
certain premiums, as specified in the Indenture. In the event of a change in
control, as defined in the Indenture, the Company may be required to
repurchase all of the outstanding Senior Notes at 101% of the principal amount
plus accrued interest and additional interest, if any. The Indenture contains
restrictive covenants with respect to the Company that among other things,
create limitations (subject to certain exceptions) on (i) the incurrence of
additional indebtedness, (ii) the ability of the Company to purchase, redeem
or otherwise acquire or retire any Common Stock or warrants, rights or options
to acquire Common Stock, to retire any subordinated indebtedness prior to
final maturity or to make investments in any person, (iii) certain
transactions with affiliates, (iv) the ability to materially change the
present method of conducting business, (v) the granting of liens on property
or assets, (vi) mergers, consolidations and the disposition of assets, (vii)
declaring and paying any dividends or making any distribution on shares of
Common Stock, and (viii) the issuance or sale of any capital stock of the
Company's subsidiaries. The Indenture does not require the Company to maintain
compliance with any financial ratios or tests, except with respect to certain
restrictive covenants noted above. At June 30, 1999, the Company was in
compliance with all covenants contained in the Indenture.
On October 6, 1998, the Company executed a two year, $15.0 million credit
facility (the "Credit Facility") with Coast Business Credit, a division of
Southern Pacific Bank. The Credit Facility provides for (i) a term loan in the
principal amount of $1.5 million, (ii) a term loan of up to 80% of the
purchase price of new and used equipment, not to exceed $4.0 million, and
(iii) a revolving loan based on a percentage of eligible accounts receivable.
Loans under the Credit Facility bear interest at the higher of 7% or the Prime
Rate plus 1 1/2%, and interest is based on a minimum outstanding principal
balance of the greater of $5.0 million or 33% of the available Credit
Facility. The Credit Facility includes certain early termination fees. The
Credit Facility is secured by the assets of each of the Operating Centers and
the assets of VIALOG Corporation, excluding the ownership interest in each of
the Operating Centers. The Company is required to maintain compliance with
certain financial ratios and tests, including a debt service coverage ratio
and minimum net worth level. At June 30, 1999, the Company was in compliance
with such ratios and tests. As of June 30, 1999, the Company had outstanding
$1.4 million on the term loan; $1.1 million on the equipment term loan; and
$4.2 million on the revolving loan.
The Company anticipates that its expected cash flows from operations,
supplemented by borrowings under the Credit Facility, will meet or exceed its
working capital needs, debt service requirements, planned capital expenditures
for property and equipment and payment of the cash portion of the non-
recurring charges for the
15
<PAGE>
next twelve months. The Company expects to meet its longer term liquidity
requirements, including repayment of the Senior Notes, through a combination
of working capital, cash flow from operations, borrowings, and future
issuances of debt and/or equity securities. However, no assurances can be
given that such funds will be available when required or on terms favorable to
the Company.
The Company intends to continue pursuing attractive acquisition
opportunities. The timing, size or success of any acquisition and the
associated potential capital commitments are unpredictable. The Company plans
to fund future acquisitions primarily through a combination of working
capital, cash flow from operations and borrowings, as well as issuances of
debt and/or equity securities. However, no assurances can be given that such
funds will be available when required or on terms favorable to the Company.
The Acquisition agreements, pursuant to which the Original Acquisitions were
acquired, except for the Oradell Center, limit through 1999 the Company's
ability to change the location of an Operating Center's facilities (except for
the Montgomery Center), physically merge the Operating Center's operations
with another operation, change the position of those employees who received
employment agreements pursuant to the applicable Acquisition agreement, reduce
the workforce or terminate employees (except as related to employee
performance, the contemplated reorganization of the combined sales and
marketing staff and the consolidation of certain accounting functions) without
the approval of a majority in interest of the former stockholders of the
affected Operating Center. The acquisition agreement pursuant to which ABCC
was acquired contains similar restrictions with respect to changes at ABCC.
These restrictions are in effect until February 10, 2001, unless such
restrictions are earlier waived by one of the former ABCC stockholders. In
connection with the consolidation of the Atlanta and Montgomery Centers, the
Company has obtained the approvals of a majority in interest of the former
stockholders of the Atlanta and Montgomery Centers. In connection with the
closing of the Danbury Center, the Company has obtained the approvals of a
majority in interest of the former stockholders of the Danbury Center. Based
on the term of these limitations and the fact that the Company has been
growing and adding additional employees, the Company does not believe that
these limitations will have a significant impact on the future results of
operations and liquidity.
The Company is highly leveraged at June 30, 1999. This indebtedness requires
the Company to dedicate a significant portion of its cash flow from operations
to service its indebtedness and makes the Company more vulnerable to
unfavorable changes in general economic conditions.
Year 2000 Compliance
State of readiness. The Company's current Year 2000 readiness project
consists of the following phases: (i) identification of internal systems and
components that will be in service in the 21st century, (ii) assessment of
internal system repair or replacement requirements, (iii) assessment of
supplier and service provider Year 2000 readiness, (iv) repair or replacement
of both internal and external systems or components, (v) testing, (vi)
implementation, and (vii) development of a contingency plan in the event of
Year 2000 failures.
The Company has completed the identification phase of its Year 2000
readiness project. The Company has prepared a comprehensive inventory of all
systems and system components in use, and has identified which systems and
system components will be in use beyond the year 1999.
The Company has also completed the assessment of internal systems phase. For
each internal system and system component which will be in use beyond 1999,
the Company has determined its Year 2000 readiness. The Company has
substantially completed the repair or replacement and testing required for
each internal system and component which was not Year 2000 compliant and has
scheduled such repair or replacement for the few remaining systems or
components which are not yet Year 2000 compliant. Additionally, in connection
with its plans to integrate the Operating Centers, the Company is in the
process of implementing certain common systems in both the operations and
financial management areas. Such common systems are Year 2000 compliant, a
criteria of the systems integration plan. The Company expects all of its
internal systems and system components to be Year 2000 compliant by September
30, 1999.
16
<PAGE>
The Company has substantially completed the assessment of its supplier and
service provider Year 2000 readiness phase. The Company has contacted all
major suppliers and service providers and has received Year 2000
certifications from substantially all major suppliers and service providers.
However, there is no assurance that the Company's suppliers or service
providers will not suffer a Year 2000 business disruption which could have a
material adverse impact on the Company's business, financial condition and
results of operations.
The Company has not yet developed a Year 2000-specific contingency plan as
the Company expects its systems and system components to be Year 2000
compliant by September 30, 1999. The Company intends to prepare a contingency
plan as it becomes aware of Year 2000 problems or risks.
Costs. To date, the Company has not incurred any material expenditures in
connection with its Year 2000 assessment and remediation efforts. Most of its
expenses have related to the opportunity cost of time spent by employees of
the Company evaluating Year 2000 compliance matters. As the Company continues
with the deployment of new systems related to its planned efforts to integrate
the Operating Centers, such new systems will be Year 2000 compliant. The cost
of purchasing or developing, and deploying these new systems are not
considered Year 2000 costs as they were included in the Company's integration
plan and were not accelerated due to Year 2000 issues.
Risks. The Company relies heavily on the use of telecommunications systems
and services--both internally deployed and from multiple third party service
providers. Thus, the Company believes that telecommunications is the area most
sensitive to problems with Year 2000 readiness. Failure of one or more of the
Company's telecommunications service providers to become Year 2000 compliant
on a timely basis could, in a worst case scenario, render the Company unable
to schedule or conduct conference calls and other group communications
services, and could have a material adverse impact on the Company's business,
financial condition and results of operations. However, the Company believes
that its ability to redistribute certain of its telecommunications services
among its multiple Operating Centers and third party service providers could
lessen any potential adverse impact.
New Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-1, "Accounting for Costs of Computer Software
Developed or Obtained for Internal Use." SOP 98-1 provides guidance on
accounting for the costs of computer software developed or obtained for
internal use, and is effective for fiscal years beginning after December 31,
1998, with earlier application encouraged. The Company adopted SOP 98-1 on
January 1, 1999, the adoption of which did not have a material effect on the
Company's financial statements.
Cautionary Statements for Forward Looking Information
Management's discussion and analysis set forth above contains certain
forward looking statements, including statements regarding its financial
position, results of operations and Year 2000 compliance. These forward
looking statements are based on current expectations. Certain factors have
been identified by the Company which could cause the Company's actual results
to differ materially from expected and historical results. These factors are
discussed in the Safe Harbor for Forward Looking Statements section of the
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in the Company's Form 10-K for the year ended December 31,
1998, and should be read in conjunction with this Form 10-Q.
17
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Other than as described below, there are no material pending legal
proceedings to which the Company is a party or to which any of its properties
are subject.
A former employee of Conference Source International, Inc. ("CSI") has
claimed in writing that he may be entitled to up to five percent of the stock
of CSI, based on an unsigned paper outlining possible employment terms. Based
on the $18.7 million consideration paid to CSI's stockholders upon the
consummation of the acquisition of CSI by the Company, the value of a five
percent equity interest in CSI would be approximately $934,000. CSI's position
is that the only agreements with such employee were set forth in two
successive executed employment agreements, each of which had a specific
provision that such agreement was inclusive as to the terms of employment. The
Company and the former stockholders of CSI believe that such claim is without
merit.
Item 6. Exhibits and Reports on Form 8-K
(a)Exhibits.
Exhibit 11(a)--Calculation of Shares Used in Determining Net Loss Per
Share
Exhibit 27--Financial Data Schedule
(b)Reports on Form 8-K.
A report on Form 8-K was filed on June 9, 1999 to report the appointment of
Kim Mayyasi to the position of President and Chief Executive Officer,
effective July 1, 1999. The Company also announced the resignation of Glenn
Bolduc as President and CEO.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
VIALOG Corporation
(Registrant)
Date: August 16, 1999
/s/ Kim Mayyasi
_____________________________________
Kim Mayyasi,
President and Chief Executive
Officer
/s/ John J. Dion
_____________________________________
John J. Dion,
Vice President--Finance and
Treasurer (Principal Financial
Officer and Principal Accounting
Officer)
19
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
11(a)--Calculation of Shares Used in Determining Net Loss Per Share........ 21
</TABLE>
20
<PAGE>
VIALOG Corporation
Calculation of Shares Used in Determining Loss Per Share
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- --------------------------
1998 1999 1998 1999
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Common stock, beginning
of period.............. 3,576,440 8,399,066 3,486,380 3,693,672
Weighted average common
shares issued during
period, net............ 51,632 163,183 98,990 3,446,474
Common stock options and
warrants using the
treasury stock method.. -- -- -- --
------------- ------------- ------------ ------------
3,628,072 8,562,249 3,585,370 7,140,146
============= ============= ============ ============
Net loss (in
thousands)............. $ (2,954) $ (5,208) $ (5,548) $ (6,925)
============= ============= ============ ============
Basic and diluted net
loss per share......... $ (0.81) $ (0.61) $ (1.55) $ (0.97)
============= ============= ============ ============
</TABLE>
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,426,000
<SECURITIES> 0
<RECEIVABLES> 11,563,000
<ALLOWANCES> 380,000
<INVENTORY> 0
<CURRENT-ASSETS> 13,637,000
<PP&E> 19,290,000
<DEPRECIATION> 3,236,000
<TOTAL-ASSETS> 102,366,000
<CURRENT-LIABILITIES> 15,511,000
<BONDS> 74,118,000
0
0
<COMMON> 87,000
<OTHER-SE> 9,868
<TOTAL-LIABILITY-AND-EQUITY> 102,366,000
<SALES> 33,913,000
<TOTAL-REVENUES> 33,913,000
<CGS> 0
<TOTAL-COSTS> 15,884,000
<OTHER-EXPENSES> 18,194,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,710,000
<INCOME-PRETAX> (6,875,000)
<INCOME-TAX> (50,000)
<INCOME-CONTINUING> (6,925,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,925,000)
<EPS-BASIC> (.97)
<EPS-DILUTED> (.97)
</TABLE>
