<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 SEPTEMBER 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 November 9, 1999 the registrant had outstanding an aggregate of 9,054,328
shares of its Common Stock, $.01 par value.
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<PAGE>
VIALOG CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
PART I. FINANCIAL INFORMATION -----
<S> <C>
Item 1. Financial Statements
HISTORICAL FINANCIAL STATEMENTS
Consolidated Balance Sheets at December 31, 1998 and September 30, 1999
(Unaudited)........................................................... 3
Consolidated Statements of Operations (Unaudited) for the Three and
Nine Months Ended September 30, 1998 and 1999......................... 4
Consolidated Statements of Cash Flows (Unaudited) for the Nine Months
Ended September 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
Nine Months Ended September 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............................................ 13-18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................... 19
Item 4. Submission of Matters to a Vote of Security Holders............. 19
Item 6. Exhibits and Reports on Form 8-K................................ 19
Signatures............................................................... 20
Exhibit Index............................................................ 21
</TABLE>
2
<PAGE>
VIALOG CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents......................... $ 232 $ 2,533
Accounts receivable, net of allowance for doubtful
accounts of $164 and $416, respectively.......... 7,391 10,600
Prepaid expenses.................................. 425 466
Deferred offering costs........................... 596 --
Other current assets.............................. 165 280
-------- --------
Total current assets............................ 8,809 13,879
Property and equipment, net......................... 11,987 16,424
Deferred debt issuance costs........................ 5,429 4,191
Goodwill and intangible assets, net................. 41,679 66,117
Other assets........................................ 1,362 650
-------- --------
Total assets.................................... $ 69,266 $101,261
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<S> <C> <C>
Current liabilities:
Revolving line of credit.......................... $ 2,057 $ 3,588
Current portion of long-term debt................. 1,465 1,792
Accounts payable.................................. 3,064 2,909
Accrued interest expense.......................... 1,215 3,606
Accrued expenses and other liabilities............ 3,386 5,145
-------- --------
Total current liabilities....................... 11,187 17,040
Long-term debt, less current portion................ 74,189 73,983
Other long-term liabilities......................... 482 2,517
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 8,932,357 shares,
respectively;
outstanding: 3,693,672 and 8,921,726 shares,
respectively..................................... 37 89
Additional paid-in capital........................ 11,854 45,565
Accumulated deficit............................... (28,483) (37,886)
Treasury stock, at cost; 0 and 10,631 shares,
respectively..................................... -- (47)
-------- --------
Total stockholders' equity (deficit)............ (16,592) 7,721
-------- --------
Total liabilities and stockholders' equity
(deficit)...................................... $ 69,266 $101,261
======== ========
</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 Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1998 1999 1998 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net revenues.................. $ 11,602 $ 17,002 $ 34,770 $ 50,915
Cost of revenues, excluding
depreciation................. 5,730 8,306 17,864 24,190
Selling, general and
administrative expense....... 3,683 5,628 11,627 17,111
Depreciation expense.......... 755 1,106 1,990 3,006
Amortization of goodwill and
intangibles.................. 621 999 1,870 2,828
Non-recurring charge.......... 1,200 -- 1,200 2,982
---------- ---------- ---------- ----------
Operating income (loss)..... (387) 963 219 798
Interest expense, net......... (3,156) (3,391) (9,310) (10,101)
---------- ---------- ---------- ----------
Loss before income tax
expense.................... (3,543) (2,428) (9,091) (9,303)
Income tax expense............ -- (50) -- (100)
---------- ---------- ---------- ----------
Net loss.................... $ (3,543) $ (2,478) $ (9,091) $ (9,403)
========== ========== ========== ==========
Net loss per share--basic and
diluted...................... $ (0.96) $ (0.28) $ (2.51) $ (1.23)
========== ========== ========== ==========
Weighted average shares
outstanding.................. 3,675,347 8,739,225 3,615,362 7,627,620
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
VIALOG CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------
1998 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................. $ (9,091) $ (9,403)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation........................................... 1,990 3,006
Amortization of goodwill and intangibles............... 1,870 2,828
Amortization of debt issuance costs and debt discount.. 2,245 2,371
Provision for doubtful accounts........................ 145 294
Compensation expense for issuance of common stock and
options............................................... 31 52
Non-cash portion of non-recurring charge............... 292 797
Changes in operating assets and liabilities, net of
effects from acquisitions of businesses:
Accounts receivable.................................... (1,720) (1,858)
Prepaid expenses and other current assets.............. (117) (81)
Other assets........................................... (177) 746
Accounts payable....................................... 1,141 (694)
Accrued expenses....................................... 1,880 3,844
Other long-term liabilities............................ 290 860
-------- --------
Cash flows provided by (used in) operating
activities.......................................... (1,221) 2,762
-------- --------
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired......... -- (29,095)
Additions to property and equipment...................... (6,141) (5,786)
Deferred acquisition costs............................... (381) --
-------- --------
Cash flows used in investing activities.............. (6,522) (34,881)
-------- --------
Cash flows from financing activities:
Advances on line of credit, net.......................... -- 1,531
Payments of long-term debt, net.......................... (297) (1,327)
Proceeds from issuance of common stock................... 44 33,664
Deferred offering costs.................................. (443) 596
Deferred debt issuance costs............................. (35) (44)
-------- --------
Cash flows provided by (used in) financing
activities.......................................... (731) 34,420
-------- --------
Net increase (decrease) in cash and cash equivalents....... (8,474) 2,301
Cash and cash equivalents at beginning of period........... 9,567 232
-------- --------
Cash and cash equivalents at end of period................. $ 1,093 $ 2,533
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest............................................... $ 4,974 $ 5,351
-------- --------
Taxes.................................................. $ 8 $ --
======== ========
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 nine months
ended September 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.
6
<PAGE>
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
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):
<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, September 30,
1998 1999
------------ -------------
(in thousands)
<S> <C> <C>
12 3/4% Senior Notes Payable, due 2001, net of
unamortized discount of $3,115 and $2,299,
respectively.................................... $71,885 $72,701
Term loans....................................... 3,030 2,204
Capitalized lease obligations.................... 669 328
Other long-term debt............................. 70 542
------- -------
Total long-term debt........................... 75,654 75,775
Less current portion........................... 1,465 1,792
------- -------
Total long-term debt, less current portion..... $74,189 $73,983
======= =======
</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 nine months
ended September 30, 1998 and 1999, common stock equivalents of 2,172,724,
1,188,783, 1,993,818 and 1,445,097 for the three months ended
7
<PAGE>
VIALOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
September 30, 1998 and 1999 and the nine months ended September 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 nine months ended September 30, 1998 and 1999 is the
same as basic net loss per share and, therefore, has not been presented
separately.
(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 nine months ended September 30, 1999, the Company paid
out approximately $47,000 and $382,000, respectively, related to personnel
reductions and the facility closing. At September 30, 1999, approximately
$494,000 of the original accrual for the non-recurring charge was remaining
for estimated costs still to be incurred related to the consolidation.
During the second quarter of 1999, the Company incurred a $3.0 million non-
recurring charge 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 closed 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. During the three months ended September 30, 1999, the Company
paid out approximately $277,000 related primarily to personnel reductions and
facility closings and wrote off approximately $246,000 of intangible assets
and leasehold improvements related to the Oradell and Danbury Centers. At
September 30, 1999, approximately $2.5 million of the original accrual for the
non-recurring charge was remaining for estimated costs still to be incurred
related to the consolidation.
(8) 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 nine months ended September 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
-------- ------- -------- -------- ------- ------ ------ ------ ------- ------ ------------
Balance Sheet
Information (In thousands)
as of September
30, 1999
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total current
assets.......... $(12,966) $11,743 $ -- $ 6,459 $ 3,721 $3,199 $1,354 $ 737 $ (980) $ 612 $ --
Property and
equipment, net.. 802 6,883 -- 4,816 1,377 1,045 400 408 555 138 --
Investment in
subsidiaries.... 85,697 -- -- -- -- -- -- -- -- -- (85,697)
Goodwill and
intangible
assets, net..... -- 14,367 -- 16,911 14,790 3,584 5,792 5,940 2,547 2,186 --
Other assets..... 4,364 298 -- 64 -- 4 40 -- 65 6 --
-------- ------- -------- -------- ------- ------ ------ ------ ------ ------ --------
Total assets.... $ 77,897 $33,291 $ -- $ 28,250 $19,888 $7,832 $7,586 $7,085 $2,137 $2,942 $(85,697)
======== ======= ======== ======== ======= ====== ====== ====== ====== ====== ========
Current
liabilities..... $ 12,156 $ 1,288 $ -- $ 775 $ 478 $ 481 $ 742 $ 680 $ 122 $ 318 $ --
Long-term debt,
excluding
current
portion......... 73,803 -- -- 85 -- 44 (130) 128 53 -- --
Other
liabilities..... 473 225 -- 472 -- -- 346 360 521 120 --
Stockholders'
equity
(deficit)....... (8,535) 31,778 -- 26,918 19,410 7,307 6,628 5,917 1,491 2,504 (85,697)
-------- ------- -------- -------- ------- ------ ------ ------ ------ ------ --------
Total
liabilities and
stockholders'
equity
(deficit)...... $ 77,897 $33,291 $ -- $ 28,250 $19,888 $7,832 $7,586 $7,085 $2,187 $2,942 $(85,697)
======== ======= ======== ======== ======= ====== ====== ====== ====== ====== ========
<CAPTION>
Statement of
Operations
Information
for the Nine
Months Ended
September 30,
1999 (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues..... $ -- $20,002 $ 374 $ 11,335 $ 6,230 $5,214 $2,625 $2,234 $1,385 $1,974 $ (458)
Cost of revenues,
excluding
depreciation.... -- 9,018 236 6,586 1,947 2,502 908 1,186 830 1,435 (458)
Selling, general
and
administrative
expenses........ 10,865 1,491 26 1,148 921 781 701 572 261 345 --
Depreciation
expense......... 135 1,260 40 800 129 197 110 110 90 135 --
Amortization of
goodwill and
intangibles..... -- 656 72 757 544 153 214 216 117 99 --
Non-recurring
charge.......... 454 -- -- -- -- -- 329 721 911 567
-------- ------- -------- -------- ------- ------ ------ ------ ------ ------ --------
Operating income
(loss)......... (11,454) 7,577 -- 2,044 2,689 1,581 363 (571) (824) (607) --
Interest income
(expense), net.. (10,023) 3 (4) (27) -- (16) (35) 12 (11) -- --
-------- ------- -------- -------- ------- ------ ------ ------ ------ ------ --------
Loss before
income tax
expense........ (21,477) 7,580 (4) 2,017 2,689 1,565 328 (559) (835) (607) --
Income tax
expense......... -- (100) -- -- -- -- -- -- -- -- --
-------- ------- -------- -------- ------- ------ ------ ------ ------ ------ --------
Net income
(loss)......... $(21,477) $ 7,480 $ (4) $ 2,017 $ 2,689 $1,565 $ 328 $ (559) $ (835) $ (607) $ --
======== ======= ======== ======== ======= ====== ====== ====== ====== ====== ========
<CAPTION>
Cash Flow
Information for
the Nine Months
Ended
September 30,
1999 (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cash flows
provided by
(used in)
operating
activities...... $ (2,851) $ 1,799 $ 17,687 $(15,455) $ 698 $ 349 $ 360 $ 217 $ 57 $ (99) $ --
Cash flows
provided by
(used in)
investing
activities...... (29,471) (2,229) 1,602 (3,562) (744) (248) (52) (81) (40) (56) --
Cash flows
provided by
(used in)
financing
activities...... 34,409 499 (19,350) 19,185 -- (86) (241) 21 (17) -- --
-------- ------- -------- -------- ------- ------ ------ ------ ------ ------ --------
Net increase
(decrease) in
cash and cash
equivalents..... 2,087 69 (61) 168 (46) 15 67 157 -- (155) --
Cash and cash
equivalents at
the beginning of
period.......... 90 -- 61 61 -- -- -- -- -- 20 --
-------- ------- -------- -------- ------- ------ ------ ------ ------ ------ --------
Cash and cash
equivalents at
the end of
period.......... $ 2,177 $ 69 $ -- $ 229 $ (46) $ 15 $ 67 $ 157 $ -- $ (135) $ --
======== ======= ======== ======== ======= ====== ====== ====== ====== ====== ========
<CAPTION>
Consolidated
------------
Balance Sheet
Information
as of September
30, 1999
(unaudited)
<S> <C>
Total current
assets.......... $ 13,879
Property and
equipment, net.. 16,424
Investment in
subsidiaries.... --
Goodwill and
intangible
assets, net..... 66,117
Other assets..... 4,841
------------
Total assets.... $101,261
============
Current
liabilities..... $ 17,040
Long-term debt,
excluding
current
portion......... 73,983
Other
liabilities..... 2,517
Stockholders'
equity
(deficit)....... 7,721
------------
Total
liabilities and
stockholders'
equity
(deficit)...... $101,261
============
<CAPTION>
Statement of
Operations
Information
for the Nine
Months Ended
September 30,
1999 (unaudited)
<S> <C>
Net revenues..... $ 50,915
Cost of revenues,
excluding
depreciation.... 24,190
Selling, general
and
administrative
expenses........ 17,111
Depreciation
expense......... 3,006
Amortization of
goodwill and
intangibles..... 2,828
Non-recurring
charge.......... 2,982
------------
Operating income
(loss)......... 798
Interest income
(expense), net.. (10,101)
------------
Loss before
income tax
expense........ (9,303)
Income tax
expense......... (100)
------------
Net income
(loss)......... $ (9,403)
============
<CAPTION>
Cash Flow
Information for
the Nine Months
Ended
September 30,
1999 (unaudited)
<S> <C>
Cash flows
provided by
(used in)
operating
activities...... $ 2,762
Cash flows
provided by
(used in)
investing
activities...... (34,881)
Cash flows
provided by
(used in)
financing
activities...... 34,420
------------
Net increase
(decrease) in
cash and cash
equivalents..... 2,301
Cash and cash
equivalents at
the beginning of
period.......... 232
------------
Cash and cash
equivalents at
the end of
period.......... $ 2,533
============
</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 NINE MONTHS ENDED SEPTEMBER 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............ $ 50,915 $1,058 $ 444 $ 408 $ -- $ 52,825
Cost of revenues,
excluding
depreciation........... 24,190 295 214 137 24,836
Selling, general and
administrative
expense................ 17,111 224 136 145 (98)(a) 17,518
Depreciation expense.... 3,006 23 15 26 3,070
Amortization of goodwill
and intangibles........ 2,828 -- -- -- 170 (b) 2,998
Non-recurring charge.... 2,982 2,982
---------- ------ ------ ------ ----- ----------
Operating income...... 798 516 79 100 (72) 1,421
Interest expense, net... (10,101) -- (5) (9) (10,115)
---------- ------ ------ ------ ----- ----------
Income (loss) before
income taxes......... (9,303) 516 74 91 (72) (8,694)
Income tax expense...... (100) -- -- -- -- (100)
---------- ------ ------ ------ ----- ----------
Net income (loss)..... $ (9,403) $ 516 $ 74 $ 91 $ (72) $ (8,794)
========== ====== ====== ====== ===== ==========
Net loss per share--
basic and diluted...... $ (1.23) $ (1.03)(c)
========== ==========
Weighted average shares
outstanding............ 7,627,620 8,547,620 (c)
========== ==========
VIALOG CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(In thousands, except share and per share data)
<CAPTION>
Pro Forma
VIALOG -------------------------------
Corp. ABCC CPI ABCI Adjustments(1) Consolidated(1)
---------- ------ ------ ------ -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues............ $ 34,770 $5,509 $1,798 $2,104 $ -- $ 44,181
Cost of revenues,
excluding
depreciation........... 17,864 1,804 873 752 -- 21,293
Selling, general and
administrative
expense................ 11,627 1,094 662 843 (237)(a) 13,989
Depreciation expense.... 1,990 111 114 121 -- 2,336
Amortization of goodwill
and intangibles........ 1,870 -- -- -- 1,143 (b) 3,013
Non-recurring charge.... 1,200 -- -- -- 1,200
---------- ------ ------ ------ ----- ----------
Operating income...... 219 2,500 149 388 (906) 2,350
Interest income
(expense), net......... (9,310) 4 (25) (91) -- (9,422)
---------- ------ ------ ------ ----- ----------
Income (loss) before
income taxes......... (9,091) 2,504 124 297 (906) (7,072)
Income taxes............ -- -- -- (145) 145 --
---------- ------ ------ ------ ----- ----------
Net income (loss)..... $ (9,091) $2,504 $ 124 $ 152 $(761) $ (7,072)
========== ====== ====== ====== ===== ==========
Net loss per share--
basic and diluted...... $ (2.51) $ (0.86)(c)
========== ==========
Weighted average shares
outstanding............ 3,615,362 8,215,362 (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 nine months ended September 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 $5.4 million, or 47%,
from $11.6 million to $17.0 million for the three months ended September 30,
1998 and 1999, respectively, and increased $16.1 million, or 46%, from $34.8
million to $50.9 million for the nine months ended September 30, 1998 and
1999, respectively. The increase was primarily due to increased call volumes
for audioconferencing and videoconferencing services during the three and nine
months ended September 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 $2.5
million and $6.6 million for the three and nine months ended September 30,
1999, respectively, which consisted of increased sales of teleconferencing
services to existing and new customers, (ii) a net decrease in the combined
Atlanta-Montgomery Center's revenues of $1.0 million and $1.7 million for the
three and nine months ended September 30, 1999, respectively, which was caused
primarily by the loss of two major customers which acquired or merged with
competitors of the Company, (iii) an increase in the Cambridge Center's
revenues for the nine months ended September 30, 1999 of $847,000, which
consisted of increased audio teleconferencing services to existing and new
customers, (iv) a decrease in the Oradell Center's revenues of approximately
$583,000 and $698,000 for the three and nine months ended September 30, 1999,
respectively, which was caused by the closing of this center on July 31, 1999
and the concurrent transfer of its traffic primarily to the Reston Center, and
(v) an increase of $4.5 million and $11.1 million for the three and nine
months ended September 30, 1999, respectively, relating to the Chaska, Houston
and Palm Springs 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 honored its outsourcing contract with the
Company, which expired in July, 1999. Although the significant reduction in
net revenues from this customer has reduced the Company's 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 $2.6 million, or 45%, from $5.7 million
to $8.3 million for the three months ended September 30, 1998 and 1999,
respectively, and increased $6.3 million, or 35%, from $17.9 million to $24.2
million for the nine months ended September 30, 1998 and 1999, respectively,
but decreased as a percentage of revenue from 49.4% to 48.9% for the three
months ended September 30, 1998 and 1999, respectively, and from 51.4% to
47.5% for the nine months ended September 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 $1.2 million and $3.0 million for
the three and nine months ended September 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
$151,000 and $579,000 for the three and nine months ended September 30, 1999,
respectively, which was caused primarily
13
<PAGE>
by a reduction in volume due to the loss of two major customers which acquired
or merged with competitors of the Company, (iii) an increase in the Cambridge
Center's cost of revenues, excluding depreciation, for the nine months ended
September 30, 1999 of $200,000 resulting from increased staffing and
operations-related costs associated with increased call volumes, (iv) a
decrease in the Oradell Center's cost of revenues, excluding depreciation, of
approximately $310,000 and $489,000 for the three and nine months ended
September 30, 1999, respectively, which was caused by the closing of this
center on July 31, 1999 and the concurrent transfer of its traffic primarily
to the Reston Center, and (v) an increase of $1.8 million and $4.1 million for
the three and nine months ended September 30, 1999, respectively, relating to
the Chaska, Houston and Palm Springs 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
Centers.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $1.9 million, or 53%, from $3.7 million to
$5.6 million for the three months ended September 30, 1998 and 1999,
respectively, and increased $5.5 million, or 47%, from $11.6 million to $17.1
million, for the nine months ended September 30, 1998 and 1999, respectively.
The increase was primarily due to (i) an increase in selling expense of
$359,000 and $1.9 million for the three and nine months ended September 30,
1999, respectively, primarily due to the increased size of the national sales
force in 1999, (ii) an increase of $793,000 and $2.2 million for the three and
nine months ended September 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, (iii) an increase in general and administrative expense of $515,000 for
the three months ended September 30, 1999 related to increased staffing costs
such as compensation, benefits and travel expenses, and (iv) an increase of
approximately $1.2 million for the nine months ended September 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 $729,000 from $1.4 million to $2.1 million for the three
months ended September 30, 1998 and 1999, respectively, and increased $1.9
million from $3.9 million to $5.8 million for the nine months ended September
30, 1998 and 1999, respectively. The increase was primarily due to additions
to property and equipment throughout 1998 and 1999 as well as the additional
property and equipment purchased in connection with the Chaska, Houston and
Palm Springs Centers which were acquired on February 10, 1999. In addition,
amortization of goodwill and intangibles increased $378,000 and $958,000 for
the three and nine months ended September 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 nine months ended September 30,
1999 include a non-recurring charge of approximately $3.0 million which was
incurred during the second quarter of 1999 and 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 closed
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. During the three
months ended September 30, 1999, the Company paid out approximately $277,000
related primarily to personnel reductions
14
<PAGE>
and facility closings and wrote off approximately $246,000 of intangible
assets and leasehold improvements related to the Oradell and Danbury Centers.
The results for the three and nine months ended September 30, 1998 include a
non-recurring charge of $1.2 million 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 nine months ended September 30, 1999, the
Company paid out approximately $47,000 and $382,000, respectively, related to
personnel reductions and the facility closing.
Interest expense, net. Interest expense, net increased $235,000 from $3.2
million to $3.4 million for the three months ended September 30, 1998 and
1999, respectively, and increased $791,000 from $9.3 million to $10.1 million
for the nine months ended September 30, 1998 and 1999, respectively. The
increase was primarily due to the following: (i) $159,000 and $457,000 for the
three and nine months ended September 30, 1999, respectively, of interest
expense related to the Company's revolving credit facility executed in the
fourth quarter of 1998, (ii) $49,000 and $141,000 for the three and nine
months ended September 30, 1999, respectively, of non-cash interest expense
related to the amortization of deferred debt issuance costs, and (iii)
decreased interest income of approximately $27,000 and $193,000 for the three
and nine months ended September 30, 1999, respectively, due to reduced cash
balances.
Liquidity and Capital Resources
The Company generated positive cash flows of $2.3 million for the nine
months ended September 30, 1999 as compared to negative cash flows of $8.5
million for the nine months ended September 30, 1998. For the nine months
ended September 30, 1999, the Company generated positive cash flows from
operations of $2.8 million compared to negative cash flows from operations of
$1.2 million for the nine months ended September 30, 1998. Cash used in
investing activities of $34.9 million for the nine months ended September 30,
1999 included $29.1 million related to the acquisitions of ABCC, CPI and ABCI,
as well as $5.8 million related to the acquisition of property and equipment.
Cash provided by financing activities of $34.4 million for the nine months
ended September 30, 1999 includes $33.7 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 September 30, 1999, the Company was in
compliance with all covenants contained in the Indenture.
15
<PAGE>
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 September 30, 1999, the Company was in
compliance with such ratios and tests. As of September 30, 1999, the Company
had outstanding $1.2 million on the term loan; $1.0 million on the equipment
term loan; and $3.6 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 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 September 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
16
<PAGE>
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. The
Company has concluded that all of its internal systems, including all of its
teleconferencing bridges, that will be in use beyond 1999 are Year 2000
compliant except for one accounts receivable module of an accounting system
that is used in one of the Company's Operating Centers. The accounts
receivable module is not critical to the operation of the business and the
necessary changes to make this module Year 2000 compliant are scheduled to be
complete by November 30, 1999. The Company has completed the repair or
replacement and testing required for each internal system and component except
for the accounts receivable module referred to above which is scheduled to be
complete by November 30, 1999. 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 November 30, 1999.
The Company has 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 November 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.
17
<PAGE>
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.
18
<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 4. Submission of Matters to a vote of Security Holders
At a special meeting of stockholders, held on July 29, 1999, in lieu of and
for the purposes of the annual meeting, the stockholders of the Company
elected Joanna M. Jacobson and Patti R. Bisbano as Class III directors of the
Company to hold office until the 2002 Annual Meeting of Stockholders or
special meeting held in lieu thereof. The nominees were elected with the
following votes:
<TABLE>
<CAPTION>
Votes
Withheld
Election of Director Votes For or Opposed
-------------------- --------- ----------
<S> <C> <C>
Joanna M. Jacobson................................... 5,817,907 203,231
Patti R. Bisbano..................................... 5,776,857 244,281
</TABLE>
There were no broker non-votes for this proposal. Additionally, the
stockholders of the Company voted to approve and adopt the Company's 1999
Stock Plan. The vote with respect to this matter was as follows:
<TABLE>
<CAPTION>
Votes
Withheld
Votes For or Opposed
--------- ----------
<S> <C> <C>
Adoption of 1999 Stock Plan.......................... 2,068,789 540,414
</TABLE>
There were 3,411,935 broker non-votes for this proposal.
Item 6. Exhibits and Reports on Form 8-K
(a)Exhibits.
Exhibit 11(a)--Calculation of Shares Used in Determining Net Loss Per
Share
(b)Reports on Form 8-K.
A report on Form 8-K was filed on July 6, 1999 to report the appointment of
Kim Mayyasi, President and Chief Executive Officer, as a Class III Director
effective July 1, 1999 with a term expiring in May 2000.
19
<PAGE>
A report on Form 8-K was filed on August 16, 1999 to report that
approximately 26 of the Company's shareholders, including the Company's
founder and largest shareholder, have agreed with the Company to voluntarily
extend by 120 days the "lock up" period applicable to certain of the Company's
securities beneficially owned by participating shareholders. The extended
lock-up period will expire on December 3, 1999. The extended lock up period
applies to an aggregate of approximately 2,002,500 shares of the company's
common stock and options to purchase an aggregate of approximately 473,750
shares of the Company's common stock.
A report on Form 8-K was filed on August 23, 1999 to report the appointment
of Michael E. Savage to the position of Senior Vice President and Chief
Financial Officer, effective September 1, 1999.
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: November 12, 1999
/s/ Kim A. Mayyasi
_____________________________________
Kim A. Mayyasi,
President and Chief Executive
Officer
/s/ Michael E. Savage
_____________________________________
Michael E. Savage,
Senior Vice President and CFO
(Principal Financial Officer and
Principal
Accounting Officer)
20
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
11(a)--Calculation of Shares Used in Determining Net Loss Per Share... 22
</TABLE>
21
<PAGE>
VIALOG Corporation
Calculation of Shares Used in Determining Loss Per Share
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1998 1999 1998 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Common stock, beginning of
period....................... 3,665,072 8,661,722 3,486,380 3,693,672
Weighted average common shares
issued during
period, net.................. 10,275 77,503 128,982 3,933,948
Common stock options and
warrants using the treasury
stock method................. -- -- -- --
---------- ---------- ---------- ----------
3,675,347 8,739,225 3,615,362 7,627,620
========== ========== ========== ==========
Net loss (in thousands)....... $ (3,543) $ (2,478) $ (9,091) $ (9,403)
========== ========== ========== ==========
Basic and diluted net loss per
share........................ $ (0.96) $ (0.28) $ (2.51) $ (1.23)
========== ========== ========== ==========
</TABLE>
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,533,000
<SECURITIES> 0
<RECEIVABLES> 11,016,000
<ALLOWANCES> 416,000
<INVENTORY> 0
<CURRENT-ASSETS> 13,879,000
<PP&E> 20,782,000
<DEPRECIATION> 4,346,000
<TOTAL-ASSETS> 101,507,000
<CURRENT-LIABILITIES> 17,040,000
<BONDS> 73,983,000
0
0
<COMMON> 89,000
<OTHER-SE> 7,632,000
<TOTAL-LIABILITY-AND-EQUITY> 101,507,000
<SALES> 50,915,000
<TOTAL-REVENUES> 50,915,000
<CGS> 0
<TOTAL-COSTS> 24,190,000
<OTHER-EXPENSES> 25,927,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,101,000
<INCOME-PRETAX> (9,303,000)
<INCOME-TAX> (100,000)
<INCOME-CONTINUING> (9,403,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,403,000)
<EPS-BASIC> (1.23)
<EPS-DILUTED> (1.23)
</TABLE>
