<PAGE>
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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 MARCH 31, 2000
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-15527
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 May 9, 2000 the registrant had outstanding an aggregate of 9,141,854
shares of its Common Stock, $.01 par value.
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VIALOG CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at December 31, 1999 and March 31, 2000
(Unaudited)............................................................. 3
Consolidated Statements of Operations (Unaudited) for the Three Months
Ended March 31, 1999 and 2000........................................... 4
Consolidated Statements of Cash Flows (Unaudited) for the Three Months
Ended March 31, 1999 and 2000........................................... 5
Notes to Consolidated Financial Statements (Unaudited)................... 6-8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................... 9-13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................. 14
Item 6. Exhibits and Reports on Form 8-K................................... 14
Signatures................................................................. 15
Exhibit Index.............................................................. 16
</TABLE>
2
<PAGE>
VIALOG CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 547 $ 1,544
Accounts receivable, net of allowance for doubtful
accounts of $579 and $669 in 1999 and 2000,
respectively....................................... 11,637 15,233
Prepaid expenses.................................... 435 425
Other current assets................................ 310 621
-------- --------
Total current assets.............................. 12,929 17,823
Property and equipment, net........................... 17,814 19,086
Deferred debt issuance costs.......................... 3,801 3,331
Goodwill and intangible assets, net................... 64,094 63,101
Other assets.......................................... 583 1,058
-------- --------
Total assets........................................ $ 99,221 $104,399
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving line of credit............................ $ 4,770 $ 5,569
Current portion of long-term debt................... 2,332 2,449
Accounts payable.................................... 5,216 8,543
Accrued interest expense............................ 1,215 3,606
Accrued expenses and other liabilities.............. 3,319 3,153
-------- --------
Total current liabilities......................... 16,852 23,320
Long-term debt, less current portion.................. 75,827 75,402
Other long-term liabilities........................... 1,499 1,800
Commitments and contingencies
Stockholders' equity:
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: 9,144,200 and 9,148,485 shares
in 1999 and 2000, respectively;
outstanding: 9,133,569 and 9,137,854 shares in 1999
and 2000, respectively............................. 91 91
Additional paid-in capital.......................... 45,602 45,627
Accumulated deficit................................. (40,603) (41,794)
Treasury stock, at cost; 10,631 shares.............. (47) (47)
-------- --------
Total stockholders' equity........................ 5,043 3,877
-------- --------
Total liabilities and stockholders' equity........ $ 99,221 $104,399
======== ========
</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 March 31,
------------------------------
1999 2000
-------------- --------------
<S> <C> <C>
Net revenues.................................. $ 15,882 $ 19,224
Cost of revenues, excluding depreciation...... 7,633 8,593
Selling, general and administrative expense... 4,834 5,888
Depreciation expense.......................... 881 1,243
Amortization of goodwill and intangibles...... 830 1,069
-------------- --------------
Operating income............................ 1,704 2,431
Interest expense, net......................... (3,371) (3,472)
-------------- --------------
Loss before income tax expense.............. (1,667) (1,041)
Income tax expense............................ (50) (150)
-------------- --------------
Net loss.................................... $ (1,717) $ (1,191)
============== ==============
Net loss per share--basic and diluted......... $ (0.28) $ (0.13)
============== ==============
Weighted average shares outstanding--basic and
diluted...................................... 6,032,774 9,135,712
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
VIALOG CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
-----------------
1999 2000
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................... $ (1,717) $(1,191)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation.............................................. 881 1,243
Amortization of goodwill and intangibles.................. 830 1,069
Amortization of debt issuance costs and debt discount..... 784 800
Provision for doubtful accounts........................... 62 125
Compensation expense for issuance of common stock and
options.................................................. 52 --
Changes in operating assets and liabilities, net of effects
from acquisitions of businesses:
Accounts receivable....................................... (2,327) (3,721)
Prepaid expenses and other current assets................. (57) (301)
Other assets.............................................. 567 (556)
Accounts payable.......................................... (557) 3,327
Accrued expenses.......................................... 2,691 2,225
Other long-term liabilities............................... (196) 278
-------- -------
Cash flows provided by operating activities............. 1,013 3,298
-------- -------
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired........... (29,095) --
Additions to property and equipment........................ (2,590) (2,492)
-------- -------
Cash flows used in investing activities................. (31,685) (2,492)
-------- -------
Cash flows from financing activities:
Advances on line of credit, net............................ 275 799
Payments of long-term debt................................. (401) (580)
Proceeds from issuance of common stock..................... 33,512 25
Deferred offering costs.................................... 596 --
Deferred debt issuance costs............................... (16) (53)
-------- -------
Cash flows provided by financing activities............. 33,966 191
-------- -------
Net increase in cash and cash equivalents................... 3,294 997
Cash and cash equivalents at beginning of period............ 232 547
-------- -------
Cash and cash equivalents at end of period.................. $ 3,526 $ 1,544
======== =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest.................................................. $ 202 $ 284
======== =======
Taxes..................................................... $ -- $ 23
======== =======
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 quarter ended March 31,
2000 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, 1999 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 provider of
conferencing services, consisting primarily of operator-attended and operator
on-demand audioconferencing, as well as video and Internet conferencing
services. On November 12, 1997, the Company closed a private placement of
$75.0 million in Senior Notes due 2001 (the "Private Placement").
Contemporaneously with the closing of the Private Placement, the Company
acquired six private conference service bureaus located in the United States
(the "Original Acquisitions"). On February 10, 1999, the Company completed an
initial public offering of its common stock and consummated agreements to
acquire three private conference service bureaus located in the United States
(see Note 4 "Acquisitions").
Prior to November 12, 1997, the Company did not conduct any operations, and
all activities conducted by it related to the acquisitions and the completion
of financing transactions to fund the 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
$29.1 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 $3.3 million was 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 $29.1 million and
consisted of $28.4 million in cash paid to the stockholders of the acquired
companies, approximately $400,000 of acquisition costs and approximately
$300,000 related to tax reimbursements.
6
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The purchase price exceeded the fair value of the net assets by an estimated
$27.4 million. The excess was allocated to goodwill and other intangibles and
is being amortized over periods from 3 to 20 years. 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, March 31,
1999 2000
------------ ---------
($000's)
<S> <C> <C>
12 3/4% Senior Notes payable, due November 15, 2001,
net of unamortized discount of $2,027 and $1,755,
respectively........................................ $72,973 $73,245
Term loans........................................... 4,655 4,140
Capitalized lease obligations........................ 525 460
Other long-term debt................................. 6 6
------- -------
Total long-term debt............................... 78,159 77,851
Less current portion............................... 2,332 2,449
------- -------
Total long-term debt, less current portion......... $75,827 $75,402
======= =======
</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.
(6) Net Loss Per Share
As the Company was in a net loss position for the three months ended March
31, 1999 and 2000, common stock equivalents of 1,671,434 and 1,246,855,
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 months ended March 31, 1999 and 2000 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 Operating Center as well as other Operating
Centers. During the three months ended March 31, 2000, the Company paid out
approximately $25,000 related to rental costs on the Atlanta facility. At
March 31, 2000, approximately $418,000 of the original accrual for the non-
recurring charge was remaining for estimated costs still to be incurred
related to the remaining rental commitment on the Atlanta facility.
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 included Oradell, New Jersey
and Danbury, Connecticut, which the Company closed in the third quarter of
1999; and Houston, Texas and Palm Springs, California, which the Company
closed in the fourth quarter of 1999. In conjunction with the closings, the
Company expanded its other facilities to accommodate the transitioned
business. In
7
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addition, the Company plans to combine its corporate offices and its Cambridge
Center during the second quarter of 2000. During the three months ended March
31, 2000, the Company paid out approximately $321,000 related primarily to
personnel reductions and facility closings. At March 31, 2000, approximately
$1.3 million of the original accrual for the non-recurring charge was
remaining for estimated costs in accordance with the terms of the original
restructuring plan.
(8) Subsequent Events
On April 7, 2000, Vialog received a signed joint commitment letter and
attached summary of terms from two major banks relating to a proposed $75
million new senior secured term loan and revolving credit facility. The
closing under the New Credit Facility is subject to certain conditions,
including completion and execution of definitive documentation, and
accordingly there can be no assurance that the New Credit Facility will become
available.
On May 3, 2000, the Company commenced an offer to exchange an aggregate of
$58.5 million in cash and an aggregate of 165,000 newly issued shares of a new
class of convertible preferred stock, par value $0.01 per share, stated value
$100.00, for all of the Company's $75 million 12 3/4% Series B senior notes
due November 15, 2001, or $780 in cash and 2.2 shares of preferred stock for
each $1,000 principal amount of senior notes tendered in the exchange offer.
The preferred stock will be convertible into shares of common stock, $0.01 par
value per share, of the Company as described in the Company's Offering
Memorandum and Solicitation Document. Exchange of the senior notes; and (b)
the availability of at least $75 million of new bank financing on the
effective date of the exchange offer.
8
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(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 three months ended March 31, 2000. Separate financial statements and
other disclosures concerning the guarantor subsidiaries are not presented
because management has determined that they are not material to investors.
<TABLE>
<CAPTION>
VIALOG Call
Corp. Access Points ABCC TCC ABCI CPI Americo CDC Eliminations Consolidated
-------- ------- ------- ------- ------ ------ ------ ------- ------ ------------ ------------
($000's)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet
Information as of
March 31, 2000
(unaudited)
Total current
assets........... $(22,060) $18,123 $10,277 $ 6,411 $4,676 $ 801 $ 474 $(1,116) $ 237 $ -- $ 17,823
Property and
equipment, net... 1,160 8,122 5,447 2,209 919 325 324 496 84 -- 19,086
Investment in
subsidiaries..... 85,696 -- -- -- -- -- -- -- -- (85,696) --
Goodwill and
intangible
assets, net...... -- 13,663 16,359 14,165 3,480 5,374 5,456 2,479 2,125 -- 63,101
Other assets..... 3,976 248 67 22 10 10 -- 50 6 -- 4,389
-------- ------- ------- ------- ------ ------ ------ ------- ------ -------- --------
Total assets.... $ 68,772 $40,156 $32,150 $22,807 $9,085 $6,510 $6,254 $ 1,909 $2,452 $(85,696) $104,399
======== ======= ======= ======= ====== ====== ====== ======= ====== ======== ========
Current
liabilities...... $ 18,410 $ 1,710 $ 1,655 $ 305 $ 511 $ 114 $ 321 $ 142 $ 152 $ -- $ 23,320
Long-term debt,
excluding current
portion.......... 75,326 -- 46 -- 22 -- -- 8 -- -- 75,402
Other
liabilities...... 359 237 665 -- -- 20 87 432 -- -- 1,800
Stockholders'
equity
(deficit)........ (25,323) 38,209 29,784 22,502 8,552 6,376 5,846 1,327 2,300 (85,696) 3,877
-------- ------- ------- ------- ------ ------ ------ ------- ------ -------- --------
Total
liabilities and
stockholders'
equity
(deficit)....... $ 68,772 $40,156 $32,150 $22,807 $9,085 $6,510 $6,254 $ 1,909 $2,452 $(85,696) $104,399
======== ======= ======= ======= ====== ====== ====== ======= ====== ======== ========
Statement of
Operations
Information for
the Three Months
Ended March 31,
2000 (unaudited)
Net revenues..... $ -- $ 8,720 $ 4,670 $ 3,967 $1,772 $ -- $ -- $ -- $ 124 $ (29) $ 19,224
Cost of revenues,
excluding
depreciation..... 768 3,545 2,091 1,234 756 4 83 6 135 (29) 8,593
Selling, general
and
administrative
expenses......... 5,173 228 129 171 144 19 22 -- 2 -- 5,888
Depreciation
expense.......... 74 521 326 108 66 36 48 30 34 -- 1,243
Amortization of
goodwill and
intangibles...... -- 219 276 244 51 114 99 36 30 -- 1,069
-------- ------- ------- ------- ------ ------ ------ ------- ------ -------- --------
Operating income
(loss).......... (6,015) 4,207 1,848 2,210 755 (173) (252) (72) (77) -- 2,431
Interest income
(expense), net... (3,462) (5) -- -- (2) (3) -- -- -- -- (3,472)
-------- ------- ------- ------- ------ ------ ------ ------- ------ -------- --------
Loss before
income tax
expense......... (9,477) 4,202 1,848 2,210 753 (176) (252) (72) (77) -- (1,041)
Income tax
expense.......... -- (150) -- -- -- -- -- -- -- -- (150)
-------- ------- ------- ------- ------ ------ ------ ------- ------ -------- --------
Net income
(loss).......... $ (9,477) $ 4,052 $ 1,848 $ 2,210 $ 753 $ (176) $ (252) $ (72) $ (77) $ -- $ (1,191)
======== ======= ======= ======= ====== ====== ====== ======= ====== ======== ========
Cash Flow
Information for
the Three Months
Ended March 31,
2000 (unaudited)
Cash flows
provided by (used
in) operating
activities....... $ 1,002 $ 970 $ 1,254 $ 123 $ 15 $ 43 $ (32) $ 6 $ (83) $ -- $ 3,298
Cash flows
provided by (used
in) investing
activities....... (330) (869) (1,209) (82) (4) 2 (1) -- 1 -- (2,492)
Cash flows
provided by (used
in) financing
activities....... 256 (4) (10) -- (13) (32) -- (6) -- -- 191
-------- ------- ------- ------- ------ ------ ------ ------- ------ -------- --------
Net increase
(decrease) in
cash and cash
equivalents...... 928 97 35 41 (2) 13 (33) -- (82) -- 997
Cash and cash
equivalents at
the beginning of
period........... 386 (49) 91 14 -- (10) 33 -- 82 -- 547
-------- ------- ------- ------- ------ ------ ------ ------- ------ -------- --------
Cash and cash
equivalents at
the end of
period........... $ 1,314 $ 48 $ 126 $ 55 $ (2) $ 3 $ -- $ -- $ -- $ -- $ 1,544
======== ======= ======= ======= ====== ====== ====== ======= ====== ======== ========
</TABLE>
9
<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 months ended March 31, 2000 and the Form 10-K for the
year ended December 31, 1999 filed with the Securities and Exchange
Commission.
VIALOG Corporation
Results of Operations
The Company was incorporated on January 1, 1996. On November 12, 1997, the
Company consummated agreements to acquire six private conference service
bureaus, all of which became wholly-owned subsidiaries of the Company. Prior
to November 12, 1997, the Company did not conduct any operations, and all
activities conducted by it were related to the original acquisitions. On
February 10, 1999, the Company completed an initial public offering of its
common stock and contemporaneously acquired three private conference service
bureaus, all of which became wholly-owned subsidiaries of the Company.
Net revenues. Net revenues increased approximately $3.3 million, or 21%,
from $15.9 million to $19.2 million for the three months ended March 31, 1999
and 2000, respectively. The increase was primarily due to increased call
volumes for audio and video conferencing services 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 $2.4 million, or 38%, from $6.3 million to $8.7 million for the
three months ended March 31, 1999 and 2000, respectively, which consisted of
increased sales of conferencing services to predominantly existing customers,
as well as the transitioned traffic resulting from the consolidation of other
operating centers, (ii) an increase in the combined Atlanta and Montgomery
operating center's net revenues of $576,000, which was primarily attributable
to increased audioconferencing services to existing customers and new
customers, as well as the transitioned traffic resulting from the
consolidation of other operating centers, (iii) an increase of $1.6 million
relating to the Chanhassen, 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, resulting in a partial period of
operations included in the three months ended March 31, 1999, and (iv) a
decrease of $1.3 million relating to the consolidation of the Oradell and
Danbury operating centers, both of which were closed during the third quarter
of 1999 and the related traffic transitioned to other operating centers.
The Company's largest outsourcing customer acquired a competitor of the
Company in 1998. The customer, representing approximately 7% of the Company's
1998 consolidated net revenues and 2% of the Company's 1999 consolidated net
revenues, 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 $960,000, or 13%, from $7.6 million to
$8.6 million for the three months ended March 31, 1999 and 2000, respectively,
but decreased as a percentage of revenue from 48.1% to 44.7% for the three
months ended March 31, 1999 and 2000, respectively. The dollar increase was
primarily attributable to (i) an increase in the Reston center's cost of
revenues, excluding depreciation, of $679,000, or 24%, resulting from
increased telecommunications costs and personnel and related costs associated
with increased call volumes, and the transitioning of traffic from the
consolidation of other operating centers, (ii) an increase in the combined
Atlanta and Montgomery center's cost of revenues, excluding depreciation, of
$278,000 resulting from increased staffing and operations-related costs
associated with increased call volumes, and the transitioning of traffic from
the consolidation of other operating centers, (iii) an increase of $675,000
relating to the Chanhassen, 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 (iv) a decrease of $685,000 relating
to the consolidation
10
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of the Oradell and Danbury operating centers, both of which were closed during
the third quarter of 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 acquisition of the three operating
centers on February 10, 1999.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $1.1 million, or 23%, from $4.8 million to
$5.9 million, for the three months ended March 31, 1999 and 2000,
respectively. The increase was primarily attributable to (i) an increase in
selling expense of $276,000 related to increases in personnel, commissions and
related expenses associated with higher sales volume, and (ii) an increase of
$822,000 related to increased staffing costs such as compensation, benefits
and travel expenses as well as outside services in the general and
administrative area.
Depreciation and amortization expense. Depreciation and amortization expense
increased $601,000 from approximately $1.7 million to approximately $2.3
million for the three months ended March 31, 1999 and 2000, respectively. The
increase was primarily due to additions to property and equipment throughout
1999 and 2000 as well as the additional property and equipment purchased in
connection with the acquisition of the Chanhassen, Houston and Palm Springs
operating centers which were acquired on February 10, 1999. In addition,
amortization of goodwill and intangibles increased $239,000 which represents
amortization expense related to the three operating centers acquired on
February 10, 1999.
Interest expense, net. Interest expense, net increased $101,000 from $3.4
million to $3.5 million for the three months ended March 31, 1999 and 2000,
respectively. The increase was primarily due to the following: (i) an increase
of $124,000 in interest expense related to the Company's revolving credit
facility, (ii) an increase of $7,000 in non-cash interest expense related to
the amortization of deferred debt issuance costs and (iii) decreased interest
income of approximately $30,000 due to reduced cash balances.
Liquidity and Capital Resources
The Company generated positive net cash flows of approximately $1.0 million
for the three months ended March 31, 2000 as compared to $3.3 million for the
three months ended March 31, 1999. Included in the cash flows for the three
months ended March 31, 1999 was approximately $4.3 million related to the
excess of the proceeds from the initial public offering over the acquisitions
of the three operating centers acquired on February 10, 1999. For the three
months ended March 31, 2000, the Company generated positive cash flows from
operations of $3.3 million. Cash used in investing activities of $2.5 million
for the three months ended March 31, 2000 represents the acquisition of
property and equipment. Cash provided by financing activities of $191,000 for
the three months ended March 31, 2000 includes, among other items, $799,000
related to advances on the Company's line of credit facility as well as
payments on the Company's term loans of approximately $580,000.
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 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
11
<PAGE>
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 March 31, 2000, the Company was in compliance with
all covenants contained in the Indenture.
On October 6, 1998, the Company closed a two year, $15.0 million senior
credit facility with Coast Business Credit, a division of Southern Pacific
Bank. The senior 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 senior
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 senior
credit facility includes certain early termination fees. The senior 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 March 31, 2000, the Company was in compliance with
such ratios and tests. As of March 31, 2000, the Company had outstanding
approximately $750,000 on the term loan; $3.4 million on the equipment term
loan; and $5.6 million on the revolving loan.
The Company anticipates that its cash flows from operations, supplemented by
borrowings will meet or exceed its working capital needs, debt service
requirements and planned capital expenditures for property and equipment for
the next twelve months. The Company expects to meet its longer term liquidity
requirements 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.
On April 7, 2000, Vialog received a signed joint commitment letter and
attached summary of terms from two major banks relating to a proposed $75
million new senior secured term loan and revolving credit facility. The
closing under the New Credit Facility is subject to certain conditions,
including completion and execution of definitive documentation, and
accordingly there can be no assurance that the New Credit Facility will become
available.
On May 3, 2000, the Company commenced an offer to exchange an aggregate of
$58.5 million in cash and an aggregate of 165,000 newly issued shares of a new
class of convertible preferred stock, par value $0.01 per share, stated value
$100.00, for all of the Company's $75 million 12 3/4% Series B senior notes
due November 15, 2001, or $780 in cash and 2.2 shares of preferred stock for
each $1,000 principal amount of senior notes tendered in the exchange offer.
The preferred stock will be convertible into shares of common stock, $0.01 par
value per share, of the Company as described in the Company's Offering
Memorandum and Solicitation Document. Exchange of the senior notes is subject
to certain conditions including: (a) the valid tender of at least 95% of the
principal amount of the senior notes; and (b) the availability of at least $75
million of new bank financing on the effective date of the exchange offer.
The Company is highly leveraged at March 31, 2000. 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
The Company has experienced no Year 2000 related outages or interruptions.
Operating centers conducted normal operations during the actual roll over and
continued to service customers with no Year 2000 related issues. Performance
testing during and after the roll over found no service or integrity issues.
All functional areas of the Company conducted normal business throughout the
rollover.
Costs: The Company's total expenditures for contingency planning and
staffing during the Year 2000 rollover was less than $200,000. The Company
experienced no material expenditures in connection with its Year
12
<PAGE>
2000 remediation efforts. Remediation efforts were conducted as elements of
systems upgrades or replacements that had been planned for other business
reasons. The cost of purchasing, or developing, and deploying these new
systems was not considered Year 2000 costs as they were included in the
Company's integration plan and were not accelerated due to Year 2000 issues.
Most of the expenses incurred were related to the opportunity cost of time
spent by employees of the Company evaluating Year 2000 compliance matters.
Risks: The Company is aware of no further Year 2000 related risks
outstanding at this time. There are a number of additional date integrity
issues related to the identification of Year 2000 as a leap year that have
caused concern in the computer industry. The Company believes that based on
its testing and remediation efforts, these date integrity issues do not
present a concern. The Company will continue to monitor systems operations and
integrity during the remainder of Year 2000. No additional Year 2000 related
expenditures are anticipated.
Results of Operations--Combined Operating Centers and VIALOG Corporation
The following unaudited combined data of the operating centers on an
historical basis are derived from the respective unaudited financial
statements. Such data includes the results of operations for all of the
Company's operating centers assuming the acquisition of the three private
conference service bureaus occurred on January 1, 1999, but excludes the
effects of pro forma adjustments and is set forth as a percentage of net
revenues for the periods presented.
<TABLE>
<CAPTION>
Three Months Ended March
31,
----------------------------
1999 2000
------------- -------------
($000's)
<S> <C> <C> <C> <C>
Net revenues.................................. $17,792 100.0% $19,224 100.0%
Cost of revenues, excluding depreciation...... 8,279 46.5% 8,593 44.7%
</TABLE>
Net revenues. Net revenues increased $1.4 million, or 8%, from combined net
revenues of $17.8 million in 1999 to combined net revenues of $19.2 million in
2000. Overall, the increase was primarily due to increased call volumes for
audio and video conferencing services. The major components of this increase
were (i) an increase in the Reston center's net revenues of $2.4 million, or
38%, from $6.3 million to $8.7 million, for the three months ended March 31,
1999 and 2000, respectively, which consisted of increased sales of
conferencing services to predominantly existing customers, as well as the
transitioned traffic resulting from the consolidation of other operating
centers, (ii) an increase in the combined Atlanta and Montgomery operating
center's net revenues of $576,000 which was primarily attributable to
increased audioconferencing services to existing customers and new customers,
as well as the transitioned traffic resulting from the consolidation of other
operating centers, (iii) an increase in the Chanhassen operating center's net
revenues of $1.5 million related to increased audioconferencing services to
existing and new customers, and (iv) a decrease of $3.1 million relating to
the consolidation of the Houston, Palm Springs, Oradell and Danbury operating
centers, all of which were closed during the third and fourth quarters of
1999.
Cost of revenues, excluding depreciation. Cost of revenues, excluding
depreciation for the three months ended March 31, 2000 increased $314,000, or
4%, from cost of revenues, excluding depreciation for the three months ended
March 31, 1999, but decreased as a percentage of revenue from 46.5% to 44.7%
for the three months ended March 31, 1999 and 2000, respectively. The dollar
increase was primarily attributable to (i) an increase in the Reston operating
center's cost of revenues, excluding depreciation of $679,000, or 24%,
resulting from increased telecommunications costs and personnel and related
costs associated with increased call volumes, and the transitioning of traffic
from the consolidation of other operating centers, (ii) an increase in the
combined Atlanta and Montgomery center's cost of revenues, excluding
depreciation of $278,000 resulting from increased staffing and operations-
related costs associated with increased call volumes, and the transitioning of
traffic from the consolidation of other operating centers, (iii) an increase
in the Chanhassen operating center's cost of revenues, excluding depreciation
of $543,000 related to increased telecommunications costs associated with
increased call volumes as well as increased operating costs due to increased
staffing to support current and projected revenue growth, and (iv) a decrease
of $1.2 million relating to the consolidation of the Houston, Palm
13
<PAGE>
Springs, Oradell and Danbury operating centers, all of which were closed
during the third and fourth quarters of 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 acquisition of the three
operating centers on February 10, 1999.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS 133
standardizes the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, by requiring that an
entity recognize those items as assets or liabilities in the statement of
financial position and measure them at fair value. SFAS 133 is effective for
all fiscal quarters of all fiscal years beginning after June 15, 2000. The
Company will adopt SFAS 133 in 2001, in accordance with SFAS No. 137 which
deferred the effective date of SFAS 133. The Company does not anticipate the
adoption of this standard will have a material impact on the Company's
consolidated financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." The Company is required to adopt this accounting guidance, as
amended by SAB 101A, no later than the first quarter of fiscal year 2001. The
Company believes its existing revenue recognition policies and procedures are
in compliance with SAB 101, and therefore does not anticipate its adoption
will have a material impact on the Company's financial condition, results of
operations or cash flows.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation," an interpretation of APB Opinion No. 25. This interpretation
clarifies the application of APB No. 25 for certain issues, including: the
definition of an employee, the criteria for determining whether a plan
qualifies as a noncompensatory plan, the accounting consequence of
modifications to the terms of a previously fixed stock option or award, and
the accounting for an exchange of stock compensation awards in a business
combination. This Interpretation is effective July 1, 2000, but certain
conclusions apply to events occurring after December 15, 1998 or January 12,
2000. To the extent that this Interpretation covers events occurring during
the period after December 15, 1998, or January 12, 2000, but before the
effective date, the effects of applying this Interpretation are recognized on
a prospective basis from July 1, 2000. The Company expects that the adoption
of this Interpretation will not have a material impact on its financial
position, results of operations or cash flows.
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,
1999, and should be read in conjunction with this Form 10-Q.
14
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not currently a party to any material legal proceedings.
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 March 6, 2000 to report that the Company
had received signed lock-up agreements from the holders of approximately 80%
of the aggregate principal amount of its 12 3/4% senior notes due 2001 under
which, subject to the Company's obtaining favorable senior credit financing,
such noteholders would exchange their existing notes for cash and newly issued
convertible preferred stock of the Company.
A report on Form 8-K was filed on May 4, 2000 to report that the Company
commenced an offer to exchange an aggregate of $58.5 million in cash and an
aggregate of 165,000 newly issued shares of a new class of convertible
preferred stock, par value $0.01 per share, stated value $100.00, for all of
the Company's $75 million 12 3/4% Series B senior notes due November 15, 2001,
or $780 in cash and 2.2 shares of preferred stock for each $1,000 principal
amount of senior notes tendered in the exchange offer. The preferred stock
will be convertible into shares of common stock, $0.01 par value per share, of
the Company as described in an Offering Memorandum and Solicitation Document
dated May 3, 2000. The exchange offer will expire at 5:00 p.m., New York City
time on June 1, 2000, unless extended. Exchange of the senior notes is subject
to certain conditions including: (a) the valid tender of at least 95% of the
principal amount of the senior notes; and (b) the availability of at least $75
million of new bank financing on the effective date of the exchange offer.
15
<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.
Date: May 15, 2000 VIALOG Corporation (Registrant)
/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)
16
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
11(a)--Calculation of Shares Used in Determining Net Loss Per Share........ 18
</TABLE>
17
<PAGE>
VIALOG CORPORATION
CALCULATION OF SHARES USED IN DETERMINING LOSS PER SHARE
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
1999 2000
-------------- --------------
<S> <C> <C>
Common stock, beginning of period............. 3,693,672 9,133,569
Weighted average common shares issued during
period, net.................................. 2,339,102 2,143
Common stock options and warrants using the
treasury stock method........................ -- --
-------------- --------------
6,032,774 9,135,712
============== ==============
Net loss (in thousands)....................... $ (1,717) $ (1,191)
============== ==============
Basic and diluted net loss per share.......... $ (0.28) $ (0.13)
============== ==============
</TABLE>
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,544,000
<SECURITIES> 0
<RECEIVABLES> 15,902,000
<ALLOWANCES> 669,000
<INVENTORY> 0
<CURRENT-ASSETS> 17,823,000
<PP&E> 25,808,000
<DEPRECIATION> 6,722,000
<TOTAL-ASSETS> 104,399,000
<CURRENT-LIABILITIES> 23,320,000
<BONDS> 75,402,000
0
0
<COMMON> 91,000
<OTHER-SE> 3,786,000
<TOTAL-LIABILITY-AND-EQUITY> 104,399,000
<SALES> 19,224,000
<TOTAL-REVENUES> 19,224,000
<CGS> 0
<TOTAL-COSTS> 8,593,000
<OTHER-EXPENSES> 8,200,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,472,000
<INCOME-PRETAX> (1,041,000)
<INCOME-TAX> (150,000)
<INCOME-CONTINUING> (1,191,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,191,000)
<EPS-BASIC> (.13)
<EPS-DILUTED> (.13)
</TABLE>
