<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 31, 2000
REGISTRATION NO. 333-21069
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ALL COMMUNICATIONS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
NEW JERSEY 5065 22-3124655
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
225 LONG AVENUE
HILLSIDE, NEW JERSEY 07025
(973) 282-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
RICHARD REISS
CHIEF EXECUTIVE OFFICER
ALL COMMUNICATIONS CORPORATION
225 LONG AVENUE
HILLSIDE, NEW JERSEY 07025
(973) 282-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
Copy to:
MICHAEL J.W. RENNOCK, ESQ.
MORRISON & FOERSTER LLP
1290 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10104
(212) 468-8000
------------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering: / /
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This post-effective Amendment No. 1 to the registration statement on Form
SB-2 amends the registration statement on Form SB-2 (the "Form SB-2") filed by
All Communications Corporation in connection with its initial public offering in
April 1997. The Form SB-2, as declared effective by the Securities and Exchange
Commission on April 28, 1997, registered the issuance of: (1) units ("units"),
each consisting of two shares of common stock and two class A common stock
purchase warrants ("class A warrants"); (2) shares of common stock underlying
the units; (3) class A warrants underlying the units; (4) shares of common stock
issuable upon exercise of the class A warrants; (5) underwriter's options to
purchase units (the "underwriter's options"); (6) units underlying the
underwriter's options; (7) shares of common stock underlying the underwriter's
options; (8) class A warrants underlying the underwriter's options; (9) shares
of common stock issuable upon exercise of class A warrants underlying the
underwriter's options. The Form SB-2 registered the units, shares and warrants
pursuant to Rule 415 under the Securities Act of 1933 to be offered on a delayed
or continuous basis. This post-effective Amendment No. 1 is being filed to
update the disclosure in the Form SB-2.
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED JANUARY 31, 2000
[LOGO]
Our initial public offering in April 1997 was an offering of 700,000 units.
Each unit consisted of two shares of common stock, no par value and two
redeemable class A warrants. Each class A warrant entitles the registered holder
thereof to purchase one share of common stock at a price of $4.25 per share.
The class A warrants expire on April 27, 2003. We may elect to redeem the
warrants if the average closing bid price of our common stock equals or exceeds
$10.63 for at least 20 consecutive trading days ending three days' preceding the
notice of redemption. The redemption price is $.10 per warrant.
Our common stock is traded over the OTC Electronic Bulletin Board under the
symbol "ACUC" and our class A warrants are traded over the OTC Electronic
Bulletin Board under the symbol "ACUCW." On January 27, 2000, the closing bid
price of our common stock on the OTC Electronic Bulletin Board was $13.00. On
January 27, 2000, the closing bid price of our class A warrants on the OTC
Electronic Bulletin Board was $7.25.
This prospectus provides you with detailed information about us. WE
ENCOURAGE YOU TO READ THIS ENTIRE DOCUMENT CAREFULLY. IN PARTICULAR, PLEASE
CONSIDER THE MATTERS DISCUSSED UNDER "RISK FACTORS" ON PAGE 5 OF THIS
PROSPECTUS.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATORS HAS APPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS
ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this prospectus is , 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................................................................................... 1
Forward-Looking Statements................................................................................. 5
Risk Factors............................................................................................... 5
Selected Consolidated Financial Information................................................................ 9
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 10
Recent Developments........................................................................................ 14
Unaudited Pro Forma Financial Information.................................................................. 15
Business................................................................................................... 21
Management................................................................................................. 26
Certain Relationships and Related Transactions............................................................. 30
Principal Shareholders..................................................................................... 31
Description of Securities.................................................................................. 33
Plan of Distribution....................................................................................... 34
Shares Eligible for Future Sale............................................................................ 34
Experts.................................................................................................... 35
Where You Can Find More Information........................................................................ 35
Index to Financial Statements.............................................................................. F-1
</TABLE>
------------------------
We maintain a web site at www.allcommunications.com. Information contained
on our web site does not constitute part of this prospectus.
i
<PAGE>
SUMMARY
This summary highlights selected information from this prospectus and may
not contain all of the information that is important to you. You should
carefully read this entire document, including "Risk Factors" and the financial
statements and the notes thereto included elsewhere in this prospectus.
ALL COMMUNICATIONS CORPORATION
We are a leading provider of voice, video and network communications
solutions to the commercial, medical and educational marketplace as well as
local, state and federal government agencies. We incorporate state of the art
technologies with complete life-cycle management to give clients a single source
for all their communications needs. In addition to voice, video and network
services, we offer data transmission solutions, video streaming and webcasting
capabilities. We currently have offices in Hillside, New Jersey; Trumbull,
Connecticut; Washington, D.C.; Chicago, Illinois; Los Angeles, California and
Manassas, Virginia.
Our principal executive offices are located at 225 Long Avenue, Hillside,
New Jersey 07205, and our telephone number at that address is (973) 282-2000.
RECENT DEVELOPMENTS
On December 27, 1999, we entered into a merger agreement with View Tech,
Inc. ("VTI") pursuant to which, pending approval of VTI's and our shareholders,
we will merge into VTI, with VTI as the surviving corporation. In the merger,
our shareholders will receive 3.3 shares of VTI common stock for each share of
our common stock they own, and will own approximately 74.5%, on a fully diluted
basis, of the outstanding common stock of VTI after the merger. Immediately
following the merger, the surviving corporation will change its name to Wire One
Technologies, Inc. ("Wire One"). Our officers and directors prior to the merger
will be the officers and directors of Wire One following the merger. As a result
of the merger, we will become a Delaware corporation.
VTI is a single source provider for the equipment and services required to
meet the video, voice and data communications requirements of its customers. VTI
is a leading remarketer, integrator and service provider of video conferencing
equipment. VTI currently has offices in Camarillo, Irvine, Sacramento and San
Diego, California; New York, New York; Atlanta, Georgia; Baton Rouge, Louisiana;
Chicago, Illinois, Dallas and Houston, Texas; Durham, North Carolina; Englewood,
Colorado; Nashville and Knoxville, Tennessee; Jacksonville, Florida; Salt Lake
City, Utah; Phoenix, Arizona and Chesterfield, Missouri.
1
<PAGE>
SUMMARY FINANCIAL INFORMATION
The tables below sets forth our summary financial information for the
periods indicated. It is important that you read this information together with
the section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations", our financial statements and the notes
thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- -----------------
1996 1997 1998 1998 1999
------ ------ ------- ------ -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS INFORMATION:
Net revenues................................................... $3,885 $6,925 $13,217 $8,445 $15,909
Cost of revenues............................................... 2,501 4,897 9,448 5,905 10,917
------ ------ ------- ------ -------
Gross margin................................................... 1,384 2,028 3,769 2,540 4,992
Operating expenses:
Selling...................................................... 665 1,812 3,214 2,276 3,318
General and administrative................................... 600 936 1,310 957 1,160
------ ------ ------- ------ -------
Total operating expenses....................................... 1,265 2,748 4,524 3,233 4,478
------ ------ ------- ------ -------
Income (loss) from operations.................................. 119 (720) (754) (693) 514
------ ------ ------- ------ -------
Other (income) expenses
Amortization of deferred financing costs..................... -- 315 20 11 31
Interest income.............................................. -- (118) (56) (49) (18)
Interest expense............................................. 29 28 56 21 135
------ ------ ------- ------ -------
Total other (income) expenses, net............................. 29 225 20 (17) 148
------ ------ ------- ------ -------
Income (loss) before income taxes.............................. 90 (945) (774) (677) 366
Income tax provision (benefit)................................. 38 (52) 3 -- --
------ ------ ------- ------ -------
Net income (loss).............................................. $ 52 $ (892) $ (777) $ (677) $ 366
------ ------ ------- ------ -------
------ ------ ------- ------ -------
Net income (loss) per share:
Diluted...................................................... $ .03 $ (.21) $ (.16) $ (.14) $ .06
------ ------ ------- ------ -------
------ ------ ------- ------ -------
Weighted average shares outstanding--diluted................... 1,978 4,201 4,910 4,910 5,772
------ ------ ------- ------ -------
------ ------ ------- ------ -------
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
-------------
(UNAUDITED)
<S> <C>
BALANCE SHEET INFORMATION:
Cash and cash equivalents.......................................................................... $ 282
Total assets....................................................................................... 11,809
Total liabilities.................................................................................. 7,409
Stockholders' equity............................................................................... 4,400
</TABLE>
2
<PAGE>
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
The following financial information is derived from the unaudited pro forma
combined financial statements appearing elsewhere in this prospectus, which give
effect to the merger between us and VTI in accordance with the purchase method
of accounting for business combinations. You should read it in conjunction with
those unaudited pro forma combined statements, our separate audited consolidated
financial statements and the audited financial statements of VTI included in
this prospectus.
For purposes of the unaudited pro forma financial statements, VTI's
consolidated financial statements for the year ended December 31, 1998 and the
unaudited condensed statements for the nine months ended September 30, 1999 have
been combined with our consolidated financial statements for the year ended
December 31, 1998 and our unaudited consolidated statements for the nine months
ended September 30, 1999, respectively.
The unaudited pro forma condensed financial information is for comparative
purposes only and does not purport to indicate the operating results or
financial position that would have occurred had the merger been consummated at
the beginning of the periods presented or at the balance sheet date, nor does
this information necessarily indicate the future operating results or financial
position of the combined company after the merger between us and VTI.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------ -----------------
1998 1999
------------ -----------------
(IN THOUSANDS,
EXCEPT SHARE INFORMATION)
<S> <C> <C>
PRO FORMA STATEMENT OF OPERATIONS INFORMATION:
Revenues..................................................................... $ 50,459 $ 42,541
Income (loss) from continuing operations..................................... (5,305) (1,129)
Diluted income (loss) from continuing operations per share................... (.46) (.10)
Diluted weighted average common shares outstanding........................... 11,623,552 12,093,156
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
-------------
<S> <C>
PRO FORMA COMBINED BALANCE SHEET INFORMATION:
Total assets...................................................................................... $59,220
Long-term debt (including current portion)........................................................ 4,820
Total stockholders'equity......................................................................... 37,876
</TABLE>
3
<PAGE>
Market Price Information
The following table presents historical trading information for our common
stock and the class A warrants.
<TABLE>
<CAPTION>
COMMON STOCK CLASS A WARRANTS
-------------- ----------------
HIGH LOW HIGH LOW
----- ----- ------ ------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998:
First Quarter............................................................. $1.44 $0.38 $ 0.24 $ 0.06
Second Quarter............................................................ 1.69 1.06 0.40 0.15
Third Quarter............................................................. 1.13 1.06 0.22 0.07
Fourth Quarter............................................................ 1.06 0.50 0.12 0.06
YEAR ENDED DECEMBER 31, 1999:
First Quarter............................................................. 2.25 0.69 0.51 0.09
Second Quarter............................................................ 5.88 1.81 1.63 0.56
Third Quarter............................................................. 5.00 3.38 1.94 1.00
Fourth Quarter............................................................ 11.88 3.69 7.25 0.94
YEAR ENDING DECEMBER 31, 2000:
First Quarter through January 14, 2000.................................... 12.13 10.06 7.44 5.63
</TABLE>
Our common stock is traded on over the OTC Electronic Bulletin Board under
the symbol "ACUC," and our class A warrants are traded over the OTC Electronic
Bulletin Board under the symbol "ACUCW."
On January 27, 2000, the most recent practicable date prior to the printing
of this joint proxy prospectus, the last reported sale price of our common stock
was $13.00 per share, as reported on the OTC Electronic Bulletin Board and the
last reported sale price of our class A warrants was $7.25, as reported on the
OTC Electronic Bulletin Board.
We have never paid dividends to shareholders and we do not expect to pay
dividends for the foreseeable future.
4
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include assumptions as to how the combined company
may perform after the merger. When we use words like "believes," "expects,"
"anticipates" or similar expressions, we are also making forward-looking
statements. It is uncertain whether any of the events anticipated by the
forward-looking statements will occur, or if any of them do, what impact they
will have on the results of our operations and financial condition or the price
of our stock. These statements are subject to risks and uncertainties, including
those described under "Risk Factors," and therefore may not prove to be correct.
RISK FACTORS
In addition to the other information included in this prospectus, you
should carefully consider the following risk factors. These matters should be
considered in conjunction with the other information included or incorporated by
reference in this prospectus.
A SUBSTANTIAL NUMBER OF SHARES OF OUR COMMON STOCK COULD BE SOLD IN THE PUBLIC
MARKET IN THE NEAR FUTURE, WHICH MAY DEPRESS OUR STOCK PRICE.
Our current stockholders hold a substantial number of shares and presently
exercisable options, which they currently are or will be able to sell in the
public market in the near future. Sales of a substantial number of shares of our
common stock (including the shares underlying the presently exercisable options)
after this offering could cause our stock price to fall. In addition, the sale
of these shares could impair our ability to raise capital through the sale of
additional stock. You should read "Shares Eligible for Future Sale" for a full
discussion of shares that may be sold in the public market in the future.
OUR REDEMPTION RIGHTS MAY AFFECT THE VALUE OF THE WARRANTS.
We may elect to redeem the class A warrants at a redemption price of $.10
per warrant if the average closing bid price of our common stock equals or
exceeds $10.63 for at least 20 consecutive trading days ending three days prior
to the notice of redemption. Redeeming the warrants could force the holders to
exercise the warrants and pay the exercise price at a time when it is
disadvantageous for them to do so, sell the warrants at the then current market
price when they might otherwise wish to hold the warrants or to accept the
redemption price, which is likely to be substantially less than the market value
of the warrants.
RISKS RELATED TO THE COMBINED BUSINESS OF VTI AND ACC
OUR FUTURE SUCCESS IS DEPENDENT ON THE CONTINUED EMPLOYMENT OF RICHARD REISS.
Our success will be highly dependent on the experience and continued
employment of Richard Reiss, chairman of the board, chief executive officer and
president, the loss of whose services would have a material adverse effect on
our business. We have entered into an employment agreement with Mr. Reiss, which
agreement expires on December 31, 2002 and may be terminated by Mr. Reiss upon
90 days' prior written notice without penalty, subject to a one-year non-compete
clause.
THE LOSS OF OUR PROFESSIONALS WOULD MAKE IT DIFFICULT TO COMPLETE EXISTING
PROJECTS AND BID FOR NEW PROJECTS, WHICH COULD ADVERSELY AFFECT OUR BUSINESSES
AND RESULTS OF OPERATIONS.
Our business is labor intensive, and our success depends on identifying,
hiring, training and retaining professionals. If a significant number of our
current employees or any of our senior managers or key project managers leave,
we may be unable to complete or retain existing projects or bid for new projects
of similar scope and revenue. Even if we retain our current employees, our
management must continually recruit talented professionals in order for our
business to grow. These professionals must have skills in business strategy,
marketing, branding, technology and creative design. We compete intensely with
our competitors and others for qualified personnel. If we cannot attract,
motivate and retain qualified professionals, our business and results of
operations could suffer material harm.
5
<PAGE>
OUR STOCK PRICE MAY BE VOLATILE DUE TO FACTORS OUTSIDE OF ITS CONTROL.
Our stock price could fluctuate due to the following factors, among others:
o announcements of operating results and business conditions by our
customers;
o announcements by our competitors relating to new customers or
technological innovations or new services;
o economic developments in the telecommunications or multimedia industries
as a whole;
o political and economic developments in countries in which we have
operations; and
o general market conditions.
WE HAVE HISTORICALLY GENERATED A LARGE PART OF OUR REVENUES FROM A SMALL NUMBER
OF CUSTOMERS.
We have historically generated a significant portion of our revenues from a
small number of customers. For example, for the nine months ended September 30,
1999, Universal Health Services ("UHS") accounted for approximately 15% of our
revenues while for the year ended December 31, 1998, UHS accounted for
approximately 11% of our revenues. Further, for the year ended December 31,
1998, Cendant Corp. ("Cendant") accounted for approximately 12% of our revenues
and in the year ended December 31, 1997, Cendant accounted for approximately 15%
of our revenues.
These customers may not sustain the volume of work performed for them from
year to year, and there is a risk that these customers may not retain us in the
future. Any cancellation, deferral or significant reduction in work performed
for these customers or a significant number of smaller customers could
materially harm our business, financial condition, results of operations and
cash flows.
WE HAVE A LIMITED HISTORY OF PROFITABLE OPERATIONS.
We reported moderate losses in the second half of 1997 and 1998. However,
we began reporting profits in the second half of 1999. We cannot assure you that
we will achieve revenue growth or profitability or generate positive cash flow
on a quarterly or annual basis in the future, or at all.
A DECREASE IN THE NUMBER AND/OR SIZE OF OUR PROJECTS MAY CAUSE OUR RESULTS TO
FALL SHORT OF INVESTORS' EXPECTATIONS AND ADVERSELY AFFECT THE PRICE OF OUR
COMMON STOCK.
A high percentage of our expenses, including those related to employee
compensation and equipment, are relatively fixed. If the number or average size
of our projects decreases in any quarter, then our revenues and operating
results may also decrease. If our operating results fall short of investors'
expectations, the trading price of our common stock could decrease materially,
even if the quarterly results do not represent any longer-term problems.
WE MAY BE UNABLE TO IMPLEMENT OUR ACQUISITION GROWTH STRATEGY, WHICH COULD HARM
OUR BUSINESS AND COMPETITIVE POSITION IN THE INDUSTRY.
Our business strategy includes making strategic acquisitions of other video
conferencing companies. Our continued growth will depend on our ability to
identify and acquire companies that complement or enhance our business on
acceptable terms. We may not be able to identify or complete future acquisitions
or realize the anticipated results of future acquisitions. Some of the risks
that we may encounter in implementing our acquisition growth strategy include:
o expenses and difficulties in identifying potential targets and the costs
associated with incomplete acquisitions;
o higher prices for acquired companies because of greater competition for
attractive acquisition targets;
o expenses, delays and difficulties of integrating the acquired company
into our existing organization;
o greater impact of the goodwill of acquired companies on our results of
operations when pooling of interests accounting for acquisitions is
eliminated;
o dilution of the interest of existing stockholders if we sell stock to the
public to raise cash for acquisitions;
o diversion of management's attention;
o expenses of amortizing the acquired companies' intangible assets;
6
<PAGE>
o impact on our financial condition due to the timing of the acquisition;
and
o expense of any undisclosed or potential legal liabilities of the acquired
company.
If realized, any of these risks could have a material adverse effect on our
business, results of operations, financial condition and cash flows.
OUR CONTINUED GROWTH MAY FURTHER STRAIN OUR RESOURCES, WHICH COULD HURT OUR
BUSINESS AND RESULTS OF OPERATIONS.
A key part of our strategy is to grow, both by hiring more personnel and by
acquiring companies, which may continue to strain our managerial and operational
resources. We cannot assure you that our managers will be able to manage our
growth effectively. To manage future growth, our management must continue to
improve our operational and financial systems, procedures and controls and
expand, train, retain and manage our employee base. If our systems, procedures
and controls are inadequate to support our operations, our expansion would halt,
and we could lose our opportunity to gain significant market share. Any
inability to manage growth effectively could materially harm our business,
results of operations and financial condition.
WE COMPETE IN A HIGHLY COMPETITIVE MARKET.
The video communications industry is highly competitive. We compete with
manufacturers of video communications equipment, which include PictureTel, VTEL
Corporation and Lucent Technologies, and their networks of dealers and
distributors, telecommunications carriers and other large corporations, as well
as other independent distributors. Other telecommunications carriers and other
corporations that have entered into the video communications market include
AT&T, MCI, some of the Regional Bell Operating Companies ("RBOC's"), Minnesota
Mining & Manufacturing Corporation, Intel Corporation, Microsoft, Inc., Sony
Corporation and British Telecom. Many of these organizations have substantially
greater financial and other resources than us, furnish many of the same products
and services provided by us, and have established relationships with major
corporate customers that have policies of purchasing directly from them. We
believe that as the demand for video communications systems continues to
increase, additional competitors, many of which may have greater resources than
us, may continue to enter the video communications market.
WE WILL BE SUBJECT TO THE RISKS ASSOCIATED WITH THE CONDUCT OF BUSINESS IN
FOREIGN MARKETS.
A portion of our revenues are derived from sales in foreign markets.
Accordingly, we are subject to all of the risks associated with foreign trade,
which could have a material adverse effect on our operating margins and results
of operations. These risks include:
o shipping delays
o increased credit risks
o trade restrictions
o export duties and tariffs
o fluctuations in the exchange rates of foreign currency
o international, political, regulatory and economic developments
We intend to expand our sales and marketing activities in foreign markets
by, among other ways, seeking to establish relationships with foreign
governmental agencies which typically operate telecommunications networks. To
the extent that we are able to successfully expand sales of our products in
foreign markets, we will become increasingly subject to foreign political and
economic factors beyond our control, including governmentally imposed
moratoriums on new business development as a result of budgetary constraints or
otherwise, which could have a materially adverse effect on the our business. We
also anticipate that the expansion of foreign operations will require us to
devote significant resources to system installation, training and service.
THE CONVERSION TO THE EURO MAY ADVERSELY AFFECT OUR BUSINESS IN EUROPE.
Because we do business in Europe, we face risks as a result of the
conversion by some of the European Union member states of their currencies to
the euro. The conversion process commenced on January 1, 1999. The conversion
rates between the member states' currencies and the euro are fixed by the
Council of the European Union. We are unsure whether the conversion to the euro
will harm our business, but potential
7
<PAGE>
risks include the costs of modifying our information systems and changes in the
conduct of business and in the principal European markets for our products and
services.
OUR ANTI-TAKEOVER DEFENSE PROVISIONS MAY DETER POTENTIAL ACQUIRORS AND MAY
DEPRESS OUR STOCK PRICE.
Our certificate of incorporation and bylaws contain provisions that could
have the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, control of us. These
provisions provide for a classified board of directors and allow us to issue
preferred stock with rights senior to those of its common stock and impose
various procedural and other requirements that could make it more difficult for
our stockholders to effect corporate actions.
RISKS RELATED TO THE MERGER
WE MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE VTI AND ACHIEVE THE BENEFITS
EXPECTED TO RESULT FROM THE MERGER.
Although VTI is technically the surviving corporation of the merger, we are
effectively acquiring VTI and will be responsible for the combined company
following the merger. The merger will present challenges to management,
including the integration of our operations, technologies and personnel with
those of VTI, and special risks, including possible unanticipated liabilities,
unanticipated integration costs and diversion of management attention.
We cannot assure you that we will successfully integrate or profitably
manage VTI's businesses. In addition, we cannot assure you that, following the
transaction, our business will achieve sales levels, profitability, efficiencies
or synergies that justify the merger or that the merger will result in increased
earnings for the combined companies in any future period. The combined company
will also incur material charges related to the amortization of goodwill arising
from the merger. Also, the combined company may experience slower rates of
growth as compared to historical rate of growth.
GENERAL UNCERTAINTY RELATED TO THE MERGER COULD NEGATIVELY IMPACT THE COMBINED
COMPANY.
VTI's or our customers may, in response to the announcement of the merger,
delay or defer purchasing decisions. Any delay or deferral in purchasing
decisions by VTI's or our customers could harm the business of the combined
company. Similarly, VTI's and our employees may experience uncertainty about
their future role with the combined company until or after strategies with
regard to the combined company are announced or executed. This may adversely
affect the combined company's ability to attract and retain key management,
marketing and technical personnel.
8
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following selected consolidated financial information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements included
elsewhere in this prospectus. The statement of operations information for each
of the three years in the three-year period ended December 31, 1998 and the
balance sheet information as of December 31, 1997 and 1998 is derived from our
consolidated financial statements, and are included elsewhere in this
prospectus. The financial information as of September 30, 1999 and for the nine
months ended September 30, 1998 and 1999 are unaudited; however, in the opinion
of management all adjustments (consisting solely of normal recurring
adjustments) necessary for a fair presentation of the financial statements for
the interim periods have been made. The results of interim operations and cash
flows for the periods are not necessarily indicative of the results to be
expected in a full fiscal year or future periods.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------- -----------------
1995 1996 1997 1998 1998 1999
------ ------ ------ ------- ------ -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS INFORMATION:
Net revenues......................................... $2,641 $3,885 $6,925 $13,217 $8,445 $15,909
Cost of revenues..................................... 1,782 2,501 4,897 9,448 5,905 10,917
------ ------ ------ ------- ------ -------
Gross margin......................................... 860 1,384 2,028 3,769 2,540 4,992
Operating expenses:
Selling............................................ 482 665 1,812 3,214 2,276 3,318
General and administrative......................... 328 600 936 1,310 957 1,160
------ ------ ------ ------- ------ -------
Total operating expenses............................. 811 1,265 2,748 4,524 3,233 4,478
------ ------ ------ ------- ------ -------
Income (loss) from operations........................ 49 119 (720) (754) (693) 514
------ ------ ------ ------- ------ -------
Other (income) expenses
Amortization of deferred financing costs........... 25 -- 315 20 11 31
Interest income.................................... -- -- (118) (56) (49) (18)
Interest expense................................... 7 29 28 56 21 135
------ ------ ------ ------- ------ -------
Total other (income) expenses, net................... 32 29 225 20 (17) 148
------ ------ ------ ------- ------ -------
Income (loss) before income taxes.................... 17 90 (945) (774) (677) 366
Income tax provision (benefit)....................... 8 38 (52) 3 -- --
------ ------ ------ ------- ------ -------
Net income (loss).................................... $ 9 $ 52 $ (892) $ (777) $ (677) $ 366
------ ------ ------ ------- ------ -------
------ ------ ------ ------- ------ -------
Net income (loss) per share:
Diluted............................................ $ .01 $ .03 $ (.21) $ (.16) $ (.14) $ .06
------ ------ ------ ------- ------ -------
------ ------ ------ ------- ------ -------
Weighted average shares outstanding--diluted......... 1,884 1,978 4,201 4,910 4,910 5,772
------ ------ ------ ------- ------ -------
------ ------ ------ ------- ------ -------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------- SEPTEMBER 30,
1995 1996 1997 1998 1999
---- ------ ------ ------- -------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION:
Cash and cash equivalents.................................... $154 $ 646 $2,175 $ 326 $ 282
Total assets................................................. 755 2,458 6,008 8,923 11,809
Total liabilities............................................ 673 1,913 1,273 4,954 7,409
Stockholders' equity......................................... 81 545 4,734 3,968 4,400
</TABLE>
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the our
consolidated financial statements and the notes thereto. The discussion of
results, causes and trends should not be construed to imply any conclusion that
such results or trends will necessarily continue in the future.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1999 ("1999 period") Compared to Nine Months
Ended September 30, 1998 ("1998 period").
We reported net revenues of $15,909,000 for the 1999 period, an increase of
$7,464,000, or 88% over revenues reported for the 1998 period. Both of our
divisions have contributed to our sales growth in 1999.
Voice communications--we distribute, install, and service Lucent, Panasonic
and other telecommunications products. Sales in this division were $7,892,000 in
the 1999 period, a 76% increase over the 1998 period. The voice communications
division has experienced strong growth in Lucent equipment sales, particularly
to large users in the commercial and healthcare marketplace. Specifically, sales
to one customer accounted for 15% of net revenues in the 1999 period. Panasonic
sales to real estate customers accounted for 19% of net revenues in the 1999
period.
Videoconferencing--Sales of videoconferencing equipment were $8,017,000 in
the 1999 period, a 102% increase over the 1998 period. We are one of the largest
distributors and integrators of the complete line of videoconferencing products
manufactured by Polycom. The videoconferencing division is experiencing
significant unit growth particularly in the government, commercial, healthcare
and education markets. In addition to its success in marketing the Polycom
product line, we have become a leader in design and integration of turnkey
videoconferencing systems. This specialty has enabled us to build on our
commercial customer base to expand into other markets.
We expect revenue growth in both divisions to continue for the balance of
fiscal 1999 based on existing backlog, pending orders, and an increasing number
of referrals from customers and other sources.
Gross margins increased in the 1999 period to 31% of net revenues, as
compared to 30% of net revenues in the 1998 period. Our gross margins continue
to benefit from favorable vendor pricing as unit growth continues and from the
sale of higher margin revenue sources such as maintenance contracts.
Selling expenses, which include sales salaries, commissions, sales
overhead, and marketing costs, increased in the 1999 period to $3,318,000, or
21% of net revenues, as compared to $2,276,000, or 27% of net revenues for the
1998 period. The dollar increase was due in part to higher commissions related
to revenue growth and additional depreciation charges related to demonstration
equipment. The decrease in selling expenses as a percentage of total revenues in
the 1999 period was the result of fixed selling costs remaining stable during a
period of rising revenues, and an improvement in sales staff productivity.
General and administrative expenses increased in the 1999 period to
$1,160,000, or 7% of net revenues, as compared to $957,000, or 11% of net
revenues for the 1998 period. The increases in 1999 were attributable to higher
compensation and professional fees relating to litigation and other corporate
matters. General and administrative expenses declined as a percentage of revenue
as sales growth outpaced cost increases.
The principal component of other (income) expenses, interest expense,
increased to $135,000 in the 1999 period as compared to $21,000 in the 1998
period. The increase reflects our use of our bank credit facility to fund
working capital requirements in 1999.
We have established a valuation allowance to offset additional tax benefits
from net operating loss carryforwards and other deferred tax assets. We will
continue to evaluate the recoverability of deferred tax assets and the valuation
allowance on a quarterly basis. At such time as we determine that it is more
likely than not that the deferred tax assets are realizable, the valuation
allowance will be further reduced.
10
<PAGE>
We reported net income for the September 1999 period of $366,000, or $.07
and $.06 per share on a basic and diluted basis, respectively, as compared to a
net loss of $677,000, or $(.14) per share on a basic and diluted basis for the
September 1998 period.
Year Ended December 31, 1998 ("Fiscal 1998") Compared to Year Ended December
31, 1997 ("Fiscal 1997")
Net revenues increased in fiscal 1998 by $6,292,000, or 91%, to
$13,217,000, a record level for a twelve-month period, as compared to fiscal
1997 revenues of $6,925,000. Sales were higher in both the voice communications
and videoconferencing categories.
Voice communications--Sales of voice communications products and services
increased in fiscal 1998 by $3,497,000, or 97%, to $7,146,000 as compared to
fiscal 1997 revenues of $3,649,000. The increase was due in part to increased
marketing efforts, including the hiring of additional sales personnel in 1998
and 1997, as well as increased revenue generated by the sale of Lucent products
to a significant new customer, Universal Health Services, Inc. Revenues in
fiscal 1998 were derived primarily from the sale of Lucent and Panasonic
telecommunications systems and software packages. Revenues in fiscal 1997 were
derived primarily from the sale of Panasonic systems. Sales under our Preferred
Vendor Agreement with Cendant accounted for 12% of our net revenues for fiscal
1998 and 15% of our net revenues for fiscal 1997.
In 1998, we established significant customer relationships with Universal
Health Services, Inc. for Lucent and Sony products. Universal Health Services
accounted for 11% of net revenues for fiscal 1998. We anticipate continued
growth in the voice communications division for the year ending December 31,
1999 due in part to projected revenue increases in the structured cable division
and from our relationships with Cendant and Universal Health Services.
Videoconferencing--Sales of videoconferencing systems increased in fiscal
1998 by $2,795,000, or 85%, to $6,071,000 as compared to $3,276,000 for fiscal
1997. We increased its videoconferencing customer base in fiscal 1998 through
the introduction of lower cost videoconferencing systems manufactured by
Polycom. The reduction in the average selling price of videoconferencing systems
has been more than offset by the increase in units sold. We anticipate the
continued expansion of its customer base throughout 1999, as lower cost systems
become more affordable to a larger group of customers. Increased sales of these
lower cost systems, however, have started to lower our gross margins. We
anticipate selling peripheral items at higher margins to help maintain our
historical gross margin levels.
Gross margin dollars increased by $1,741,000, or 86%, to $3,769,000 or 29%
of net revenues in fiscal 1998, as compared to $2,028,000, or 29% of net
revenues in fiscal 1997. We expect margins as a percentage of total revenue to
fluctuate, depending on such factors as sales volume, the mix of product
revenues, and changes in fixed costs during a given period. Cost of revenues
consists primarily of net product, direct labor, insurance, warranty, and
depreciation costs. The increase in gross margin dollars is the result of
increased revenue.
Selling expenses, which include sales salaries, commissions, sales
overhead, and marketing costs, increased by $1,402,000, or 77%, to $3,214,000,
or 24% of net revenues in fiscal 1998, as compared to $1,812,000 or 26% of net
revenues in fiscal 1997. The dollar increase was due in part to higher salary
expense resulting from additions to sales personnel in 1998, the costs of
maintaining a new sales office in New York City, establishing a structured cable
division, as well as higher commission-based videoconferencing sales. We added
13 salespeople during 1998.
General and administrative expenses increased by $374,000, or 40%, to
$1,310,000, or 10%, of net revenues in fiscal 1998, as compared to $936,000, or
14%, of net revenues in fiscal 1997. The dollar increase is attributable
primarily to higher salary expense and related costs associated with the
increase in administrative staff necessary to manage expanded operations, higher
occupancy costs and other administrative overhead. For the foreseeable future,
we expect general and administrative costs to decrease, as a percentage of
revenues, as revenue growth continues.
In 1998, other (income) expenses includes $20,000 of amortization of
deferred financing costs related to the working capital credit facility as
compared with a non-recurring charge of $315,000 associated with
11
<PAGE>
bridge financing in 1997 (See Notes to the Consolidated Financial Statements).
We also reported interest income of $56,000 and $118,000 in 1998 and 1997,
respectively. The reduction in interest income is a result of our use of cash
raised in 1997 to fund operations. We also reported interest expense of $57,000
and $28,000 in 1998 and 1997, respectively. The increase in interest expense is
a result of using our working capital credit facility to fund growth.
The income tax provision in 1998 consists principally of amounts due to
various state taxing authorities. The 1997 provision includes refundable taxes
of $47,000 from the carryback of the current year's federal net operating loss.
We have established a valuation allowance to offset additional tax benefits from
the carryforward of unused federal operating losses of $829,000 and other
deferred tax assets, due to the uncertainty of their realization. Management
evaluates the recoverability of deferred tax assets and the valuation allowance
on a quarterly basis. At such time as we determine that it is more likely than
not that deferred tax assets are realizable, we will reduce the valuation
allowance appropriately.
We reported a net loss in fiscal 1998 of $777,000, or $.16 per share as
compared to $892,000 or $.21 per share in fiscal 1997. Increased costs
associated with expanded operations have more than offset continued increases in
net revenues.
Year Ended December 31, 1997 ("Fiscal 1997") Compared to Year Ended December
31, 1996 ("Fiscal 1996")
Net revenues for fiscal 1997 totaled $6,925,000, representing a 78%
increase over the revenues of $3,885,000 reported for fiscal 1996. Sales were
higher in both the voice communications and videoconferencing categories, with
videoconferencing showing the greatest gains.
Voice communications--Sales of voice communications products and services
increased in fiscal 1997 by $806,000 or 29% to $3,613,000 over comparable fiscal
1996 revenues of $2,807,000. The increase was due in part to increased marketing
efforts, including the hiring of additional sales personnel. In addition, we
entered into an exclusive dealership arrangement with Coldwell Banker
Corporation ("CBC") in January 1996 to sell Panasonic telecommunications systems
to CBC's corporate-owned offices. In December 1996, this agreement was
superseded by the signing of a non-exclusive four-year Preferred Vendor
Agreement with HFS Incorporated ("HFS"), the new owner of the Coldwell Banker
Brand, to provide Panasonic products to the HFS-owned brands: Century 21, ERA,
and Coldwell Banker real estate brokerage franchise systems. In December 1997,
HFS merged into a new entity, Cendant Corporation ("Cendant") and assigned the
Preferred Vendor Agreement to Cendant. Sales under these agreements, which
include revenues from corporate-owned offices as well as independently owned
franchises, accounted for 15% and 26% of net revenues for fiscal 1997 and 1996.
Videoconferencing--Sales of videoconferencing systems increased in fiscal
1997 by $2,237,000 or 215% to $3,276,000 as compared to $1,039,000 for fiscal
1996. The increase is due in part to an expansion of our sales organization
dedicated to videoconferencing product sales. Greater marketing efforts by Sony
worldwide also helped to increase our U.S. sales of Sony products. We currently
have videoconferencing demonstration facilities in New York City; Washington,
DC; West Newton, MA; Trumbull, Connecticut; Allentown and Philadelphia,
Pennsylvania; Pompano Beach, FL; Manassas, VA; Manchester, NH; and Santa Clara,
California, as well as at our headquarters in Hillside, New Jersey.
We also began to generate revenues from our MaxShare 2 distributorship and
the structured cable division in the fourth quarter, although such revenues were
not material in 1997.
Cost of revenues in fiscal 1997 was $4,897,000 or 71% of net revenues, as
compared to $2,501,000 or 65% of net revenues in fiscal 1996. Cost of revenues
consists primarily of net product, installation labor, and training costs. The
6% increase in 1997 cost of revenues over 1996 is attributable to a combination
of certain higher margin videoconferencing sales in 1996, and increases in labor
costs, insurance, and depreciation in 1997.
Gross margin dollars increased to $2,028,000, or 29% of net revenues in
fiscal 1997, as compared to $1,384,000, or 36% of net revenues in fiscal 1996.
We expect margins as a percentage of total revenue to
12
<PAGE>
fluctuate, depending on such factors as sales volume, the mix of product
revenues, and changes in fixed costs during a given period.
Selling expenses, which include sales salaries, commissions, sales
overhead, and marketing costs, increased to $1,812,000, or 26% of net revenues
in fiscal 1997, as compared to $665,000 or 17% of net revenues in fiscal 1996.
The dollar increase was due in part to higher salaries resulting from additions
to sales personnel in 1997 and higher commission-based videoconferencing sales.
New employment agreements providing for increased compensation for sales
executives also commenced in 1997. We added a total of ten sales personnel in
the video and telephone divisions in 1997.
General and administrative expenses increased to $936,000 or 14% of net
revenues in fiscal 1997, as compared to $600,000 or 15% of net revenues in
fiscal 1996. The dollar increase is attributable primarily to higher salaries
and related costs associated with the increase in administrative staff necessary
to manage expanded operations, to higher occupancy costs and other
administrative overhead, as well as to higher professional fees relating to our
new reporting responsibilities as a public company.
Other (income) expenses category includes a non-recurring accounting charge
of $315,000, which represents financing costs relating to the Bridge Note
financing. We also reported interest income of $118,000 in 1997, most of it
generated from the investment of proceeds from the initial public offering
(IPO), which was completed in May 1997.
The income tax provision in 1997 includes refundable taxes of $47,000 from
the carryback of the current year's federal net operating loss. We have
established a valuation allowance to offset additional tax benefits from the
carryforward of unused federal operating loss carryforwards of $222,000 and
other deferred tax assets, due to the uncertainty of their realization. We
evaluate the recoverability of deferred tax assets and the valuation allowance
on a quarterly basis.
We reported a net loss in 1997 of $892,000, or $.21 per share as compared
with net income of $52,000, or $.03 per share in 1996.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, we had working capital of $3,803,000, including
$281,000 in cash and cash equivalents. Net cash provided by operating activities
for the 1999 period was $548,000 as compared to net cash used in operations of
$3,099,000 during the 1998 period. Sources of operating cash in 1999 included
net income, depreciation, accounts payable financing and customer prepayments.
Accounts payable increased by $2,369,000 during the 1999 period as we purchased
inventory late in the third quarter to satisfy sales demand. Uses of cash
included increases in accounts receivable resulting from sales growth and
increases in inventory to capitalize on favorable vendor pricing.
Investing activities for the 1999 period included purchases of $120,000 for
office and demonstration equipment. We do not have any material commitments for
capital expenditures.
Financing activities in the 1999 period consisted primarily of proceeds
from and repayments of our $5,000,000 revolving credit line. Borrowings are
based on available accounts receivable and inventory collateral, and bear
interest at the rate of prime plus 1% per annum. The principal balance
outstanding as of September 30, 1999 has been classified as a current liability
due to the maturity of the two-year credit agreement in May 2000. We intend to
refinance the credit facility by the maturity date.
13
<PAGE>
RECENT DEVELOPMENTS
On December 27, 1999, we entered into a merger agreement with VTI pursuant
to which, pending the approval of VTI's and our shareholders, we will merge into
VTI, with VTI as the surviving corporation. Immediately following completion of
the merger, the surviving corporation will change its name to Wire One
Technologies, Inc. Our officers and directors prior to the merger will be the
officers and directors of Wire One following the merger. As a result of the
merger, we will become a Delaware corporation.
In the merger, our shareholders will receive 3.3 shares of VTI common stock
for each share of our common stock that they own and will receive cash for any
fractional share which they would otherwise receive. All outstanding warrants
and options to purchase our common stock will become exercisable for VTI common
stock in accordance with the exchange ratio and their current terms and
conditions.
On a fully diluted basis, which assumes the exercise of all warrants and
options and the conversion of all convertible securities, following the merger
our shareholders will own approximately 74.5% of the outstanding shares of VTI
common stock. The merger with VTI is subject to customary closing conditions.
14
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
Under the terms of the merger between us and VTI, each outstanding share of
our common stock will be converted into the right to receive 3.3 shares of VTI
common stock. If the VTI stockholders approve a proposed 2 for 1 reverse stock
split, the exchange ratio will be adjusted accordingly to 1.65 to 1. Except for
VTI historical operating results, all VTI share and per share information in the
unaudited pro forma financial statements and accompanying notes give effect to
the reverse stock split.
Concurrent with the closing of the merger between us and VTI, the surviving
company will sell a minimum of $4,000,000 of its equity securities in a private
offering. The type of securities to be offered and the offering price have not
yet been determined.
The merger is subject to the approval of both companies' shareholders,
concurrent completion of the equity offering, disposition of two of VTI's
subsidiaries, regulatory approval and other customary closing conditions, and is
expected to close in the first quarter of 2000.
VTI will be the surviving legal entity in the merger. However, for
accounting purposes, we will be deemed to be the acquiror and, accordingly, the
merger will be accounted for as a "reverse acquisition" of VTI under the
purchase method of accounting. Under this method of accounting, the combined
company's historical results for periods prior to the merger will be the same as
our historical results. On the date of the merger, the assets and liabilities of
VTI will be recorded at their estimated fair values, and VTI's operations will
be included in our historical financial statements on a going forward basis.
The following unaudited pro forma combined financial statements include our
historical financial statements and the historical financial statements of VTI
as of and for the nine months ended September 30, 1999, and for the year ended
December 31, 1998. The unaudited pro forma combined financial statements give
effect to the merger between us and VTI and other transactions highlighted above
as if the transactions had occurred on September 30, 1999 for purposes of the
unaudited pro forma combined balance sheet, and on January 1, 1998 for purposes
of the unaudited pro forma combined statements of operations.
The pro forma adjustments are based on preliminary estimates and certain
assumptions that we and VTI believe are reasonable under the circumstances. The
preliminary allocation of the purchase price to assets and liabilities of VTI
reflects the assumption that assets and liabilities are carried at historical
amounts which approximate fair market value. The actual allocation of the
purchase price may differ from that reflected in the unaudited pro forma
financial statements after a more extensive review of the fair market values of
the assets and liabilities has been completed. The estimated cost savings
resulting from the merger as reflected in the pro forma adjustments are based on
notifications to individuals and evaluations of combined operations. Such
amounts have been based on an assessment of contractual employment agreements
and definitive plans to be enacted by management. We believe that there may be
opportunities for additional cost savings in the combined companies once the
merger is consummated. Such cost savings are subject to additional analysis and
evaluations and thus are not considered in the preparation of the pro forma
financial statements. Actual results may differ from the estimates reflected in
the pro forma adjustments.
The following unaudited pro forma combined financial statements are based
on assumptions and include adjustments as explained in the accompanying notes.
These unaudited pro forma financial statements are not necessarily indicative of
the actual financial results that would have occurred if the transactions
described above had been effective on and as of the dates indicated and may not
be indicative of operations in future periods or as of future dates. The
unaudited pro forma combined financial statements should be read in conjunction
with the accompanying notes and the historical financial statements and notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" as of and for the nine months ended September 30, 1999
and for the year ended December 31, 1998.
15
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
HISTORICAL
----------------------------- SALE OF US ELIMINATE
ALL MERGER TELECENTERS VIEW TECH
VIEW TECH COMMUNICATIONS COSTS(1A) AND VSI(1B) EQUITY(1C)
------------ -------------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................... $ 25,060 $ 281,566 $ -- $ -- $ --
Accounts receivable, net of allowance....... 9,002,686 5,755,777
Inventories................................. 4,149,129 4,840,038
Prepaid expenses and other current assets... 1,265,711 309,032
Net assets of discontinued operations....... 4,052,493 (4,052,493)
------------ ------------ ---------- ----------- ------------
Total current assets...................... 18,495,079 11,186,413 (4,052,493)
Property and equipment, net................... 2,318,167 553,998
Goodwill and other intangibles, net........... 2,900,000 2,420,000 (5,400,416)
Other assets.................................. 879,563 68,091
------------ ------------ ---------- ----------- ------------
Total assets.............................. $ 21,692,809 $ 11,808,502 $2,900,000 $(1,632,493) $ (5,400,416)
------------ ------------ ---------- ----------- ------------
------------ ------------ ---------- ----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank loan payable........................... $ 4,263,593 $ 1,968,514 $2,900,000 $ (813,000) $
Accounts payable............................ 6,393,334 3,781,768
Accrued expenses............................ 1,721,199 944,129 (819,493)
Deferred revenue............................ 2,973,287 299,273
Other current liabilities................... 841,071 389,412
------------ ------------ ---------- ----------- ------------
Total current liabilities................. 16,192,484 7,383,096 2,900,000 (1,632,493)
Long-term debt................................ 99,909 25,613
------------ ------------ ---------- ----------- ------------
Total liabilities......................... 16,292,393 7,408,709 2,900,000 (1,632,493)
STOCKHOLDERS' EQUITY
Common stock................................ 789 5,229,740 (789)
Additional paid-in capital.................. 15,472,726 393,144 (15,472,726)
Accumulated deficit......................... (10,073,099) (1,223,091) 10,073,099
------------ ------------ ---------- ----------- ------------
Total stockholders' equity................ 5,400,416 4,399,793 (5,400,416)
------------ ------------ ---------- ----------- ------------
Total liabilities and stockholders'
equity.................................. $ 21,692,809 $ 11,808,502 $2,900,000 $(1,632,493) $ (5,400,416)
------------ ------------ ---------- ----------- ------------
------------ ------------ ---------- ----------- ------------
<CAPTION>
REVERSE PRO FORMA
ACQUISITION COMBINED PRO FORMA
OF VIEW PRIOR TO EQUITY COMBINED
TECH(1D) FINANCING FINANCING(1E) COMPANY
----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................... $ -- $ 306,626 $ -- $ 306,626
Accounts receivable, net of allowance....... 14,758,463 14,758,463
Inventories................................. 8,989,167 8,989,167
Prepaid expenses and other current assets... 1,574,743 1,574,743
Net assets of discontinued operations.......
----------- ----------- ----------- -----------
Total current assets...................... 25,628,999 25,628,999
Property and equipment, net................... 2,872,165 2,872,165
Goodwill and other intangibles, net........... 29,851,367 29,770,951 29,770,951
Other assets.................................. 947,654 947,654
----------- ----------- ----------- -----------
Total assets.............................. $29,851,367 $59,219,769 $ -- $59,219,769
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank loan payable........................... $ $ 8,319,197 $(3,625,000) $ 4,694,107
Accounts payable............................ 10,175,102 10,175,102
Accrued expenses............................ 1,845,835 1,845,835
Deferred revenue............................ 3,272,560 3,272,560
Other current liabilities................... 1,230,483 1,230,483
----------- ----------- ----------- -----------
Total current liabilities................. 24,843,087 (3,625,000) 21,218,087
Long-term debt................................ 125,522 125,522
----------- ----------- ----------- -----------
Total liabilities......................... 24,968,609 (3,625,000) 21,343,609
STOCKHOLDERS' EQUITY
Common stock................................ (5,229,005) 735 735
Additional paid-in capital.................. 35,080,372 35,473,516 3,625,000 39,098,516
Accumulated deficit......................... (1,223,091) (1,223,091)
----------- ----------- ----------- -----------
Total stockholders' equity................ 29,851,367 34,251,160 3,625,000 37,876,160
----------- ----------- ----------- -----------
Total liabilities and stockholders'
equity.................................. $29,851,367 $59,219,769 $ -- $59,219,769
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
combined financial statements.
16
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------------------------- MERGER PRO FORMA
VIEW TECH ALL COMMUNICATIONS ADJUSTMENTS COMBINED
----------- ------------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenues........................................ $37,242,078 $ 13,217,083 $50,459,161
Cost of revenues................................ 24,454,620 9,447,592 $ (410,000)(2a) 33,492,212
----------- ------------ ----------- -----------
Gross margin.................................... 12,787,458 3,769,491 410,000 16,966,949
----------- ------------ ----------- -----------
Selling......................................... 7,830,654 3,213,965 (470,000)(2a) 10,574,619
General and administrative...................... 5,728,263 1,309,577 (760,000)(2a) 6,277,840
Restructuring................................... 3,303,998 3,303,998
Amortization of goodwill........................ -- -- 1,985,000 (2b) 1,985,000
----------- ------------ ----------- -----------
16,862,915 4,523,542 755,000 22,141,457
----------- ------------ ----------- -----------
Income (loss) from operations................... (4,075,457) (754,051) (345,000) (5,174,508)
Other expense:
Net interest expense............................ 246,000 721 (143,000)(2c) 103,721
Other........................................... 4,233 22,569 26,802
----------- ------------ ----------- -----------
250,233 23,290 (143,000) 130,523
----------- ------------ ----------- -----------
Loss from continuing operations................. $(4,325,690) $ (777,341) $ (202,000) $(5,305,031)
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
Income (loss) per share from continuing
operations:
Basic......................................... $ (.63) $ (.16) $ (.46)
----------- ------------ -----------
----------- ------------ -----------
Diluted....................................... $ (.63) $ (.16) $ (.46)
----------- ------------ -----------
----------- ------------ -----------
Weighted Average Shares:
Basic......................................... 6,888,104 4,910,000 11,623,552 (2d)
----------- ------------ -----------
----------- ------------ -----------
Diluted....................................... 6,888,104 4,910,000 11,623,552 (2d)
----------- ------------ -----------
----------- ------------ -----------
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
combined financial statements.
17
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------------------------- MERGER PRO FORMA
VIEW TECH ALL COMMUNICATIONS ADJUSTMENTS COMBINED
----------- ------------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenues.................................... $26,632,573 $ 15,908,891 $42,541,464
Cost of revenues............................ 16,912,981 10,917,374 (310,000)(2a) 27,520,355
----------- ------------ ----------- -----------
Gross margin................................ 9,719,592 4,991,517 310,000 15,021,109
----------- ------------ ----------- -----------
Selling..................................... 6,985,460 3,318,047 (350,000)(2a) 9,953,507
General and administrative.................. 4,028,162 1,159,772 (675,000)(2a) 4,512,934
Amortization of goodwill.................... 1,490,000 (2b) 1,490,000
----------- ------------ ----------- -----------
11,013,622 4,477,819 465,000 15,956,441
----------- ------------ ----------- -----------
Income (loss) from operations............... (1,294,030) 513,698 (155,000) (935,332)
----------- ------------ ----------- -----------
Other expense:
Net interest expense........................ 184,363 116,627 (138,000)(2c) 162,990
Other....................................... 30,894 30,894
----------- ------------ ----------- -----------
184,363 147,521 (138,000) 193,884
----------- ------------ ----------- -----------
Income (loss) from continuing
operations................................ $(1,478,393) $ 366,177 $ (17,000) $(1,129,216)
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
Income (loss) per share from continuing
operations:
Basic....................................... $ (0.19) $ 0.07 $ (.10)
----------- ------------ -----------
----------- ------------ -----------
Diluted..................................... $ (0.19) $ 0.06 $ (.10)
----------- ------------ -----------
----------- ------------ -----------
Weighted Average Shares:
Basic..................................... 7,827,311 4,910,000 12,093,156(2d)
----------- ------------ -----------
----------- ------------ -----------
Diluted................................... 7,827,311 5,771,478 12,093,156(2d)
----------- ------------ -----------
----------- ------------ -----------
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
combined financial statements.
18
<PAGE>
NOTES TO UNAUDITED PRO FORMA FORMA COMBINED FINANCIAL STATEMENTS
1. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS
a. Records our and VTI's estimated cash merger costs as follows:
<TABLE>
<CAPTION>
ACC VTI TOTAL
---------- ---------- ----------
<S> <C> <C> <C>
Estimated brokerage, legal, accounting and other
professional fees................................. $ 700,000 $1,150,000 $1,850,000
Compensation costs.................................. -- 500,000 500,000
Estimated severance costs........................... -- 300,000 300,000
Estimated office closing costs and other exit
costs............................................. -- 250,000 250,000
---------- ---------- ----------
$ 700,000 $2,200,000 $2,900,000
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Compensation costs represent cash payments due to employees under change of
control provisions included in various "stay-pay" agreements.
Severance costs represent the estimated payments related to those employees
who will be involuntarily terminated upon consummation of the merger.
Office closing costs represent the estimated costs inherent in a plan which
anticipates the closing of specific VTI offices.
b. Records the sale of the net assets of two VTI subsidiaries for
$1,000,000 in cash. The closing of the sale is a condition of the
merger. The pro forma adjustment reflects additional liabilities assumed
in the transaction, and the application of the cash consideration
towards the payment of bank debt and other liabilities.
c. Records the elimination of VTI's stockholders' equity as of
September 30, 1999.
d. Records the effects of the reverse acquisition of VTI by us, including
the adjustments to the par value of our common stock to reflect the
capital structure of VTI, the legal surviving corporation in the merger:
<TABLE>
<S> <C>
Fair value of VTI common stock outstanding at September 30, 1999............... $25,473,462
Fair value ascribed to VTI options and warrants outstanding at September 30,
1999......................................................................... 4,377,905
Estimated merger costs funded by us............................................ 700,000
Less: Pro forma book value of VTI's net assets at September 30, 1999 (includes
the effects of the pro forma adjustments described in notes 1a. and 1b.
above)....................................................................... (780,416)
-----------
Amount ascribed to goodwill.................................................... $29,770,951
-----------
-----------
</TABLE>
Values ascribed to the VTI common stock at September 30, 1999 were based on
the exchange ratio specified in the merger agreement using January 3, 2000
market values, adjusted for the proposed two for one reverse stock split of
VTI's common stock.
e. Records the proceeds, net of estimated expenses of $375,000, of a
$4,000,000 private placement of equity securities of the combined
company, and the application of those proceeds towards the repayment of
our and VTI's bank debt.
2. UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS
a. Reflects the estimated cost reductions (principally compensation and
related benefits) to be realized from combining our operations with VTI.
Such amounts have been developed through a formal assessment of
redundant departmental functions, individuals to be terminated and VTI
facilities to be closed or subleased.
b. Records the amortization of goodwill and other intangible assets
generated from the balance sheet adjustments discussed in note 1 above.
The goodwill and other intangible assets are amortized on a
straight-line basis over 15 years.
19
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
2. UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
ADJUSTMENTS--(CONTINUED)
c. Records the net decrease in interest expense on bank debt resulting from
the financing of each company's merger costs, the repayment of bank
borrowings with the proceeds from the sale of the two VTI subsidiaries,
and the equity financing discussed in Note 1e.
d. The calculation of the combined weighted average shares outstanding is
as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
WEIGHTED AVERAGE SHARES OUTSTANDING 1998 1999
- -------------------------------------------------------------------- ------------ -------------
<S> <C> <C>
BASIC AND DILUTED:
Weighted average shares outstanding--VTI............................ 3,444,052 3,913,656
Weighted average shares outstanding--ACC............................ 4,910,000 4,910,000
---------- -----------
Weighted average shares outstanding--combined....................... 8,354,052 8,823,656
Incremental shares from issuance of VTI performance shares to Chief
Executive Officer and an affiliated consulting firm............... 78,000 78,000
Incremental shares from conversion of ACC shares at a 1.65 to 1.00
ratio............................................................. 3,191,500 3,191,500
---------- -----------
Weighted average shares outstanding--basic and diluted.............. 11,623,552 12,093,156
---------- -----------
---------- -----------
</TABLE>
e. We and VTI have established valuation allowances to offset the tax
benefits of net operating loss carryforwards and other deferred tax
assets. At such time as management of the combined company determines
that it is more likely than not that the deferred tax assets are
realizable, the valuation allowances will be reduced. As the accounting
acquiror, our realized deferred tax benefits will be credited to
operations; as the acquired entity, VTI's realized deferred tax benefits
will be credited to the goodwill asset established in the purchase price
allocation.
20
<PAGE>
BUSINESS
GENERAL
Together with our wholly owned subsidiaries, we are a leading provider of
voice, video and network communications solutions to the commercial, medical and
educational marketplace as well as local, state and federal government agencies.
We incorporate state of the art technologies with complete life-cycle management
to give clients a single source for all their communications needs. In addition
to voice, video and network services, we offer data transmission solutions,
video streaming and webcasting capabilities.
We were organized as a New Jersey corporation in 1991 and are headquartered
at 225 Long Avenue, Hillside, New Jersey, 07205.
INDUSTRY OVERVIEW
VOICE COMMUNICATIONS. Advances in telecommunications technologies have
facilitated the development of increasingly sophisticated telephone systems and
applications. Telecommunications systems have evolved from simple analog
telephones to sophisticated digital systems and applications. Users increasingly
rely upon a variety of applications, including conference calling,
speakerphones, voice processing and automated attendant, to improve
communications within their organizations and with customers and vendors.
Digital technology has facilitated the integration of computing and
telecommunications technologies, which has made possible a number of new
applications that further enhance productivity.
As the telecommunications needs of businesses have become more advanced,
the integration of the different parts of a system has become increasingly
complex. The system integration, service and support capabilities of
telecommunications suppliers have become significant competitive factors. In
order to meet the needs of end users, suppliers such as ACC have been
increasingly required to develop close relationships with their customers.
VIDEOCONFERENCING. Videoconferencing communications entails the
transmission of video and audio signals and computerized data between two or
more locations through a digital telecommunication network. Videoconferencing
communications systems were first introduced in the late 1970's in the form of
specialized dedicated conference rooms outfitted with expensive electronic
equipment and requiring trained operators. Signals were transmitted over
dedicated transmission lines established between fixed locations. Market
acceptance of early systems was limited because of the low quality of the video
output, as well as the high hardware and transmission costs and limited
availability of transmission facilities.
Technological developments in the 1980's resulted in a dramatic increase in
the quality of video communications, as well as a substantial reduction in its
cost. The proliferation of switched digital networks, which transmit digital, as
opposed to analog signals, eliminated the requirement of dedicated transmission
lines. Advances in data compression and decompression technology, and the
introduction of devices for separating and distributing digital signals over
several channels simultaneously and recombining them after transmission,
resulted in products with substantially improved video and audio quality and
further reduced hardware costs. Competition among telecommunications carriers
during the past decade, together with the expanded use of fiber optic technology
and the development of integrated switched digital networks (ISDN) have further
contributed to reduced transmission costs.
Further technological developments in the 1990's in videoconferencing
systems resulted in accepted industry standards, which now enables compatibility
among systems made by different manufacturers. These developments have increased
the quality and features available in videoconferencing systems while
significantly decreasing the costs to the customer.
STRUCTURED CABLING SYSTEMS. A cabling or wiring system is a long-term
infrastructure investment for voice and high-speed data transmission. Computer
systems requiring high speed or maximum bandwidth for connectivity options
require structured wiring systems to be in place. These systems can now be
certified to meet connectivity requirements for management information systems
as well as have assurance of handling future modifications. We believe that the
demand for structured wiring systems is increasing due to a growing demand for
computer systems and local area networks to run at continually higher speeds.
21
<PAGE>
OPERATIONS
PRODUCTS AND SERVICES. We provide turnkey integrated voice and
videoconferencing solutions to our customers. We are a reseller of voice
communications products manufactured by Lucent Technologies, Inc. ("Lucent"),
the Business Telephone System Division of Panasonic Communications and Systems
Company ("Panasonic") and Active Voice Corporation ("Active Voice") and video
conferencing products manufactured by Polycom, Inc. ("Polycom") and Sony
Electronics Inc. ("Sony"). Our business involves the sale, installation and
maintenance of the full line of voice and video conferencing products
manufactured by these companies.
VOICE COMMUNICATIONS. We are a reseller of Lucent and Panasonic digital
key and hybrid telephone systems, private branch exchange (PBX) telephone
systems, voice processing systems and computer telephony integration (CTI)
solutions. Lucent and Panasonic manufacture digital key and hybrid telephone
systems which contain multi-featured fully electronic digital telephones, common
control units, central processing units, and associated common equipment to
provide service in the approximately 2,000 line and under marketplace. We
distribute Lucent manufactured PBX systems under the name Definity which has a
capacity expandable up to 25,000 ports. We also distribute a
Panasonic-manufactured PBX system under the name DBS 576 with a maximum capacity
of 576 ports. A key telephone system provides each telephone with direct access
to multiple outside trunk lines and internal communications through intercom
lines. A PBX system, through a central switching system, permits the connection
of internal and external lines. A hybrid switching system provides, in a single
system, both key telephone and PBX features. Key telephone equipment may be used
with PBX equipment.
We sell fully integrated voice processing systems manufactured by Lucent,
Panasonic and Active Voice. The systems range from 2 to 64 voice ports and up to
330 hours of message storage. The systems have automated attendant features
which allow incoming calls to be answered electronically and distributed to
specific extensions without the use of a switchboard operator. The systems can
be interactive with display telephone sets. System users have the ability to
access stored messages from any touch-tone telephone. The systems have the
capability to automatically notify a user outside the system of urgent messages.
The systems have additional features which can be customized to the needs of the
end user.
Several of the Lucent and Panasonic systems support open architecture
interfaces that allow external computers to interact and control the systems
through industry standard interfaces. The systems support an RS-232 system level
interface, an RS-232 Hayes based desktop interface and a Windows Dynamic Data
Exchanges (DDE) interface. The systems have Developer Toolkits available that
include the detailed interface specifications, applications notes and
development tools to assist third party software developers to develop vertical
market CTI applications for the products. Applications include database look-up
(which utilizes caller-ID information to retrieve customer information
automatically from a computerized database), automated attendant, interactive
voice response and call accounting (which permits the monitoring of telephone
usage and toll cost). Several of the systems support Microsoft Telephone
Application Programming Interface (TAPI) and Novell Telephony Services
Applications Programming Interface (TSAPI). There are Windows-based interfaces
available for personal computers to facilitate installation, system
configuration and programming.
We are involved in the sale, installation and servicing of Panasonic
products throughout the United States both through our own employees and through
subcontractors. We sell Lucent products through our direct sales force, and
installs and services Lucent products both through our own employees and
nationwide through subcontracting arrangements with Lucent directly and with
other Lucent dealers.
We are also involved in the sale, installation, and maintenance of
peripheral equipment and components manufactured by other vendors. Such
equipment and components are readily available through multiple manufacturers
and suppliers.
VIDEOCONFERENCING. We began selling videoconferencing products in 1994. We
provide Sony and Polycom videoconferencing systems for United States customers
and on a global basis, with a concentration in the northeastern United States.
Our customers include business, education, health care and government agencies.
We: (i) provide our customers with systems produced by both Sony and Polycom,
worldwide
22
<PAGE>
manufacturers of room-based videoconferencing equipment, and ancillary equipment
manufactured by others, (ii) select and integrate those systems and components
into complete systems designed to suit each customer's particular communications
requirements, (iii) develop custom software and hardware components when
necessary and (iv) provide training and other continuing services designed to
insure that our customers fully and efficiently utilize their systems. In 1999,
we sold and installed approximately 1,000 videoconferencing systems, as compared
to over 300 systems in 1998 and approximately 100 systems in 1997.
In January 1999, we executed an agreement with Sprint Communications
Company LP to act as an authorized sales agent for Sprint's advanced network and
videoconferencing services in Sprint's Video Partners Program. This agreement
has enabled us to provide a telecommunications network service component to our
overall line of products and services. Under the agreement, we receive a
percentage of Sprint's monthly charges billed to our customers for usage of
Sprint's telecommunications network.
STRUCTURED CABLING SYSTEMS. We offer structured cabling systems by
NORDX/CDT and Lucent. Structured cabling systems offer state of the art, high
bandwidth, standards based wiring infrastructure with a long life cycle which
support current technologies, and also can support higher speeds for future
technologies. Structured cabling systems can be implemented for a few end users
or up to thousands of end users per installation depending on the needs of the
end user.
RESELLER AGREEMENTS. In November 1998, we entered into a two-year
nonexclusive distribution agreement, with renewal options, with Polycom for the
Polycom ViewStation(R) group videoconferencing system and the
PolycomShowStation(R) IP integrated conference projector. This agreement has
enabled us to market and sell a full range of Polycom manufactured
videoconferencing, audio conferencing and data conferencing products.
In November 1997, we signed a one-year nonexclusive distribution agreement
with Lucent to sell, install and maintain Lucent Partner, Legend and Definity
telephone systems, voice mail and CTI software as an authorized Lucent dealer.
We also have authority to resell, install and maintain Lucent peripheral
products. This agreement has been renewed through March 2001.
We have an agreement with Panasonic authorizing us to serve as Panasonic's
nonexclusive reseller in the United States. The agreement is automatically
renewable for successive one-year terms unless terminated by either party upon
at least 30 days' prior notice, or immediately by Panasonic upon written notice
to us if we are in default in the performance of our obligations under the
agreement, or upon our bankruptcy or insolvency.
MAJOR CUSTOMERS. We sell our telephone and voice processing systems to the
real estate brokerage franchisees of Cendant Corp. (formerly HFS Incorporated)
pursuant to our Preferred Vendor Agreement. Sales under this agreement accounted
for 12% and 15% of net revenues for fiscal 1998 and 1997, respectively.
In 1998, we established significant customer relationships with Universal
Health Services, Inc., for Lucent and Sony products. Universal Health Services
accounted for 11% of net revenues for fiscal 1998 and 15% of the net revenues
for the nine months ended September 30, 1999.
SALES AND MARKETING. We market and sell our products and services directly
to customers through a sales and marketing organization supported by sales,
technical and training personnel versed in the specifications and features of
the voice communications and videoconferencing systems sold to customers. We
market both voice communications and videoconferencing systems through our
direct sales force. We provide training to our sales force to maintain the
expertise necessary to effectively market and promote the systems.
The manufacturers which we represent have provided us with sales,
advertising and promotional materials, which we, in turn, provide to our
existing customers and prospective customers in conjunction with sales promotion
programs of the manufacturers. We maintain up-to-date systems for demonstration
and promotion to customers and potential customers. Technical and training
personnel attend installation and
23
<PAGE>
service training sessions offered by the manufacturers from time to time to
enhance their knowledge and expertise in the installation and maintenance of the
systems.
We host seminars for the purposes of demonstrating videoconferencing
systems to our prospective customers, and to provide prospective customers the
opportunity to learn more about our products and services.
We provide customers of both voice communication and videoconferencing
systems with a full complement of services to ensure customer satisfaction and
optimal utilization of the systems. As a preliminary component of a sale to a
customer or prospective customer, we provide consulting services in order to
assess the customer's needs and specifications and to determine the most
effective method to achieve those needs. Upon delivery of the system, our
employees install and test the equipment to make sure the systems are fully
functional. In situations where a customer is located at a great distance from
the our offices, on an as-needed bases, we will engage the services of an
installation subcontractor located in close geographic proximity to the
customer, for the installation and testing of equipment sold by us to the
customer. The retention of an installation subcontractor located in close
proximity to a customer benefits the customer through quick and cost-effective
installation of the system. After the equipment is functional, we provide
training to all levels of the customer's organization. Training includes
instruction in systems operation and, with respect to videoconferencing systems,
planning and administration of meetings.
We maintain a 24-hour toll-free technical support hotline that customers
may call. We provide 7-by-24 real-time support for our global videoconferencing
customers. We also provide onsite support and maintenance which includes the
repair and/or replacement of equipment.
EMPLOYEES, CONSULTANTS AND SUBCONTRACTORS
As of December 31, 1999, we had fifty-four (54) full-time employees, as
well as a network of fifty (50) consultants and installation subcontractors who
are available on an as-needed basis for marketing support and to provide
contract installation. Twenty (20) of our employees are engaged in marketing and
sales, twenty (20) in installation service and customer support and fourteen
(14) in finance and administration. None of our employees are represented by a
labor union. We believe that our employee relations are good.
COMPETITION
The voice and videoconferencing communications industries have been
characterized by pricing pressures and business consolidations. We compete with
other resellers, as well as manufacturers of voice communications and
videoconferencing systems, many of which are larger, have greater recognition in
the industry, a longer operating history and greater financial resources than
us. Our competitors in the voice communications sector include Lucent, Northern
Telecom, Toshiba America, Inc., Siemens Corporation and NEC Corporation. We also
compete with other dealers of voice communication products. Our competitors in
the videoconferencing communications sector include PictureTel Corporation,
Tandberg Inc., VTEL Corporation, MCI Worldcomm and other dealers. Existing
competitors may continue to broaden their product lines and expand their retail
operations, and potential competitors may enter into or increase their focus on
the voice and/or videoconferencing communications market, resulting in greater
competition for us. In particular, we believe that as the demand for
videoconferencing communications systems continues to increase, additional
competitors, many of which also will have greater resources than us, will enter
the videoconferencing market.
We believe that our technical expertise and commitment to customer service
and support allow it to compete favorably. We conduct comprehensive sales and
product training for all our sales and marketing personnel. We believe that such
training results in our employees having a high level of product and industry
knowledge which makes us more attractive to end users. We also strive to provide
prompt and efficient installation, customer training and after sales service
which we believe results in repeat business as well as new referrals.
24
<PAGE>
PROPERTIES
Our headquarters are located at 225 Long Avenue, Hillside, New Jersey,
07205. These premises consist of 8,491 square feet of office space, and
13,730 square feet of secured warehouse facilities. The term of this lease is
for a period of five years expiring on May 31, 2002. The base rental for the
premises during the term of the lease is $122,846 per annum. In addition, we are
is also obligated to pay its share of the Landlord's operating expenses (i.e.,
those costs or expenses incurred by the Landlord in connection with the
ownership, operation, management, maintenance, repair and replacement of the
premises, including, among other things, the cost of common area electricity,
operational services and real estate taxes). We have an option to renew the
lease for an additional term of five years, provided we are not in default under
the terms of the lease at the time of renewal. The Hillside premises serve as
our headquarters and are utilized for executive, administrative and sales
functions, the demonstration of our voice and videoconferencing systems and the
warehousing of our inventory. At the present time, there is additional adjoining
space in both the office and warehouse areas should we seek to expand this
facility.
We also lease sales and/or demonstration offices in Trumbull, Connecticut;
Washington, D.C.; Chicago, Illinois; Los Angeles, California and Manassas,
Virginia. We believe that the facililties we presently lease will be adequate
for the foreseeable future and that additional space, if required, can be
located and leased on reasonable terms.
LEGAL PROCEEDINGS
On July 16, 1998, MaxBase, Inc. filed a complaint against us and APC in the
Superior Court of New Jersey, Law Division, in Bergen County. The complaint
alleges that we breached its agreement with MaxBase Inc., for Maxshare 2 units
by failing to meet the required minimum purchase obligations thereunder. The
complaint further alleges misrepresentation and unfair trade practices. The
complaint also seeks to enjoin us from enforcing any rights we have under the
agreement. Maxbase claims damages of $508,200 in lost profits for units not
purchased and $945,300 in lost profits for units sold to us below market price,
as well as unspecified punitive and treble damages. In March 1999, the plaintiff
added claims for defamation and tortious interference. A trial is expected to
occur in March 2000. We believe the claims by MaxBase are without merit and
intend to fully defend the suit and assert our rights under the agreement. We
have filed a counterclaim for breach of contract, breach of warranty and
rescission based on misrepresentation. We do not anticipate that this proceeding
will have a material adverse effect on the financial condition or results of our
operations.
25
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information with respect to our directors
and executive officers, who will become the officers and directors of Wire One
following our merger with VTI.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- ---------------------------------------------------------------------------
<S> <C> <C>
Richard Reiss(1) 42 Chairman, President and Chief Executive Officer.
Scott Tansey 36 Chief Financial Officer, Vice President, Finance
and Treasurer
Leo Flotron 39 Vice President, Sales and Marketing of Videoconferencing Products
Joseph Scotti 38 Vice President, Sales and Marketing of Voice Products
Robert B. Kroner(1)(3) 70 Vice President and Director
Andrea Grasso 39 Secretary and Director
Louis Capolino(1)(2) 57 Director
Eric Friedman(2)(4) 51 Director
Dean Hiltzik(1)(3)(4) 46 Director
Peter N. Maluso(1)(2)(3)(4) 44 Director
</TABLE>
- ------------------
(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
(4) Member of the Employee Stock Option Committee.
RICHARD REISS, CHAIRMAN OF THE BOARD OF DIRECTORS, PRESIDENT AND CHIEF
EXECUTIVE OFFICER. Mr. Reiss has served as our Chairman of the Board of
Directors, President and Chief Executive Officer since our formation in 1991.
SCOTT TANSEY, CHIEF FINANCIAL OFFICER, VICE PRESIDENT-FINANCE AND
TREASURER. Mr. Tansey joined us as Vice President, Finance in December 1996 and
became Chief Financial Officer in October 1999. From 1992 until December 1996,
Mr. Tansey served as Director, Finance and Administration, of Data Transmission
Services, Inc., a closely-held long distance wireless data communications
provider. Mr. Tansey received a B.S. degree in Accounting from Rider College,
Lawrenceville, New Jersey, and an M.B.A. degree in Finance from Fairleigh
Dickinson University, Madison, New Jersey. He is a certified public accountant.
LEO FLOTRON, VICE PRESIDENT, SALES AND MARKETING OF VIDEOCONFERENCING
PRODUCTS. Mr. Flotron joined us in October 1995 as Vice President, Sales and
Marketing of Videoconferencing Products, in charge of sales and marketing for
videoconferencing and network products. From 1988 to 1995, Mr. Flotron held
numerous positions with Sony Electronics, Inc., and has served as our liaison
with Sony throughout the United States. Mr. Flotron holds a B.S. degree in
Business from the University of Massachusetts in Amherst, and an M.S. degree in
Finance from Louisiana State University.
JOSEPH SCOTTI, VICE PRESIDENT, SALES AND MARKETING OF VOICE
PRODUCTS. Mr. Scotti joined us in August 1995 as Vice President, Sales and
Marketing of Voice Products dealing with all aspects of voice communications.
From 1990 to 1995, Mr. Scotti held numerous sales and sales management positions
with Northern Telecom. Mr. Scotti received a B.S. degree in Marketing from St.
Peters College.
ROBERT B. KRONER, VICE PRESIDENT AND DIRECTOR. Mr. Kroner has served as a
member of our Board of Directors since 1991 and as our Vice President and
General Counsel since 1997. Prior to 1997, Mr. Kroner was self-employed as an
attorney. Mr. Kroner received his LLB degree from Harvard Law School and holds
an L.L.M. degree from New York University Graduate School of Law.
ANDREA GRASSO, SECRETARY AND DIRECTOR. Ms. Grasso has served as our
Secretary since 1995 and has been a member of our Board of Directors since 1996.
She has also served as our Office Administrator since 1991.
LOUIS CAPOLINO, DIRECTOR. Mr. Capolino has been a member of our Board of
Directors since November 1999. Since January 1995, Mr. Capolino has served as
President of Comcap Corporation, a
26
<PAGE>
communications consulting company. Mr. Capolino received a B.S. degree in
marketing from Montclair State University.
ERIC FRIEDMAN, DIRECTOR. Mr. Friedman has been a member of our Board of
Directors since December 1996. He has served as Vice-President and Treasurer of
Chem International, Inc., a publicly held company, since June 1996. From June
1978 through May 1996, Mr. Friedman was a partner at Shachat and Simpson, a
certified public accounting firm. Mr. Friedman received a B.S. degree from the
University of Bridgeport and is a certified public accountant.
DEAN HILTZIK, DIRECTOR. Mr. Hiltzik has been a member of our Board of
Directors since October 1999. Mr. Hiltzik, a certified public accountant, is a
partner and manager of the securities practice at Schneider Ehrlich &
Associates LLP ("Schneider Ehrlich"), which he joined in 1979. Schneider Ehrlich
provides tax and consulting services to us. Mr. Hiltzik received his B.A. from
Columbia University in 1974 and his M.B.A. in Accounting from Hofstra University
in 1979.
PETER N. MALUSO, DIRECTOR. Mr. Maluso has been a member of our Board of
Directors since December 1996. Since 1995, Mr. Maluso has been employed as a
Principal at International Business Machines, Inc. ("IBM"), responsible for
IBM's Global Services Legacy Transformation Consulting practice in the
northeastern United States. Prior thereto, from 1988 to 1995, Mr. Maluso was a
Senior Manager for KPMG Peat Marwick's strategic services practice in New
Jersey. Mr. Maluso received his B.A. degree in Economics from Muhlenberg College
and holds an M.B.A. degree in Finance from Lehigh University. He is a certified
public accountant.
BOARD OF DIRECTORS
Our board of directors currently consists of seven members and is divided
into three classes, each of which serve for a staggered term of three years.
Mr. Reiss, Mr. Capolino and Mr. Hiltzik currently serve as Class I directors and
their term will expire at the 2000 annual meeting of shareholders. Mr. Kroner
and Ms. Grasso currently serve as Class II directors and their term will expire
at the 2001 annual meeting of the shareholders. Messrs. Maluso and Friedman
currently serve as Class III directors and their term will expire at the 2002
meeting of shareholders. Upon election at an annual meeting of stockholders,
directors will serve a three year term.
EXECUTIVE COMMITTEE
We currently maintain an Executive Committee consisting of Richard Reiss,
Peter Maluso, Louis Capolino, Robert Kroner and Dean Hiltzik. Each non-employee
member of our executive committee receives options to purchase 500 shares of
common stock for each meeting attended. The Executive Committee, to the extent
permitted by law, has and may exercise when the Board of Directors is not in
session all powers of the board in the management of our business and affairs,
except that the Executive Committee does not have the power or authority to
approve or recommend to the stockholders any action which must be submitted to
shareholders for approval under the New Jersey Business Corporation Act.
AUDIT COMMITTEE
We currently maintain an Audit Committee consisting of Eric Friedman, Peter
Maluso and Louis Capolino. Each non-employee member of our Audit Committee
receives options to purchase 500 shares of our common stock for each meeting
attended. The Audit Committee consults and meets with our auditors and our Chief
Financial Officer and accounting personnel, reviews potential conflict of
interest situations where appropriate, and reports and makes recommendations to
the full Board of Directors regarding such matters.
COMPENSATION COMMITTEE
We currently maintain a Compensation Committee consisting of Robert Kroner,
Dean Hiltzik and Peter Maluso. Each non-employee member of our Compensation
Committee receives options to purchase 500 shares of our common stock for each
meeting attended. The Compensation Committee supervises our
27
<PAGE>
executive compensation policies, reviews officers' salaries, approves
significant changes in employee benefits and recommends to the Board of
Directors such other forms of remuneration as it deems appropriate.
STOCK OPTION COMMITTEE
We currently maintain an Employee Stock Option Committee consisting of Dean
Hiltzik, Eric Friedman and Peter Maluso. Each non-employee member of our
Employee Stock Option Committee receives options to purchase 500 shares of our
common stock for each meeting attended. The Employee Stock Option Committee
administers our employee incentive plans and recommends to the Board of
Directors such other forms of remuneration as it deems appropriate.
DIRECTOR COMPENSATION
Directors who are not our executive officers or employees receive a
director's fee of options to purchase 1,000 shares of our common stock for each
board meeting attended, whether in person or by telephone and options to
purchase 4,000 shares of our common stock for attendance in person at the annual
meeting of shareholders.
DIRECTOR AND OFFICER LIABILITY
New Jersey's Business Corporation Act permits New Jersey corporations to
include in their certificates of incorporation a provision eliminating or
limiting the personal liability of directors and officers of the corporation for
damages arising from certain breaches of fiduciary duty. Our Certificate of
Incorporation includes a provision eliminating the personal liability of our
directors and officers for damages to the maximum extent permitted by New Jersey
law, including exculpation for acts or omissions in violation of directors' and
officers' fiduciary duties of care. Under current New Jersey law, liability is
not eliminated in the case of a breach of a director's or officer's duty of
loyalty (i.e., the duty to refrain from transactions involving improper
conflicts of interest) to us or our shareholders, the failure to act in good
faith, the knowing violation of law or the obtainment of an improper personal
benefit. Our Certificate of Incorporation does not have any effect on the
availiability of equitable remedies (such as an injunction or rescission) for
breach of fiduciary duty. However, as a practical matter, equitable remedies may
not be available in particular circumstances.
EMPLOYMENT AGREEMENTS
We have entered into employment agreements with each of Messr. Reiss,
Flotron and Scotti, effective January 1, 1997, pursuant to which Mr. Reiss
serves as President and Chief Executive Officer, Mr. Flotron serves as Vice
President, Sales and Marketing of Videoconferencing Products and Mr. Scotti
serves as Vice President, Sales and Marketing of Voice Products. The following
is a summary of the material terms and conditions of such agreements and is
subject to the detailed provisions of the respective agreements attached as
exhibits to the Registration Statement of which this prospectus is a part.
Employment Agreement with Richard Reiss
Mr. Reiss has an employment agreement with us, effective January 1, 1997,
as amended in March 1997, which provides for a six-year term and an annual
salary of $133,000 in the first year, increasing to $170,000 and $205,000 in the
second and third years, respectively. In years four, five and six of the term,
Mr. Reiss' base salary will be $205,000, but can be increased at the discretion
of the Compensation Committee. The agreement also provides for medical benefits,
the use of an automobile, and grants of 750,000 non-qualified stock options, as
well as 25,974 incentive stock options and 74,026 non-qualified stock options
issuable under our stock option plan.
Employment Agreements with Messrs. Flotron and Scotti
Messrs. Flotron and Scotti have employment agreements with us effective
January 1, 1997. Each of these agreements provide for a three-year term and
annual salaries of $104,000 in the first year increasing by $10,000 each year
thereafter. These agreements further provide for an incentive bonus equal to 1/2
of 1% of net sales payable twice yearly to each of Mr. Flotron and Mr. Scotti.
Each employee is also entitled to a
28
<PAGE>
monthly automobile allowance. Effective January 11, 1999, both of these
employment agreements were amended. In consideration for extending the term of
the agreements for an additional year through December 31, 2000, we granted
additional options outside of our stock option plan to purchase up to 300,000
shares each of our common stock, which options vest over a twenty-three month
period. These agreements may be terminated by the employee without cause upon
written notice to us.
EXECUTIVE COMPENSATION
The table below summarizes information concerning the compensation paid by
us during 1999 to our Chief Executive Officer and our three other most highly
paid executive officers (collectively, the "Named Executive Officers"):
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION -------------------
--------------------- SECURITIES
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) UNDERLYING OPTIONS
- ----------------------------------------------------------------------- --------- -------- -------------------
<S> <C> <C> <C>
Richard Reiss, President,.............................................. 205,000 75,000 --
Chief Executive Officer and
Chairman of the Board
Leo Flotron, Vice President............................................ 124,000 119,794 300,000
Joseph Scotti, Vice President.......................................... 124,000 119,794 300,000
Scott Tansey, Chief Financial Officer, Vice-President--Finance
and Treasurer........................................................ 100,000 25,000 100,000
</TABLE>
OPTION GRANTS IN 1999
The following table sets forth information regarding stock options granted
pursuant to our stock option plan during 1999 to each of the Named Executive
Officers.
<TABLE>
<CAPTION>
PERCENT OF
GRANTED POTENTIAL REALIZED VALUE
SECURITIES AT ASSUMED ANNUAL RATES
NUMBER OF TOTAL INDIVIDUAL OF STOCK PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED GRANTS EXERCISE FOR OPTION TERM
OPTIONS TO EMPLOYEES IN OR BASE PRICE ----------------------------
NAME GRANTED FISCAL 1999 (PER SHARE) EXPIRATION DATE 5% 10%
- -------------------- --------- --------------- --------------- ---------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Richard Reiss....... -- --% $ -- -- $ -- $ --
Leo Flotron......... 300,000 23.5 .937 January 11, 2004 358,763 452,714
Joseph Scotti....... 300,000 23.5 .937 January 11, 2004 358,763 452,714
Scott Tansey........ 100,000 7.8 .937 January 11, 2004 119,588 150,905
</TABLE>
AGGREGATED OPTION EXERCISES IN FISCAL 1999 AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning the value of
unexercised in-the-money options held by the Named Executive Officers as of
December 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END
ACQUIRED ON VALUE ---------------------------- ----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard Reiss..................... -- -- 866,000 64,000 $ 4,367,654 $ 554,480
Leo Flotron....................... -- -- 241,000 174,000 2,111,888 1,519,825
Joseph Scotti..................... -- -- 241,000 174,000 2,111,888 1,519,825
Scott Tansey...................... -- -- 140,000 80,000 1,191,775 670,150
</TABLE>
29
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The landlord for our Hillside, New Jersey office is Vitamin Realty
Associates, L.L.C. of which Eric Friedman, one of our directors, is a member.
These premises consist of 8,491 square feet of office space, and 13,730 square
feet of secured warehouse facilities. The lease term is for five years and
expires on May 31, 2002. The base rental for the premises during the term of the
lease is $122,846 per year. In addition, we must pay our share of the landlord's
operating expenses (i.e., those costs or expenses incurred by the landlord in
connection with the ownership, operation, management, maintenance, repair and
replacement of the premises, including, among other things, the cost of common
area electricity, operational services and real estate taxes). We believe the
lease reflects a fair rental value for the property and is on terms no less
favorable than we could obtain in an arm's length transaction with an
independent third party.
30
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth information regarding the beneficial
ownership of common stock as of January 27, 2000 by each of the following:
o each person (or group within the meaning of Section 13(d)(3) of the
Securities Exchange Act of 1934) known by us to own beneficially 5% or
more of the common Stock;
o our directors and Named Executive Officers; and
o all our directors and executive officers as a group.
As used in this table, "beneficial ownership" means the sole or shared
power to vote or direct the voting or to dispose or direct the disposition of
any security. A person is considered the beneficial owner of securities that can
be acquired within 60 days from the date of this prospectus through the exercise
of any option, warrant or right. Shares of common stock subject to options,
warrants or rights which are currently exercisable or exercisable within
60 days are considered outstanding for computing the ownership percentage of the
person holding such options, warrants or rights, but are not considered
outstanding for computing the ownership percentage of any other person. The
amounts and percentages are based upon 4,910,000 shares of our common stock
outstanding as of January 27, 2000 and 24,124,135 shares of VTI common stock
outstanding after the closing of our merger with VTI.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NUMBER OF SHARES PERCENTAGE OF VTI COMMON PERCENTAGE
ACC COMMON STOCK OWNED OF STOCK AFTER THE OWNED OF
NAME AND ADDRESS OF BENEFICIAL OWNERS (1) PRIOR TO MERGER ACC (2) MERGER(3) VTI
- ---------------------------------------------------- ---------------- ---------- ---------------- ----------
<S> <C> <C> <C> <C>
Executive Officers and Directors:
Richard Reiss....................................... 2,851,000(4) 49.4% 9,408,300 34.9%
Leo Flotron......................................... 441,000(5) 8.6 1,455,300 5.8
Joseph Scotti....................................... 441,000(5) 8.6 1,455,300 5.8
Robert B. Kroner.................................... 156,500(6) 3.2 516,450 2.1
Scott Tansey........................................ 140,000(7) 2.8 462,000 1.9
Peter N. Maluso..................................... 67,500(8) 1.4 222,750 *
Dean Hiltzik........................................ 58,000(9) 1.2 191,400 *
Eric Friedman....................................... 42,500(10) * 140,250 *
Louis Capolino...................................... 40,650(11) * 134,145 *
Andrea Grasso....................................... 25,000 * 82,500 *
All directors and executive officers as a group
(10 people)....................................... 4,263,150 65.5 14,068,395 47.9
5% Shareholders:
George W. Mauerman.................................. 412,000(12) 8.4 1,359,600 5.5
George S. Mauerman.................................. 262,500(13) 5.3 866,250 3.6
</TABLE>
- ------------------
* Less than 1%
(1) Unless otherwise noted, the address of each of the persons listed is c/o All
Communications Corporation, 225 Long Avenue, Hillside, NJ 07205.
(2) Unless otherwise indicated by footnote, the named persons have sole voting
and investment power with respect to the shares of Common Stock beneficially
owned.
(3) Represents the number of shares of our common stock (including options and
warrants currently exercisable or exercisable within 60 days of the date of
this prospectus) owned prior to the merger between us and VTI multiplied by
the exchange ratio of 3.3.
(4) Includes 866,000 shares subject to presently exercisable stock options and
50,000 shares held by a trust for the benefit of Mr. Reiss' children, of
which he is the trustee.
(Footnotes continued on next page)
31
<PAGE>
(Footnotes continued from previous page)
(5) Includes 241,000 shares subject to presently exercisable stock options.
(6) Includes 6,500 shares subject to presently exercisable stock options.
(7) Includes 140,000 shares subject to presently exercisable stock options.
(8) Includes 17,500 shares subject to presently exercisable stock options.
(9) Includes 53,000 shares subject to presently exercisable stock options.
(10) Includes 17,500 shares subject to presently exercisable stock options and
12,500 shares subject to presently exercisable warrants.
(11) Includes 3,000 shares subject to presently exercisable stock options.
(12) Includes 132,500 shares subject to presently exercisable warrants.
Mr. Mauerman's address is 6585 S. Yale, Suite 500, Tulsa, OK 74136.
(13) Includes 35,000 shares subject to presently exercisable warrants.
Mr. Mauerman's address is 6585 S. Yale, Suite 500, Tulsa, OK 74136.
32
<PAGE>
DESCRIPTION OF SECURITIES
The following description of our securities does not purport to be complete
and is subject in all respects to applicable New Jersey law and to the
provisions of our Certificate of Incorporation, By-Laws and the warrant
agreement under which the class A warrants were issued.
TRANSFER AGENT
American Stock Transfer & Trust Company is the transfer agent and registrar
for our securities.
GENERAL
Our authorized capital stock, as set forth in our Certificate of
Incorporation, consists of 100,000,000 shares of common stock, no par value per
share ("common stock"), and 1,000,000 shares of preferred stock, no par value
per share.
COMMON STOCK
There are currently 4,910,000 shares of common Stock outstanding. Holders
of common stock have the right to:
o cast one vote for each share on all matters voted upon by shareholders,
including the election of directors. There is no right to cumulate votes
for the election of directors;
o receive dividends pro rata based on the number of shares held from funds
legally available therefor, subject to the rights of holders of any
outstanding preferred stock; and
o share ratably in our net assets on liquidation, dissolution or winding
up after payment or provision for all liabilities and any preferential
liquidation rights of any preferred stock then outstanding.
Holders of common stock are not entitled to preemptive or subscription or
conversion rights, and there are no redemption or sinking fund provisions
applicable to the common stock.
Shareholders holding a majority of the voting power of the capital stock
issued and outstanding and entitled to vote are necessary to constitute a quorum
at any shareholders' meeting. The vote by the holders of a majority of such
outstanding shares is required to effect certain fundamental corporate changes
such as liquidation, merger or amendment of our Certificate of Incorporation.
All outstanding shares of common stock are fully paid and non-assessable.
PREFERRED STOCK
Our Certificate of Incorporation authorizes the issuance of up to 1,000,000
shares of preferred stock, none of which are currently outstanding. Our Board of
Directors has the right to determine the designations, rights, preferences and
privileges of the holders of one or more series of preferred stock. Accordingly,
the Board of Directors may, without shareholder approval, issue preferred stock
with voting, dividend, conversion, liquidation or other rights. The issuance of
such preferred stock could:
o adversely affect the voting power and equity interest of the holders of
common stock.
o be used to discourage, delay or prevent a change of control of the
Company, if it is issued with the right to more than one vote per share.
The possible impact on takeover attempts could adversely affect the
price of our common stock.
We have no current plans to issue any shares of preferred stock.
CLASS A WARRANTS
As of January 27, 2000, 2,050,000 Class A warrants were outstanding. Each
warrant entitles the holder to purchase one share of common stock at a price of
$4.25, subject to adjustment, until April 27, 2002. We may redeem the warrants
at a price of $.10 per warrant, on 30 days' prior written notice if the closing
bid
33
<PAGE>
price of the common stock (if the common stock is then traded in the
over-the-counter market) or the last sale price of the common stock (if the
common stock is then traded on a national securities exchange or the Nasdaq
National Market or SmallCap System) has been at least 250% ($10.63 per share) of
the current warrant exercise price, subject to adjustment, for at least 20
consecutive trading days ending within three days prior to the date of the
notice of redemption. The warrants contain provisions that protect the holders
thereof against dilution by adjustment of the exercise price and number of
shares issuable upon exercise, on the occurrence of certain events, such as
stock dividends or certain other changes in the number of outstanding shares.
PLAN OF DISTRIBUTION
We consummated our initial public offering and sale of 700,000 units in
April 1997. Each unit consisted of two shares of common stock, no par value and
two redeemable class A warrants. Each class A warrant entitles the registered
holder thereof to purchase one share of common stock at a price of $4.25 per
share. The units, the class A warrants and the common stock underlying such
units and class A warrants were registered under the Securities Act on a
registration statement that was declared effective by the SEC on April 28, 1997.
The class A warrants and shares of common stock underlying the units and
the class A warrants issued in connection with our public offering currently
trade on the OTC Electronic Bulletin Board.
SHARES ELIGIBLE FOR FUTURE SALE
Our directors and officers as well as other stockholders have entered into
"lock-up agreements" whereby, except under limited exceptions, the shareholder
may not offer, sell, contract to sell, pledge or otherwise dispose of any of our
common stock or securities that are convertible into or exchangeable for, or
that represent the right to receive, our common stock until April 28, 2000.
Accordingly, 1,212,500 shares will become eligible for sale on April 28, 2000,
subject to Rule 144.
Rule 144
In general, under Rule 144 as currently in effect, a person who has
beneficially owned shares of our common stock for at least one year would be
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of:
o 1% of the number of shares of common stock then outstanding, which will
equal approximately 49,100 shares upon the date hereof; or
o the average weekly trading volume of the common stock on the Nasdaq Stock
Market's National Market during the four calendar weeks preceding the
filing of a notice on Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain other requirements
regarding the manner of sale, notice filing and the availability of current
public information about us.
34
<PAGE>
EXPERTS
Our audited consolidated financial statements as of December 31, 1997 and
1998 and for the years then ended included in this prospectus and in the
registration statement have been audited by BDO Seidman, LLP, independent
certified public accountants, to the extent and for the periods set forth in
their report appearing elsewhere herein, and are included herein in reliance
upon such reports given upon the authority of said firm as experts in auditing
and accounting.
Our audited consolidated financial statements of ACC as of December 31,
1996 and for the year ended December 31, 1996 included in this prospectus and
elsewhere in the registration statement have been audited by Schneider Ehrlich &
Associates LLP, independent public accountants, as indicated in their report
with respect thereto, and are included herein in reliance upon the authority of
said firm as experts in giving said reports.
The financial statements of VTI included in this prospectus and in this
registration statement for the years ended December 31, 1997 and 1998 have been
so included in reliance on the reports of Arthur Andersen LLP, independent
accountants, given on the authority of said firm as experts in accounting and
auditing.
The audited consolidated financial statements of VTI as of June 30, 1996
and December 31, 1996 and for the year ended June 30, 1996 and the six months
ended December 31, 1996 included in this prospectus and in this registration
statement have been audited by Carpenter, Kuhen & Sprayberry, independent public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
reports.
WHERE YOU CAN FIND MORE INFORMATION
We filed a registration statement on Form SB-2, including the exhibits and
schedules thereto with the SEC, under the Securities Act with respect to the
units, class A warrants and the underlying common stock. This prospectus does
not contain all the information set forth in the registration statement. For
further information about us, please refer to the registration statement.
Statements contained in this prospectus as to the contents of any contract,
agreement or other document referred to, are not necessarily complete, and in
each instance please refer to the copy of the contract, agreement or other
document filed as an exhibit to the registration statement, each statement being
qualified in all respects by this reference.
You may read and copy all or any portion of the registration statement or
any reports, statements or other information we file with the SEC at the SEC's
public reference room at Room 1024, Judiciary Plaza, 450 Fifth Street, N.C.,
Washington, D.C. 20549 and at the regional offices of the SEC located at Seven
World Trade Center, 13th Floor, New York, New York 10048 and the Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You
can request copies of these documents upon payment of a duplicating fee, by
writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference rooms. Our SEC filings,
including the registration statement will also be available to you on the SEC's
Web site. The address of this site is http://www.sec.gov.
35
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ALL COMMUNICATIONS CORPORATION:
Reports of Independent Certified Public Accountants........................................................ F-2
Consolidated Balance Sheets at December 31, 1997 and 1998 and September 30, 1999 (unaudited)............... F-4
Consolidated Statements of Operations for the three years ended December 31, 1998 and the nine months ended
September 30, 1998 and 1999 (unaudited).................................................................. F-5
Consolidated Statements of Stockholders' Equity for the three years ended December 31, 1998 and the nine
months ended September 30, 1999 (unaudited).............................................................. F-6
Consolidated Statements of Cash Flows for the three years ended December 31, 1998 and the nine months ended
September 30, 1998 and 1999 (unaudited).................................................................. F-7
Notes to Consolidated Financial Statements................................................................. F-9
VIEW TECH, INC.:
Reports of Independent Certified Public Accountants........................................................ F-20
Consolidated Balance Sheets as of December 31, 1997 and 1998 and the nine months ended September 30, 1999
(unaudited).............................................................................................. F-22
Consolidated Statements of Operations for the three years ended December 31, 1998 and the nine months ended
September 30, 1999 and 1998 (unaudited).................................................................. F-23
Consolidated Statements of Stockholders' Equity for the year ended December 31, 1996, the six months ended
December 31, 1996 and the two years ended December 31, 1998 and the nine months ended September 30, 1999
(unaudited).............................................................................................. F-24
Consolidated Statements of Cash Flows for the three years ended December 31, 1998, and the nine months
ended September 30, 1998 and 1999 (unaudited)............................................................ F-25
Notes to Consolidated Financial Statements................................................................. F-26
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and the
Stockholders of All Communications Corporation
We have audited the accompanying consolidated balance sheets of All
Communications Corporation and Subsidiary as of December 31, 1998 and 1997 and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of All Communications
Corporation and Subsidiary at December 31, 1998 and 1997, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
BDO Seidman, LLP
Woodbridge, New Jersey
February 16, 1999 (except for
Note 6 which is as of
March 17, 1999)
F-2
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and the
Stockholders of All Communications Corporation
We have audited the accompanying statements of income, cash flows, and
stockholders' equity of All Communications Corporation for the year ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, based on our audit, the financial statements referred to
above present fairly, in all material respects, the results of operations and
cash flows of All Communications Corporation for the year ended December 31,
1996 in conformity with generally accepted accounting principles.
SCHNEIDER EHRLICH & WENGROVER LLP
Woodbury, New York
January 21, 1997
F-3
<PAGE>
ALL COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30,
1997 1998 1999
---------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................... $2,175,226 $ 325,915 $ 281,566
Accounts receivable, net............................................ 2,041,350 4,317,853 5,755,777
Inventory........................................................... 1,097,883 3,540,281 4,840,038
Advances to Maxbase, Inc............................................ 127,080 -- --
Other current assets................................................ 96,218 45,577 309,032
---------- ----------- -----------
Total current assets................................................ 5,537,757 8,229,626 11,186,413
Furniture, equipment and leasehold improvements--net.................. 438,490 611,518 553,998
Deferred financing costs.............................................. -- 43,271 29,877
Other assets.......................................................... 31,359 38,214 38,214
---------- ----------- -----------
Total assets........................................................ $6,007,606 $ 8,922,629 $11,808,502
---------- ----------- -----------
---------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligations........................ $ -- $ 17,365 $ 29,846
Bank loan payable................................................... -- -- 1,968,514
Accounts payable.................................................... 909,785 1,412,616 3,781,768
Accrued expenses.................................................... 323,892 844,082 944,129
Income taxes payable................................................ 2,453 2,860 --
Deferred revenue.................................................... -- 156,133 299,273
Customer deposits................................................... 37,052 94,721 359,566
---------- ----------- -----------
Total current liabilities........................................... 1,273,182 2,527,777 7,383,096
---------- ----------- -----------
Noncurrent liabilities:
Bank loan payable................................................... -- 2,403,216 --
Capital lease obligations, less current portion..................... -- 23,221 25,613
---------- ----------- -----------
Total noncurrent liabilities........................................ -- 2,426,437 25,613
---------- ----------- -----------
Total liabilities................................................... 1,273,182 4,954,214 7,408,709
---------- ----------- -----------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, no par value; 1,000,000 shares authorized, none
issued or outstanding............................................... -- -- --
Common Stock, no par value; 100,000,000 authorized; 4,910,000 shares
issued and outstanding.............................................. 5,229,740 5,229,740 5,229,740
Additional paid-in capital............................................ 316,611 327,943 393,144
Accumulated deficit................................................... (811,927) (1,589,268) (1,223,091)
---------- ----------- -----------
Total stockholders' equity.......................................... 4,734,424 3,968,415 4,399,793
---------- ----------- -----------
Total liabilities and stockholders' equity.......................... $6,007,606 $ 8,922,629 $11,808,502
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
ALL COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
---------- ---------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues............................. $3,884,700 $6,925,169 $13,217,083 $8,445,116 $15,908,891
Cost of revenues......................... 2,501,073 4,897,176 9,447,592 5,905,306 10,917,374
---------- ---------- ----------- ---------- -----------
Gross margin............................. 1,383,627 2,027,993 3,769,491 2,539,810 4,991,517
Operating expenses:
Selling................................ 664,786 1,811,924 3,213,965 2,275,805 3,318,047
General and administrative............. 599,606 935,967 1,309,577 957,334 1,159,772
---------- ---------- ----------- ---------- -----------
Total operating expenses................. 1,264,392 2,747,891 4,523,542 3,233,139 4,477,819
---------- ---------- ----------- ---------- -----------
Income (loss) from operations............ 119,235 (719,898) (754,051) (693,329) 513,698
---------- ---------- ----------- ---------- -----------
Other (income) expenses:
Amortization of deferred
financing costs..................... -- 315,406 19,669 11,198 30,894
Interest income........................ -- (118,354) (56,446) (48,729) (18,135)
Interest expense....................... 29,026 27,779 57,167 21,002 134,762
---------- ---------- ----------- ---------- -----------
Total other expenses, net................ 29,026 224,831 20,390 (16,529) 147,521
---------- ---------- ----------- ---------- -----------
Income (loss) before income taxes........ 90,209 (944,729) (774,441) -- --
Income tax provision (benefit)........... 38,606 (52,404) 2,900 -- --
---------- ---------- ----------- ---------- -----------
Net income (loss)........................ $ 51,603 $ (892,325) $ (777,341) $ (676,800) $ 366,177
---------- ---------- ----------- ---------- -----------
---------- ---------- ----------- ---------- -----------
Net income (loss) per share:
Basic.................................. $ .03 $ (.21) $ (.16) $ (0.14) $ 0.07
---------- ---------- ----------- ---------- -----------
---------- ---------- ----------- ---------- -----------
Diluted................................ $ .03 $ (.21) $ (.16) $ (0.14) $ 0.06
---------- ---------- ----------- ---------- -----------
---------- ---------- ----------- ---------- -----------
Weighted average shares
outstanding (Basic).................... 1,977,518 4,200,888 4,910,000 4,910,000 4,910,000
---------- ---------- ----------- ---------- -----------
---------- ---------- ----------- ---------- -----------
Weighted average shares
outstanding (Diluted).................. 1,977,518 4,200,888 4,910,000 4,910,000 5,771,478
---------- ---------- ----------- ---------- -----------
---------- ---------- ----------- ---------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
ALL COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1998
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK ADDITIONAL EARNINGS
------------------------ PAID-IN (ACCUMULATED)
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
---------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996................. 1,750,000 $ 52,500 $ -- $ 28,795 $ 81,295
Exercise of common stock options........... 1,250,000 37,500 -- -- 37,500
Value imputed to conversion feature of 12%
Convertible Subordinated Notes........... -- -- 375,000 -- 375,000
Net income for the year.................... -- -- -- 51,603 51,603
---------- ---------- -------- ------------- ----------
Balance at December 31, 1996............... 3,000,000 90,000 375,000 80,398 545,398
Issuance of common stock through
Initial Public Offering.................. 1,610,000 4,539,740 -- -- 4,539,740
Conversion of subordinated notes........... 300,000 600,000 -- -- 600,000
Repayment of convertible note.............. -- -- (75,000) -- (75,000)
Issuance of underwriter option............. -- -- 70 -- 70
Issuance of stock options for
services................................. -- -- 16,541 -- 16,541
Net loss for the year...................... -- -- -- (892,325) (892,325)
---------- ---------- -------- ------------- ----------
Balance at December 31, 1997............... 4,910,000 $5,229,740 $316,611 $ (811,927) $4,734,424
Issuance of stock options for services..... -- -- 11,332 -- 11,332
Net loss for the year...................... -- -- -- (777,341) (777,341)
---------- ---------- -------- ------------- ----------
Balance at December 31, 1998............... $4,910,000 $5,229,940 $327,943 $ (1,589,268) $3,968,415
Issuances of stock options for services
(unaudited).............................. -- -- 65,201 -- 65,201
Net income for the nine months ended
September 30, 1999 (unaudited)........... -- -- -- 366,177 366,177
---------- ---------- -------- ------------- ----------
Balance at September 30, 1999
(unaudited).............................. 4,910,000 $5,229,740 $393,144 $ (1,223,091) $4,339,793
---------- ---------- -------- ------------- ----------
---------- ---------- -------- ------------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
ALL COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------- ---------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)............................ $ 51,603 $ (892,325) $ (777,341) $ (676,800) $ 366,177
Adjustments to reconcile net income (loss)
to net cash used by operating activities:
Depreciation and amortization............ 30,120 398,158 224,474 157,841 241,304
Loss on disposal of equipment............ -- 6,575 3,209 3,209 1,832
Noncash compensation..................... -- 16,541 11,332 15,413 65,201
Increase (decrease) in cash attributable
to changes in assets and liabilities:
Accounts receivable.................... (334,909) (1,359,939) (2,276,503) (1,694,967) (1,437,924)
Inventory.............................. (352,306) (600,530) (2,442,398) (3,158,569) (1,299,757)
Advances to Maxbase, Inc............... -- (127,080) 127,080 127,080 --
Other current assets................... (3,078) (84,623) 50,641 (37,140) (263,455)
Other assets........................... -- 30,051 (6,855) (6,855) --
Accounts payable....................... 140,899 404,465 502,831 1,023,698 2,369,152
Accrued expenses....................... 26,822 215,633 520,190 308,292 100,047
Income taxes payable................... (4,421) 2,453 407 (2,453) (2,860)
Deferred income taxes.................. (14,933) (5,679) -- -- --
Deferred revenue....................... -- -- 156,133 -- 143,140
Customer deposits...................... (1,084) 22,109 57,669 842,494 264,845
----------- ----------- ----------- ----------- ------------
Net cash provided (used) by operating
activities............................... (461,287) (1,974,191) (3,849,131) (3,098,757) 547,702
----------- ----------- ----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of furniture, equipment and
leasehold improvements..................... (67,346) (398,834) (330,031) (270,080) (119,755)
Increase in other assets................... (52,500) -- -- -- --
----------- ----------- ----------- ----------- ------------
Net cash provided (used) by investing
activities............................... (119,846) (398,834) (330,031) (270,080) (119,755)
----------- ----------- ----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock....... 37,500 5,635,070 -- -- --
Stock offering costs......................... (32,500) (1,062,760) -- -- --
Deferred financing costs..................... (15,406) -- (62,939) (59,723) (17,500)
Proceeds from issuance of convertible
subordinated notes......................... 750,000 -- -- -- --
Repayment of convertible subordinated
notes...................................... -- (150,000) -- -- --
Proceeds from bank loans..................... 562,071 125,000 2,403,216 1,500,000 10,205,000
Payments on bank loans....................... (228,824) (644,673) -- -- (10,639,702)
Payments on capital lease obligations........ -- -- (10,426) (6,421) (20,094)
Proceeds from stockholder loan payable....... 55,000 -- -- -- --
Repayment of stockholder loan payable........ (55,000) -- -- -- --
----------- ----------- ----------- ----------- ------------
Net cash provided (used) by financing
activities............................... 1,072,841 3,902,637 2,329,851 1,433,856 (472,296)
----------- ----------- ----------- ----------- ------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................. 491,708 1,529,612 (1,849,311) (1,934,981) (44,349)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD....................................... 153,906 645,614 2,175,226 2,175,226 325,915
----------- ----------- ----------- ----------- ------------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD....................................... $ 645,614 $ 2,175,226 $ 325,915 $ 240,245 $ 281,566
----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ------------
Supplemental disclosures of cash flow
information:
Cash paid (received) during the period for:
Interest................................... $ 29,026 $ 27,779 $ 45,404 $ 21,002 $ 134,762
----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ------------
Income taxes............................... $ 60,807 $ 1,910 $ (52,183) $ -- $ 3,332
----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ------------
(Table continued on next page)
</TABLE>
F-7
<PAGE>
(Table continued from previous page)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------- ---------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- ------------
(UNAUDITED)
Acquisition of equipment:
<S> <C> <C> <C> <C> <C>
Cost of equipment.......................... $ -- $ -- $ 58,844 $ 58,844 $ 37,747
Capital lease payable incurred............. -- -- 51,012 51,012 34,968
----------- ----------- ----------- ----------- ------------
Cash down payment.......................... $ -- $ -- $ 7,832 $ 7,832 $ 2,779
----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ------------
Supplemental disclosures of non-cash financing
activities:
Conversion of 12% Convertible Subordinated
Notes to capital........................... $ -- $ 600,000 $ -- $ -- $ --
----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ------------
Reclassification of deferred financing costs
to paid-in capital......................... $ -- $ 75,000 $ -- $ -- $ --
----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ------------
Value imputed to conversion feature of 12%
Convertible Subordinated Notes:
Deferred financing costs..................... $ 375,000 $ -- $ -- $ -- $ --
Additional paid-in capital................... (375,000) $ -- $ -- $ -- $ --
----------- ----------- ----------- ----------- ------------
Net cash..................................... $ -- $ -- $ -- $ -- $ --
----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
ALL COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--DESCRIPTION OF BUSINESS
All Communications Corporation (the "Company") is engaged in the business
of selling, installing and servicing voice, dataconferencing and
videoconferencing communications systems to commercial and institutional
customers located principally within the United States. The Company is
headquartered in Hillside, New Jersey.
Most of the products sold by the Company are purchased under non-exclusive
dealer agreements with various manufacturers, including Panasonic Communications
& Systems Company ("Panasonic") and Lucent Technologies, Inc. for digital
business telephone systems and related products, and with Polycom, Inc. for
dataconferencing and videoconferencing equipment. The agreements typically
specify, among other things, sales territories, payment terms, purchase quotas
and reseller prices. All of the agreements provide for early termination on
short notice with or without cause. The termination of any of the Company's
dealer agreements, or their renewal on less favorable terms than currently in
effect, could have a material adverse impact on the Company's business. The
Company also purchases videoconferencing and distance learning products from
Sony Electronics Inc. under an informal reseller arrangement.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of All
Communications Corporation and its wholly owned subsidiary, AllComm Products
Corporation (APC). All material intercompany balances and transactions have been
eliminated in consolidation.
Inventory
Inventory is valued at the lower of cost (determined on a first in, first
out basis), or market.
Use of estimates
Preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statement and the reported amounts of revenues and expenses during the reporting
period. The more significant estimates made by management include the provision
for doubtful accounts receivable, warranty reserves, and the valuation allowance
for deferred tax assets. Actual amounts could differ from the estimates made.
Management periodically evaluates estimates used in the preparation of the
financial statements for continued reasonableness. Appropriate adjustments, if
any, to the estimates used are made prospectively based upon such periodic
evaluation.
Revenue recognition
Product revenues are recognized at the time a product is shipped or, if
services such as installation and training are required to be performed, at the
time such services are provided, with reserves established for the estimated
future costs of parts-and-service warranties. Customer prepayments are deferred
until product systems are shipped and the Company has no significant further
obligations to the customer. Revenues from services not covered by product
warranties are recognized at the time the services are rendered.
F-9
<PAGE>
ALL COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Earnings per share
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings Per Share." Accordingly, basic earnings per share
is calculated by dividing net income (loss) by the weighted-average number of
common shares outstanding during the period (4,910,000, 4,200,888 and 1,977,518
shares in 1998, 1997 and 1996 respectively).
Diluted earnings per share is calculated by dividing net income (loss) by
the weighted-average number of common shares outstanding, adjusted for net
shares that would be issued upon exercise of stock options and warrants using
the treasury stock method. Diluted loss per share has not been presented because
the effects of the computation were anti-dilutive.
Cash and cash equivalents
The Company considers all highly liquid debt instruments with a maturity of
three months or less when purchased to be cash equivalents.
Concentration of credit risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash, cash equivalents, and
trade accounts receivable. The Company places its cash and cash equivalents
primarily in commercial checking accounts and money market funds. Commercial
bank balances may from time to time exceed federal insurance limits; money
market funds are uninsured.
The Company performs ongoing credit evaluations of its customers and to
date has not experienced any material losses. Revenues generated from the
Cendant agreement accounted for 12%, 15% and 26% of net revenues for the years
ended December 31, 1998, 1997 and 1996, respectively. At December 31, 1998 and
1997, receivables from those sales represented approximately 6% and 15% of net
accounts receivable, respectively.
In 1998, the Company established customer relationships with Universal
Health Services, Inc. for Lucent and Sony products. Universal Health Services
accounted for 11% of net revenues for fiscal 1998.
Depreciation and amortization
Furniture, equipment and leasehold improvements are stated at cost.
Furniture and equipment are depreciated over the estimated useful lives of the
related assets, which range from three to five years. Leasehold improvements are
amortized over the shorter of either the asset's useful life or the related
lease term. Depreciation is computed on the straight-line method for financial
reporting purposes and on the modified accelerated cost recovery system (MACRS)
for income tax purposes.
Income taxes
The Company uses the liability method to determine its income tax expense
as required under Statement of Financial Accounting Standards No. 109 (SFAS
109). Under SFAS 109, deferred tax assets and liabilities are computed based on
differences between the financial reporting and tax basis of assets and
liabilities, principally certain accrued expenses and allowance for doubtful
accounts, and are measured using the enacted tax rates and laws that will be in
effect when the differences are expected to reverse. Deferred tax assets are
reduced by a valuation allowance if, based on the weight of available evidence,
it is more likely than not that all or some portion of the deferred tax assets
will not be realized. The ultimate realization of the deferred tax asset depends
on the Company's ability to generate sufficient taxable income in the future.
F-10
<PAGE>
ALL COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Long-lived assets
In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-lived Assets to be Disposed of", the Company
records impairment losses on long-lived assets used in operations, including
goodwill and intangible assets, when events and circumstances indicate that the
assets might be impaired and the undiscounted cash flows estimated to be
generated by those assets are less than the carrying amounts of those assets.
Stock options
Under SFAS No. 123, "Accounting for Stock-based Compensation", the Company
must either recognize in its financial statements costs related to its employee
stock-based compensation plans, such as stock option and stock purchase plans,
using the fair value method, or make pro forma disclosures of such costs in a
footnote to the financial statements. The Company has elected to continue to use
the intrinsic value-based method of APB Opinion No. 25, as allowed under SFAS
No. 123, to account for its employee stock-based compensation plans, and to
include the required pro forma disclosures based on fair value accounting.
Recently issued accounting pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for all derivative instruments.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. The
adoption of SFAS No. 133 is not expected to have an impact on the Company's
financial position or results of operations.
NOTE 3--ADVANCES TO MAXBASE, INC
In September 1997, the Company entered into an exclusive distribution
agreement with Maxbase, Inc., the manufacturer of "MaxShare 2", a patented
bandwidth-on-demand line sharing device. Advances to Maxbase represent advances
against purchase orders for MaxShare 2 units. Purchases of MaxShare 2 product
amounted to $520,350 and $50,400 for the years ended December 31, 1998 and 1997,
respectively. The Company has identified performance problems with the MaxShare
2 product in certain applications, and believes that MaxBase, Inc. (MaxBase),
the supplier of MaxShare 2, has a contractual obligation to correct any
technical defects in the product. Pending resolution of this matter, the Company
has ceased ordering product under its purchase commitment, and has also limited
shipments to distribution partners. On July 16, 1998, MaxBase filed a Complaint
against the Company and APC for breach of contract, among other claims. (See
Note 10)
F-11
<PAGE>
ALL COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1997 1998
--------- ---------
<S> <C> <C>
Leasehold improvements........................................ $ 69,216 $ 85,028
Office furniture.............................................. 96,196 119,683
Computer equipment and software............................... 86,310 186,244
Demonstration equipment....................................... 161,864 301,487
Loaner/Warranty equipment..................................... -- 39,656
Vehicles...................................................... 140,991 199,834
--------- ---------
554,577 931,932
Less: Accumulated depreciation................................ (116,087) (320,414)
--------- ---------
$ 438,490 $ 611,518
--------- ---------
--------- ---------
</TABLE>
Depreciation expense was $204,805, $82,752 and $30,120 for the years ended
December 31, 1998, 1997 and 1996, respectively.
NOTE 5--ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1998
-------- --------
<S> <C> <C>
Sales tax payable............................................... $ 35,217 $ 92,098
Accrued warranty costs.......................................... 67,749 75,000
Accrued installation costs...................................... 36,466 300,764
Other........................................................... 184,460 376,180
-------- --------
$323,892 $844,042
-------- --------
-------- --------
</TABLE>
NOTE 6--NOTES PAYABLE AND LONG-TERM DEBT
Bank loan payable
In 1997, the Company had a $600,000 working capital line of credit. In May
1997, the Company terminated the credit facility and repaid all outstanding
loans upon completion of its initial public offering. In May 1998, the Company
closed on a $5,000,000 working capital credit facility with an asset-based
lender. Loan availability is based on 75% of eligible accounts receivable, as
defined, and 50% of eligible finished goods inventory, with a cap of $1,200,000
on inventory financing. Outstanding borrowings bear interest at the lender's
base rate plus 1% per annum (8.75% at December 31, 1998), payable monthly, and
are collateralized by a lien on accounts receivable, inventories, and intangible
assets. The credit facility will have an initial term of two years, with annual
renewals thereafter subject to the lender's review. The credit facility contains
certain financial covenants. At December 31, 1998 the Company was in violation
of both the net worth and net loss covenants. On March 17, 1999 the Company
received a waiver from the lender regarding these requirements as of December
31, 1998 and has established new covenants as of June 30, 1999. At December 31,
1998, the loan has been classified as non current in the accompanying balance
sheet because, in the opinion of management, it is probable that the new
covenants will be satisfied. At September 30, 1999, the loan has been classified
as a current liability due to the maturity of the two-year credit agreement in
May 2000.
F-12
<PAGE>
ALL COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--NOTES PAYABLE AND LONG-TERM DEBT--(CONTINUED)
12% Convertible Subordinated Notes Payable
In December 1996, the Company realized net proceeds of $734,594 from a
private placement of $750,000 principal amount of 12% Convertible Subordinated
Notes (the "Bridge Notes"). The notes provided for interest at the rate of 12%
per annum and became due and payable together with accrued interest, to the
extent not converted, upon completion of the Company's IPO. The notes were
convertible, at the holders' option, into an aggregate of 375,000 Bridge Units
at the rate of one Unit per $2.00 of note principal.
Each Bridge Unit consisted of one share of the Company's Common Stock and
one warrant to purchase one share of Common Stock at a price of $4.25 per share.
In May 1997, a total of $600,000 of Bridge Note principal was converted into
300,000 Bridge Note Units. The conversion feature on the remaining $150,000
Bridge Note was cancelled during the IPO registration process, and that note was
subsequently repaid with interest. Costs incurred in connection with the Bridge
Note private placement totaling $315,406 were charged to operations during
fiscal 1997. This amount included an imputed value of $300,000, or $1.00 per
Bridge Unit, assigned to the conversion feature of the Bridge Notes. The $75,000
imputed value relating to the cancelled conversion feature discussed above was
charged to paid-in capital.
NOTE 7--STOCK OPTIONS
Non-qualified options
In March 1997, the Company issued to its president 750,000 five-year
non-qualified options with an exercise price of $5.00 per share in conjunction
with the amendment of his employment agreement. The Company issued a total of
179,000 and 232,500 additional options during 1998 and 1997 respectively, to
various employees, directors, and advisors, with exercise prices ranging from
$.50 to $4.00 per share.
Stock Option Plan
In December 1996, the Board of Directors adopted the Company's Stock Option
Plan (the "Plan") and reserved up to 500,000 shares of Common Stock for issuance
thereunder. In June 1998, the Company's shareholders approved an amendment to
the Company's Stock Option Plan increasing the amount of shares available under
the plan to 1,500,000. The Plan provides for the granting of options to
officers, directors, employees and advisors of the Company. The exercise price
of incentive stock options ("ISOs") issued to employees who are less than 10%
stockholders shall not be less than the fair market value of the underlying
shares on the date of grant or not less than 110% of the fair market value of
the shares in the case of an employee who is a 10% stockholder. The exercise
price of restricted stock options shall not be less than the par value of the
shares to which the option relates. Options are not exercisable for a period of
one year from the date of grant. Thereafter, options may be exercised as
determined by the Board of Directors at the date of grant, with maximum terms of
ten and five years, respectively, for ISO's issued to employees who are less
than 10% stockholders and employees who are 10% stockholders. In addition, under
the plan, no individual will be given the opportunity to exercise ISO's valued
in excess of $100,000, in any calendar year, unless and to the extent the
options have first become exercisable in the preceding year. The maximum number
of shares with respect to which options may be granted to an individual during
any twelve-month period is 100,000. The Plan will terminate in 2006.
F-13
<PAGE>
ALL COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--STOCK OPTIONS--(CONTINUED)
A summary of Plan and other options outstanding as of December 31, 1998,
and changes during 1996, 1997 and 1998 are presented below:
<TABLE>
<CAPTION>
RANGE OF
FIXED EXERCISE
OPTIONS PRICES
---------- ----------
<S> <C> <C>
Options outstanding, January 1, 1996............................... 1,285,000 $ .03
Forfeited.......................................................... (35,000) .03
Exercised.......................................................... (1,250,000) .03
---------- ----------
Options outstanding, January 1, 1997............................... -- --
Granted............................................................ 1,250,000 $.875-5.00
---------- ----------
Options outstanding, December 31, 1997............................. 1,250,000 $.875-5.00
Granted............................................................ 396,500 .50-4.00
---------- ----------
Options outstanding, December 31, 1998............................. 1,646,500 .50-5.00
---------- ----------
---------- ----------
Shares of common stock available for future
grant under the plan............................................. 1,015,000
----------
----------
</TABLE>
Additional information as of December 31, 1998 with respect to all
outstanding options is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ------------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING LIFE (IN YEARS) PRICE EXERCISABLE PRICE
- ------------- ----------- --------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ $5.00 750,000 3.25 $ 5.00 750,000 $ 5.00
$ 3.85--$4.00 50,974 3.61 3.92 25,974 3.85
$ 2.50--$4.00 424,026 3.58 3.44 281,026 3.50
$1.063--$1.50 266,500 4.40 1.14 4,000 1.09
$ .50--$.875 155,000 4.08 .74 155,000 .74
--------- ----- ------ --------- ------
1,646,500 3.61 $ 3.54 1,216,000 $ 4.07
--------- ----- ------ --------- ------
--------- ----- ------ --------- ------
</TABLE>
The Company has elected to use the intrinsic value-based method of APB
Opinion No. 25 to account for all of its employee stock-based compensation
plans. Accordingly, no compensation cost has been recognized in the accompanying
financial statements for stock options issued to employees because the exercise
price of each option equals or exceeds the fair value of the underlying common
stock as of the grant date for each stock option. The weighted-average grant
date fair value of options granted during 1998 and 1997 under the Black-Scholes
option pricing model was $.37 and $2.51 per option, respectively.
The Company has adopted the pro forma disclosure provisions of SFAS No.
123. Had compensation cost for all of the Company's stock-based compensation
grants been determined in a manner consistent with
F-14
<PAGE>
ALL COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--STOCK OPTIONS--(CONTINUED)
the fair value approach described in SFAS No. 123, the Company's net loss and
net loss per share as reported would have been increased to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------
1996 1997 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net income (loss):
As reported......................... $51,603 $ (892,325) $(777,341)
Adjusted pro forma.................. 51,507 (3,819,968) (884,675)
Net income (loss) per share:
As reported......................... $ .03 (.21) (.16)
Adjusted pro forma.................. $ .03 (.89) (.18)
</TABLE>
Compensation expense recognized in the Company's Statement of Operations
totaled $11,332, $16,541 and -0- in 1998, 1997 and 1996, respectively. The fair
value of each option granted in 1998 and 1997 is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Risk free interest rates................................... 6.14% 5.56%
Expected option lives...................................... 4.76 years 3.46 years
Expected volatilities...................................... 46.5% 46.5%
Expected dividend yields................................... None None
</TABLE>
NOTE 8--STOCKHOLDERS' EQUITY
Initial Public Offering
In May 1997, the Company completed a public offering of 805,000 Units for
$7.00 per Unit. Each Unit consisted of two shares of Common Stock and two
Redeemable Class A Warrants. The Warrants are exercisable for four years
commencing one year from the effective date of the offering, at a price of $4.25
per share. The Company may redeem the Warrants at a price of $.10 per warrant,
commencing eighteen months from the effective date of the offering and
continuing for a four-year period, provided the price of the Company's Common
Stock is $10.63 for at least 20 consecutive trading days prior to issuing a
notice of redemption.
The Company also issued to the underwriter of the public offering, for
nominal consideration, an option to purchase up to 70,000 Units. The Option is
exercisable for a four-year period commencing one year from the effective date
of the offering, at a per Unit exercise price of $8.40 per Unit. The Units are
similar to those offered to the public. The Company received proceeds from the
offering of approximately $4,540,000, net of related costs of registration.
Preferred Stock
On December 6, 1996, the Company's stockholders approved an amendment to
the Company's Certificate of Incorporation to authorize the issuance of up to
1,000,000 shares of Preferred Stock. The rights and privileges of the Preferred
Stock have not yet been designated.
F-15
<PAGE>
ALL COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9--INCOME TAXES
The income tax provision (benefit) consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------------------------
1996 1997 1998
-------- -------- ---------
<S> <C> <C> <C>
Current:
Federal................................................ $ 39,320 $(46,905) $ --
State.................................................. 14,219 180 2,900
-------- -------- ---------
Total current............................................ 53,539 (46,725) 2,900
-------- -------- ---------
Total Deferred:
Federal................................................ (13,589) (97,724) (252,791)
State.................................................. (1,344) (49,152) (73,582)
Valuation allowance.................................... -- 141,197 326,373
-------- -------- ---------
Total deferred........................................... (14,933) (5,679) --
-------- -------- ---------
Provision for income taxes (benefit)..................... $ 38,606 $(52,404) $ 2,900
-------- -------- ---------
-------- -------- ---------
</TABLE>
The current portion of the 1997 federal income tax benefit reflects
refundable taxes from the carryback of net operating losses. The Company's
effective tax rate differs from the statutory federal tax rate as shown in the
following table:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------------------------
1996 1997 1998
------- --------- ---------
<S> <C> <C> <C>
Computed "expected" tax benefit.......................... $18,944 $(321,208) $(263,310)
State tax benefit, net of federal benefit................ 7,495 (32,298) (41,557)
Non-deductible items..................................... 8,032 102,000 --
Valuation allowance...................................... -- 141,197 326,373
Other.................................................... 4,135 57,905 (18,606)
------- --------- ---------
$38,606 $ (52,404) $ 2,900
------- --------- ---------
------- --------- ---------
</TABLE>
The tax effects of the temporary differences that give rise to significant
portions of the deferred tax assets and liabilities as of 1998 and 1997 are
presented below:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------------
1997 1998
--------- ---------
<S> <C> <C>
Deferred tax assets:
Reserves and allowances............................................................... $ 51,300 $ 126,640
Tax benefit of net operating loss carryforwards....................................... 107,618 349,211
Other................................................................................. 6,615 12,073
--------- ---------
Total deferred tax assets............................................................. 165,533 487,924
Deferred tax liabilities:
Depreciation.......................................................................... 24,336 20,354
--------- ---------
Total deferred tax liabilities.......................................................... 24,336 20,354
--------- ---------
Subtotal................................................................................ 141,197 467,570
Valuation allowance..................................................................... (141,197) (467,570)
--------- ---------
Net deferred tax liabilities............................................................ $ -- $ --
--------- ---------
--------- ---------
</TABLE>
F-16
<PAGE>
ALL COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9--INCOME TAXES--(CONTINUED)
Based on its review of available evidence, management has established a
valuation allowance to offset the benefits of the Company's net deferred tax
assets because their realization is uncertain.
The Company and APC file federal returns on a consolidated basis and
separate state tax returns. At December 31, 1998 the Company had net operating
loss carryforwards of $829,007 and $1,036,888, for federal and state income tax
purposes, respectively. These net operating loss carryforwards are available to
offset future taxable income, if any through 2013.
NOTE 10--COMMITMENTS AND CONTINGENCIES
Employment Agreements
The Company's board of directors has approved employment agreements for
three of its officers, effective January 1, 1997. The agreement with the
Company's president, as amended in March 1997, has a six-year term and provides
for an annual salary of $133,000 in the first year, increasing to $170,000 and
$205,000 in the second and third years, respectively. In years four, five, and
six the president's base salary will be $205,000, but can be increased at the
discretion of the board of director's compensation committee. Under the
agreement, the Company will secure and pay the premiums on a $1,000,000 life
insurance policy payable to the president's designated beneficiary or his
estate. The agreement further provides for medical benefits, the use of an
automobile, and grants of 750,000 non-qualified stock options, as well as 25,974
incentive stock options and 74,026 non-qualified stock options issuable under
the Company's Stock Option Plan.
The other two agreements each have a three-year term and provide for annual
salaries of $104,000 in the first year increasing by $10,000 each year
thereafter. The agreements further provide for an incentive bonus equal to 1/2
of 1% of net sales payable twice yearly to both officers. Each employee is also
entitled to a monthly automobile allowance. Effective January 11, 1999, both of
these employment agreements were amended. In consideration for extending the
term of the agreements for an additional year, through December 31, 2000, the
Company granted additional options outside of the Company's stock option plan to
purchase up to 300,000 shares each of Common Stock. The options vest over a
twenty-three month period. Each agreement may be terminated by the employee
without cause upon written notice to the Company.
Operating Leases
In March 1997, the Company entered into a five-year non-cancelable lease
for the use of office and warehouse space in Hillside, New Jersey. The lease
provides for annual base rent of $87,040 plus a proportionate share of operating
expenses, and includes a five-year renewal option. The facility is owned by an
entity in which a member of the Company's board of directors is a part owner.
The Company believes that the lease reflects a fair rental value for the
property. Also in 1997, the Company signed a five-year lease for a Connecticut
sales office. Base rent under this lease is $20,020 per year.
In April 1998, the Company entered into a five-year non-cancelable lease
for the use of office space in New York City. The lease provides for annual base
rent of $47,500 plus a proportionate share of operating expenses. Also in 1998,
the company signed a one-year lease for a Virginia sales office. Base rent under
this lease is $800 per month and continues monthly after expiration of the
initial term. Future minimum rental commitments under all non-cancelable leases
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------------------------------------------------------------------
<S> <C>
1999.................................................................. $ 162,560
2000.................................................................. 154,560
2001.................................................................. 154,560
2002.................................................................. 109,372
2003.................................................................. 15,833
----------
$ 596,885
----------
----------
</TABLE>
F-17
<PAGE>
ALL COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
Total rent expense for the years ended December 31, 1998, 1997 and 1996 was
$284,630, $148,768 and $73,957, respectively.
Capital Lease Obligations
The Company leases certain vehicles under non-cancelable lease agreements.
These leases are accounted for as capital leases. As of December 31, 1998,
vehicle costs under the capital lease arrangements aggregated $58,844.
Accumulated depreciation and depreciation expenses related to this equipment
totaled $7,846 as of and for the year ended December 31, 1998. Future minimum
lease payments under capital lease obligations at December 31, 1998 are as
follows:
<TABLE>
<S> <C>
1999..................................................................... $ 21,528
2000..................................................................... 21,528
2001..................................................................... 5,382
---------
Total minimum payments................................................... 48,438
Less amount representing interest........................................ (7,852)
---------
Total principal.......................................................... 40,586
Less portion due within one year......................................... (17,365)
---------
Long-term portion........................................................ $ 23,221
---------
---------
</TABLE>
Legal Matters
On July 16, 1998, MaxBase, a vendor, filed a Complaint against the Company
and APC alleging that the Company breached its agreement with MaxBase Inc., for
Maxshare 2 units by failing to meet the required minimum purchase obligations
thereunder. The Complaint further alleges misrepresentation and unfair trade
practices. The Complaint also seeks to enjoin the Company from enforcing any
rights the Company has under the agreement. Maxbase claims damages of $508,200
in lost profits for units not purchased and $945,300 in lost profits for units
sold to the Company below market price, as well as unspecified punitive and
treble damages. In 1999, the plaintiff added claims for defamation and tortious
interference. A trial is expected to occur in late 1999. The Company believes
the claims by MaxBase are without merit and intends to fully defend the suit and
assert its rights under the agreement. The Company has filed a counterclaim for
alleged defects in the Maxshare 2 units.
The Company is the subject of a civil action filed by the landlord of its
former headquarters. The landlord alleges that the Company defaulted on and
breached its lease by vacating the premises during the lease term, and seeks
compensatory damages of $233,720 and recovery of legal costs. The Company
believes it has meritorious defenses to the claims and has asserted
counterclaims against the plaintiff. A trial is expected to occur in May 1999.
In the opinion of management the ultimate outcome of the lawsuit is not expected
to have a material impact on the Company's financial condition or results of
operations.
NOTE 11--FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments reported in the Company's balance sheet consist of
cash, accounts receivable and accounts payable, all of which approximate fair
value at December 31, 1998. The fair value of the financial instruments
disclosed therein are not necessarily representative of the amount that could be
realized or settled, nor does the fair value amount consider the tax
consequences of realization or settlement.
F-18
<PAGE>
ALL COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12--NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
The accompanying financial statements of All Communications Corporation
("the Company") have been prepared in accordance with generally accepted
accounting principles for interim financial information and with
Item 310(b) of Regulation SB. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the nine months ended
September 30, 1999 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999. For further information, refer
to the financial statements and footnotes thereto included in the Company's
Annual Report for the fiscal year ended December 31, 1998 as filed with the
Securities and Exchange Commission.
The consolidated financial statements include the accounts of the Company
and AllComm Products Corp. ("APC"), a wholly owned subsidiary. All material
intercompany balances and transactions have been eliminated in consolidation.
Income (Loss) per Share
Basic net income (loss) per share is calculated by dividing net income
(loss) by the weighted average number of common shares outstanding during the
period.
Diluted net income per share is calculated by dividing net income by the
weighted average number of common shares outstanding plus the weighted-average
number of net shares that would be issued upon exercise of stock options and
warrants using the treasury stock method. Incremental shares included in the
diluted computation were 861,478 shares for the nine months ended September 30,
1999.
Legal Matters
On May 20, 1999 the Company settled the lawsuit with its former landlord.
Under the terms of the settlement, the Company will pay a total of $120,000. The
first payment was made on May 21, 1999 in the amount of $50,000, the second
payment of $35,000 was made on September 1, 1999, and the final payment of
$35,000 is due on January 1, 2000. The Company has established an adequate
reserve for the settlement, and accordingly there will be no further impact on
operations as the installments are paid.
F-19
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To View Tech, Inc.:
We have audited the accompanying consolidated balance sheets of View Tech,
Inc. and subsidiaries as of December 31, 1998 and 1997, and related consolidated
statements of operations, stockholders' equity and cash flows for the years then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
View Tech, Inc. as of December 31, 1998 and 1997, and the consolidated results
of its operations and its consolidated cash flows for the years then ended, in
conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
January 21, 1999
F-20
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
and Stockholders of
VIEW TECH, INC.:
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows for the year ended June 30, 1996 and the six
months ended December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
The consolidated statements of operations, stockholders' equity and cash
flows for the year ended June 30, 1996 have been restated to reflect the pooling
of interests as described in notes 1 and 3 of the consolidated financial
statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated statements of operations,
stockholders' equity and cash flows are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated statements of operations, stockholders' equity
and cash flows. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated statements of operations, stockholders' equity
and cash flows. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated statements of operations, stockholders'
equity and cash flows referred to in the first paragraph present fairly, in all
material respects, the results of operations and cash flows of View Tech, Inc.
for the six months ended December 31, 1996 and for the year ended June 30, 1996,
in conformity with generally accepted accounting principles.
/s/ CARPENTER KUHEN & SPRAYBERRY
Oxnard, California
March 13, 1997
F-21
<PAGE>
VIEW TECH, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- SEPTEMBER 30,
1997 1998 1999
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash............................................................ $ 1,028,424 $ 302,279 $ 25,060
Accounts receivable, net of reserves of $80,000, $219,000 and
$255,000, respectively....................................... 9,068,048 10,594,863 9,002,686
Inventory....................................................... 2,104,123 4,223,390 4,149,129
Other current assets............................................ 272,650 509,797 1,265,711
Net assets of discontinued operations........................... 5,361,527 4,455,351 4,052,493
------------ ------------ -------------
Total Current Assets......................................... 17,834,772 20,085,680 18,495,079
Property and Equipment, net..................................... 1,610,152 1,948,662 2,318,167
Goodwill, net................................................... 1,520,685 -- --
Other Assets.................................................... 619,627 588,227 879,563
------------ ------------ -------------
$ 21,585,236 $ 22,622,569 $ 21,692,809
------------ ------------ -------------
------------ ------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable................................................ $ 5,669,344 $ 6,644,930 $ 6,393,334
Current portion of long-term debt............................... 349,690 130,794 4,394,387
Accrued payroll and related costs............................... 1,015,346 956,982 1,542,093
Deferred revenue................................................ 1,087,161 1,940,579 2,973,287
Accrued restructuring costs..................................... -- 1,026,496 179,106
Other current liabilities....................................... 320,088 454,974 710,277
------------ ------------ -------------
Total Current Liabilities....................................... 8,441,629 11,154,755 16,192,484
------------ ------------ -------------
Long-Term Debt.................................................... 4,866,775 4,397,299 99,909
------------ ------------ -------------
COMMITMENTS AND CONTINGENCIES
Stockholders' Equity:
Preferred stock, par value $.0001, authorized 5,000,000 shares,
none issued or outstanding................................... -- -- --
Common stock, par value $0.0001, authorized 20,000,000 shares,
issued and outstanding, 6,589,571, 7,722,277 and 7,897,885
shares at December 31, 1997 and 1998 and September 30, 1999,
respectively................................................. 659 772 789
Additional paid-in capital...................................... 13,653,624 15,261,591 15,472,726
Accumulated deficit............................................. (5,377,451) (8,191,848) (10,073,099)
------------ ------------ -------------
Total Stockholder's Equity...................................... 8,276,832 7,070,515 5,400,416
------------ ------------ -------------
Total Liabilities and Stockholders' Equity................... $ 21,585,236 $ 22,622,569 $ 21,692,809
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-22
<PAGE>
VIEW TECH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Product sales and service revenues........ $19,287,000 $31,014,000 $37,242,078 $27,394,078 $26,632,573
----------- ----------- ----------- ----------- -----------
Costs and Expenses:
Cost of goods sold........................ 14,071,000 20,604,000 24,454,620 17,983,620 16,912,981
Sales and marketing expenses.............. 4,384,000 6,346,000 7,830,654 5,645,654 6,985,460
General and administrative expenses....... 2,248,000 5,635,000 5,728,263 4,363,263 4,028,162
Restructuring and other costs............. -- -- 3,303,998 3,303,998 --
Merger costs.............................. 2,563,573 -- -- -- --
----------- ----------- ----------- ----------- -----------
23,266,573 32,585,000 41,317,535 31,296,535 27,926,603
----------- ----------- ----------- ----------- -----------
Loss from Operations........................ (3,979,573) (1,571,000) (4,075,457) (3,902,457) (1,294,030)
Interest Expense............................ -- (338,000) (246,000) (187,000) (184,363)
----------- ----------- ----------- ----------- -----------
Income (Loss) Before Income Taxes........... (3,979,573) (1,909,000) (4,321,457) (4,089,457) (1,478,393)
Benefit (Provision) for Income Taxes........ 217,207 (4,512) (4,233) (3,900) --
----------- ----------- ----------- ----------- -----------
Loss from Continuing Operations............. (3,762,366) (1,913,512) (4,325,690) (4,093,357) (1,478,393)
Discontinued Operations..................... 775,015 2,052,139 1,511,293 566,347 (402,858)
----------- ----------- ----------- ----------- -----------
Net Income (Loss)........................... $(2,987,351) $ 138,627 $(2,814,397) $(3,527,010) $(1,881,251)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Loss from Continuing Operations per Share:
Basic..................................... $ (.72) $ (.30) $ (.63) $ (.61) $ (.19)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Diluted................................... $ (.72) $ (.30) $ (.63) $ (.61) $ (.19)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Income (Loss) from Discontinued Operations
per Share:
Basic..................................... $ .15 $ .32 $ .22 $ .09 $ (.05)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Diluted................................... $ .15 $ .30 $ .22 $ .09 $ (.05)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net Income (Loss) per Share
Basic..................................... $ (.57) $ .02 $ (.41) $ (.52) $ (.24)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Diluted................................... $ (.57) $ .02 $ (.41) $ (.52) $ (.24)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Shares Used In Computing Income (Loss) per
Share:
Basic..................................... 5,262,238 6,371,651 6,888,104 6,746,100 7,827,311
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Diluted................................... 5,262,238 6,793,521 6,888,104 7,003,024 7,827,311
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-23
<PAGE>
VIEW TECH, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
-------------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
--------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1995....................... 3,069,976 $ 30,699 $ 6,295,282 $ (2,922,916) $ 3,403,065
Shares issued under stock option plan...... 34,200 342 11,170 -- 11,512
Issuance of common stock................... 2,008,447 20,084 406,246 -- 426,330
Additional costs of initial public offering
of common stock......................... -- -- (43,430) -- (43,430)
Net income................................. -- -- -- 424,056 424,056
--------- -------- ----------- ------------ -----------
Balance, June 30, 1996....................... 5,112,623 51,125 6,669,268 (2,498,860) 4,221,533
Change in par value of common stock to
$0.0001................................. -- (50,613) 50,613 -- --
Issuance of common stock................... 533,138 53 3,100,519 -- 3,100,572
Shares issued under stock option plan...... 21,053 2 113,836 -- 113,838
Net loss................................... -- -- -- (3,017,218) (3,017,218)
--------- -------- ----------- ------------ -----------
Balance, December 31, 1996................... 5,666,814 567 9,934,236 (5,516,078) 4,418,725
Issuance of common stock................... 736,662 74 3,172,333 -- 3,172,407
Shares issued under stock option plan...... 113,648 11 59,914 -- 56,925
Shares issued in connection with exercise
of warrants............................. 72,447 7 364,853 -- 364,860
Issuance of warrants in connection with new
banking relationship.................... -- -- 125,288 -- 125,288
Net income................................. -- -- -- 138,627 138,627
--------- -------- ----------- ------------ -----------
Balance, December 31, 1997................... 6,589,571 659 13,653,624 (5,377,451) 8,276,832
Issuance of common stock................... 985,872 98 1,554,973 -- 1,555,071
Shares issued under stock option plan...... 146,584 15 51,744 -- 51,759
Shares issued in connection with exercise
of warrants............................. 250 -- 1,250 -- 1,250
Net loss................................... -- -- -- (2,814,397) (2,814,397)
--------- -------- ----------- ------------ -----------
Balance, December 31, 1998................... 7,722,277 $ 772 $15,261,591 $ (8,191,848) $ 7,070,515
Shares issued under stock option plan...... 175,608 17 211,135 -- 211,152
Net loss................................... -- -- -- (1,881,251) (1,881,251)
--------- -------- ----------- ------------ -----------
Balance, September 30, 1999.................. 7,897,885 $ 789 $15,472,726 $(10,073,099) $ 5,400,416
--------- -------- ----------- ------------ -----------
--------- -------- ----------- ------------ -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-24
<PAGE>
VIEW TECH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------------------- ---------------------------
1996 1997 1998 1998 1999
------------ ----------- ------------ ------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss)..................... $ (2,987,351) $ 138,627 $ (2,814,397) $ (3,527,010) $(1,881,251)
Adjustments to reconcile net income
(loss) to net cash used in operating
activities:
Depreciation and amortization....... 191,199 472,245 559,528 377,646 462,124
Non-cash merger expenses............ 340,689 -- 1,491,392 1,491,392 --
Reserve on note receivable.......... 265,000 -- -- -- --
Changes in assets and liabilities net
of effects of acquisitions:
Accounts receivable, net............ (2,364,145) (3,166,762) (1,526,815) (1,717,503) 1,592,177
Inventory........................... (838,447) (333,373) (2,119,267) (1,821,963) 74,261
Other assets........................ (134,513) (77,695) (205,747) (177,939) (1,047,250)
Accounts payable.................... 3,385,148 302,449 975,586 1,523,834 (251,596)
Accrued merger costs................ 819,806 (1,160,495) -- -- --
Accrued restructuring charges....... -- -- 1,026,496 1,474,120 (847,390)
Accrued payroll and related costs... -- 1,015,346 (58,364) (274,582) 585,111
Deferred revenue.................... -- 1,087,161 853,418 975,257 1,032,708
Other accrued liabilities........... 601,578 (530,367) 134,886 (70,200) 255,303
------------ ----------- ------------ ------------ -----------
Net cash used in operating
activities....................... (721,036) (2,252,865) (1,683,599) (1,746,948) (25,803)
------------ ----------- ------------ ------------ -----------
Net cash provided by discontinued
operations....................... (1,786,538) (4,630,229) 906,176 $ 97,472 $ 402,858
------------ ----------- ------------ ------------ -----------
Cash Flows from Investing Activities:
Purchase of property and equipment.... (629,967) (856,063) (868,430) (471,044) (831,629)
Issuance of notes receivable.......... (265,000) -- -- -- --
------------ ----------- ------------ ------------ -----------
Net cash used in investing
activities.......................... (894,967) (856,063) (868,430) (471,044) (831,629)
------------ ----------- ------------ ------------ -----------
Cash Flows from Financing Activities:
Net borrowings (payment) under lines
of credit........................... 202,376 63,200 (218,896) 1,082,106 48,056
Issuance of debt...................... 21,313 4,622,061 -- -- --
Repayments of capital lease and other
debt obligations.................... -- -- (469,476) (73,198) (81,853)
Issuance of common stock, net......... 1,591,930 3,719,480 1,608,080 407,580 211,152
------------ ----------- ------------ ------------ -----------
Net cash provided by financing
activities:...................... 1,815,619 8,404,741 919,708 1,416,488 177,355
------------ ----------- ------------ ------------ -----------
Net Increase (Decrease) in cash......... (1,586,922) 665,585 (726,145) (704,032) (277,219)
Cash, beginning of period............... 1,949,761 362,839 1,028,424 1,028,424 302,279
------------ ----------- ------------ ------------ -----------
Cash, end of period..................... $ 362,839 $ 1,028,424 $ 302,279 $ 324,392 $ 25,060
------------ ----------- ------------ ------------ -----------
------------ ----------- ------------ ------------ -----------
Supplemental Disclosures:
Operating activities reflect:
Interest Paid....................... $ 387,758 $ 352,808 $ 478,102 $ 457,001 $ 363,486
------------ ----------- ------------ ------------ -----------
------------ ----------- ------------ ------------ -----------
Income Taxes paid................... $ 219,452 $ 7,640 $ 105,471 $ 96,175 $ 53,286
------------ ----------- ------------ ------------ -----------
------------ ----------- ------------ ------------ -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-25
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--THE BUSINESS
View Tech, Inc. (the "Company"), markets and installs video communications
systems and provides continuing services related to installed systems to
customers in select states throughout the United States. As a result of the
merger of the Company with USTeleCenters, Inc. ("USTeleCenters") in November
1996, the Company designs, sells, and supports telecommunication systems
solutions for small and medium-sized businesses throughout the United States and
also sells telecommunication services on behalf of certain Regional Bell
Operating Companies ("RBOCs").
This business combination with USTeleCenters was accounted for as a pooling
of interests. Accordingly, the Company's consolidated financial statements have
been restated for all periods prior to the business combination to include the
results of operations, financial position, and cash flows of USTeleCenters.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation. The accompanying consolidated financial
statements include the accounts of the Company and its subsidiaries. All
significant intercompany transactions have been eliminated.
Change in Year End. During the six months ended December 31, 1996, the
Company changed its year end from June 30 to December 31. The unaudited
financial information for the year ended December 31, 1996 is presented for
comparative purposes and includes all adjustments (consisting of normal,
recurring adjustments) which are, in the opinion of management, necessary for a
fair presentation.
Revenue Recognition. The Company sells both products and services. Product
revenue consists of revenue from the sale of video communications and telephone
equipment and is recognized at the time of shipment. Service revenue is derived
from services rendered in connection with the sale of new systems and from
services rendered with respect to previously installed systems. Services
rendered in connection with the sale of new systems consist of engineering
services related to system integration, installation, technical training, user
training, and one-year parts-and-service warranty. The majority of these
services are rendered at or prior to installation, and all of the revenue is
recognized when services are rendered. Revenue related to extended warranty
contracts is deferred and recognized over the life of the extended warranty
period.
The Company has agency agreements with various local exchange carriers and
telecommunications companies whereby the Company receives commissions on work
referred to these entities. The agreements are subject to annual renewals. The
Company generally recognizes revenue when the installation or service is ordered
from the local exchange carrier or telecommunication company and a reserve is
recorded for cancellations. Certain of the entities have the right to credit or
charge back future commission payments on orders canceled within a 6 to
10 month period from the date of order. The Company is not aware of any possible
refunds or charge-backs that these entities might be seeking, which have not
been reserved at December 31, 1998.
In addition, under its agreement with Bell Atlantic, the Company receives
commissions on management contracts. The Company recognizes these revenues at
the time the service is rendered.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
Per Share Data. Basic earnings (loss) per share is computed by dividing
net income (loss) by the weighted average number of shares of common stock
outstanding. Earnings per share -- diluted is computed by dividing net income
(loss) by the weighted average number of shares of common stock outstanding and
the effect of potentially dilutive shares.
F-26
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Cash and Cash Equivalents. The Company considers all highly liquid
investments with a maturity not exceeding three months at the date of purchase
to be cash equivalents.
Inventories. Inventories are accounted for on the basis of the lower of
cost or market. Cost is determined on a FIFO (first-in, first-out) basis.
Included in inventory is demonstration equipment held for resale in the ordinary
course of business. The Company generally sells its video demonstration
equipment after the six month holding period required by its primary equipment
supplier.
Property and Equipment. Property and equipment are recorded at cost and
include improvements that significantly add to utility or extend useful lives.
Depreciation of property and equipment is provided using the straight-line and
accelerated methods over estimated useful lives ranging from one to ten years.
Expenditures for maintenance and repairs are charged to expense as incurred.
Intangibles. Cost in excess of the fair value of net assets of purchased
businesses (goodwill) is amortized using the straight line method over
15 years, its estimated useful life.
The Company assesses the realizability of long-lived assets in accordance
with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets To Be Disposed of. SFAS No. 121 requires, among other things,
that an entity review its long-lived assets including intangibles for impairment
whenever changes in circumstances indicate that the carrying amount of an asset
may not be fully recoverable. During 1998, the Company recorded charges of
approximately $1,465,000 relating to the impairment of goodwill which is
included in the operating non-recurring charge in the consolidated statements of
operations.
Income Taxes. The Company accounts for income taxes using SFAS No. 109,
Accounting for Income Taxes, which requires a liability approach to financial
accounting and reporting for income taxes.
Deferred taxes are recognized for timing differences between the basis of
assets and liabilities for financial statement and income tax purposes. The
deferred tax assets and liabilities represent the future tax consequences of
those differences, which will either be taxable or deductible when the assets
and liabilities are recovered or settled.
Concentration of Risk. Items that potentially subject the Company to
concentrations of credit risk consist primarily of accounts receivable, cash and
investments, and the dependence on a major equipment vendor.
Accounts receivable subject the Company to potential credit risk with
customers in the telecommunications industry. The Company performs on-going
credit evaluations of its customers' financial condition but does not require
collateral. The company maintains its accounts with highly rated financial
institutions.
Approximately 31% of the Company's revenues are attributable to the sale of
equipment manufactured by PictureTel and approximately 31% of revenues are
attributable to the sale of network products and services provided by Bell
Atlantic and GTE. Termination or change of the Company's business relationship
with PictureTel, Bell Atlantic and/or GTE, disruption in supply, failure of
these suppliers to remain competitive in quality, function or price, or a
determination by such suppliers to reduce reliance on independent distributors
such as the Company could have a materially adverse effect on the Company.
Discontinued Operations. On Monday, January 3, 2000, View Tech, Inc.
announced that it had entered into a definitive agreement to sell its network
services division (US Telecenters, Inc. and Vermont Network Services
Corporation) to VSI Network Solutions, Inc. The balance sheets, statements of
operations, and statements of cash flows have been restated to show the net
effect of the discontinuance of the network business. The footnotes that follow
have not been restated and present the details of the various financial
statement line items on a continuing operations basis.
F-27
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Reclassifications. Certain prior year balances have been reclassified in
order to conform to the current year presentation.
Unaudited Financial Information. The financial information as of September
30, 1999, and for the nine months ended September 30, 1999 and 1998 and for the
year ended December 31, 1996 is unaudited. In the opinion of management, such
information contains all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results of such periods.
The interim results are not necessarily indicative of results for the year.
NOTE 3--BUSINESS COMBINATION
On November 29, 1996, the Company acquired USTeleCenters, which is an
authorized sales agent for several of the RBOCs. The transaction was accounted
for as a pooling of interests in which USTeleCenters' shareholders exchanged all
of their outstanding shares and options for View Tech common stock and options,
respectively. USTeleCenters' shareholders and optionholders (upon exercise of
their options) received 2,240,976 shares of View Tech common stock and options
to purchase 184,003 shares of View Tech common stock. The value of the
transaction was approximately $16.5 million. In connection with the acquisition,
the Company issued 24,550 shares in January, 1997 to certain investment bankers.
NOTE 4--ACQUISITIONS
Vermont Telecommunications Network Services, Inc.
On November 13, 1997, the Company, through its wholly-owned subsidiary,
acquired the net assets of Vermont Telecommunications Network Services, Inc.
("VTNSI") a Vermont corporation. Pursuant to the terms of the Asset Purchase
Agreement, the Company acquired ownership of the assets and assumed certain
liabilities of VTNSI, effective November 1, 1997. The aggregate purchase price
for the net assets of VTNSI consisted of (i) $2,000,000 cash paid at the
closing, (ii) a promissory note in the original amount of $250,000, bearing
interest at the rate of 8% per annum subsequently paid in full on November 21,
1998, (iii) a contingent note in the original amount of $250,000, bearing
interest at the rate of 8% per annum and payable in full on November 21, 1999,
and (iv) $400,000 paid by the issuance of 62,112 shares of the Company's common
stock. The contingent note in the amount of $250,000 is due only if Network
Services, Inc. ("NSI"), the surviving company following the acquisition of
VTNSI, achieves EBIT, as defined, equal to or greater than $700,000 for the year
ended December 31, 1998. In addition, View Tech is required to pay an additional
amount equal to 40% of NSI's EBIT, as defined, in excess of $900,000 per
calendar year commencing January 1, 1998 and ending December 31, 2000. At
present, the calculation of NSI'S EBIT for the year ended December 31, 1998, has
not been conclusively determined under the Agreement. The cash portion of the
purchase price of $2,000,000 was paid utilizing the Company's bank line of
credit. The excess of the acquisition price over the net assets acquired of
approximately $2,708,000 was accounted for as goodwill and is being amortized
over 15 years. VTNSI, based in Burlington, Vermont, was an authorized agent
selling Bell Atlantic services in Vermont, New Hampshire, upstate New York and
western Massachusetts. The acquisition has been accounted for as a purchase
transaction and, accordingly, the accompanying financial statements include the
accounts and transactions of VTNSI since the acquisition date.
F-28
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--ACQUISITIONS--(CONTINUED)
The following unaudited supplemental financial information is provided on a
proforma basis as if the acquisition occurred on January 1, 1997:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
(UNAUDITED)
<S> <C>
Revenues....................................................................... $ 51,888,000
------------
------------
Income (loss) from operations.................................................. $ 645,000
------------
------------
Net income (loss).............................................................. $ 172,000
------------
------------
Earnings (loss) per share (Basic and Diluted).................................. $ 0.03
------------
------------
</TABLE>
During 1996, the company completed two acquisitions which were accounted
for as purchase transactions. The company recorded goodwill of $339,000 and
$1,330,000 related to these acquisitions. During 1998, the company determined
there were no future expected cash flows from these acquisitions and recorded an
impairment writedown of the remaining unamortized balance of the goodwill of
$1,465,000 as part of the restructuring and other costs
NOTE 5--RESTRUCTURING AND OTHER COSTS
During 1998, the Company recorded a restructuring and asset impairment
charge of $4.2 million. The significant components of the restructuring charge
are as follows:
<TABLE>
<S> <C>
Impairment write-down of goodwill related to previous acquisitions.............. $ 1,465,000
Employee termination costs...................................................... 1,793,000
Facility exit costs............................................................. 157,000
Write-down of Plant, Property and Equipment..................................... 27,000
Travel related expenses......................................................... 140,000
Consulting expenses............................................................. 322,000
Other costs..................................................................... 297,013
------------
$ 4,201,013
------------
------------
</TABLE>
The impairment write-down of goodwill relates to the Company's
determination that there was no future expected cash flows from two acquisitions
which represented $1,465,000 of goodwill. The employee termination costs relate
to approximately 33 employees and officers of the Company. The Company closed
one of its outside network sales offices. The Company also terminated its
internet service provider reseller agreement. In connection with these
decisions, the Company recorded employee termination and facility exit related
expenses, and a write-down of the leasehold improvements. In addition, the
Company's decision to eliminate duplicative corporate overhead functions
resulted in employee termination and travel related expenses. The Company
utilized the services of consultants in connection with the plan of
restructuring.
The total cash impact of the restructuring amounted to $2,709,621 of which
$1,026,496 is included in the accompanying balance sheet at December 31, 1998.
The Company anticipates the balance of the restructuring costs will be paid by
February 29, 2000.
F-29
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--RESTRUCTURING AND OTHER COSTS--(CONTINUED)
The following table summarizes the activity against the restructuring
charge:
<TABLE>
<S> <C>
Restructuring Charge........................................................... $ 4,201,013
Cash Paid...................................................................... (1,680,332)
Non-Cash Expenses.............................................................. (1,494,185)
-------------
Balance, December 31, 1998..................................................... $ 1,026,496
-------------
-------------
</TABLE>
NOTE 6--INVENTORY
Inventories are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
Demonstration equipment........................................... $1,664,031 $1,011,277
Finished goods.................................................... 2,537,458 1,079,738
Spare parts....................................................... 208,677 441,441
---------- ----------
$4,410,166 $2,532,456
---------- ----------
---------- ----------
</TABLE>
NOTE 7--PROPERTY AND EQUIPMENT, NET
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Computer equipment and software................................. $ 3,392,416 $ 2,824,760
Equipment....................................................... 2,041,331 1,864,384
Furniture and fixtures.......................................... 2,452,347 2,405,757
Leasehold improvements.......................................... 713,790 637,460
----------- -----------
8,599,884 7,732,361
Less accumulated depreciation................................... (5,050,891) (4,308,523)
----------- -----------
$ 3,548,993 $ 3,423,838
----------- -----------
----------- -----------
</TABLE>
Property and equipment under capital lease obligations, net of accumulated
amortization, at December 31, 1998 and 1997 were $541,669 and $738,378,
respectively.
NOTE 8--LINES OF CREDIT
View Tech, Inc. and its wholly-owned subsidiary, UST, entered into a $15
million Credit Agreement (the "Agreement") with a bank effective November 21,
1997. The Agreement provides for three separate loan commitments consisting of
(i) a Facility A Commitment of up to $7 million; (ii) a Facility B Commitment of
up to $5 million and (iii) a Facility C Commitment of up to $3 million. The
Facility B Commitment expired on December 1, 1998. Amounts under the Agreement
are collateralized by the assets of the Company. Funds available under the
Agreement will vary from time to time depending on many variables including,
without limitation, the amount of Eligible Trade Accounts Receivable and
Eligible Inventory of the Company, as such terms are defined in the Agreement.
At December 31, 1998, the funds available under the Agreement were approximately
$6,100,000. The interest charged on outstanding amounts vary between the Prime
Rate, plus the Prime Margin, or between the Eurodollar Rate, plus the Eurodollar
Rate Margin, depending on the Company's Leverage Ratio as defined in the
Agreement. At December 31, 1998, the interest rate on this Facility was 8.25%.
The weighted average interest rate on the line of credit for the year ended
December 31, 1998 was 9.0%. The Agreement requires the Company to comply with
various financial
F-30
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8--LINES OF CREDIT--(CONTINUED)
and operating loan covenants. As of December 31, 1998, the Company was in
compliance with these covenants. Under certain conditions, the Agreement allows
the Company to prepay principal amounts outstanding without penalty.
All outstanding amounts are under Facility A and are due and payable no
later than November 21, 2002. Amounts outstanding under the Facility C
Commitment are subject to mandatory repayments in twelve (12) equal quarterly
installments commencing on March 31, 2000. All amounts outstanding under each
such Facility are due and payable no later than November 21, 2002. At
December 31, 1998, amounts utilized under the Facilities were $4,782,171. This
amount is classified as long-term debt.
In connection with the Agreement, the Company issued Common Stock Purchase
Warrants for the purchase of 80,000 shares of the Company's Common Stock by the
lenders. The warrants are exercisable until November 21, 2004. In accordance
with an amendment to the Agreement, on October 14, 1998 the Company adjusted the
purchase price of the warrants to $4.50 per share. The Company determined the
valuation of these warrants using the Black-Scholes option pricing model was not
material.
NOTE 9--LONG TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
Line of credit (Note 8)........................................... $4,782,171 $4,905,857
Capital lease obligations......................................... 640,105 844,038
Other............................................................. 110,570 3,763
Note payable--former VTNSI owner.................................. -- 250,000
---------- ----------
5,532,846 6,003,658
Less current maturities........................................... 336,193 661,290
---------- ----------
$5,196,653 $5,342,368
---------- ----------
---------- ----------
</TABLE>
Capital Lease Obligations
The Company leases certain equipment and furniture under capital lease
arrangements. The following is a schedule of future minimum lease payments
required under capital leases, together with their present value as of
December 31, 1998:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
- ------------------------------------------------------------------------
<S> <C>
1999.................................................................. $ 473,185
2000.................................................................. 204,629
2001.................................................................. 88,436
2002.................................................................. 43,137
2003 and thereafter................................................... 15,979
----------
Net minimum lease payments.............................................. 825,366
Less amount representing interest....................................... 185,261
----------
Present value of net minimum lease payments............................. $ 640,105
----------
----------
</TABLE>
The current portion due under capital lease obligations at December 31,
1998 and 1997 was $336,193 and $407,527, respectively.
F-31
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9--LONG TERM DEBT--(CONTINUED)
Note Payable to former VTNSI owner
In connection with the Company's acquisition of VTNSI, part of the purchase
price consisted of a promissory note in the original amount of $250,000, bearing
interest at the rate of 8% per annum which was paid in full on November 21,
1998.
NOTE 10--COMMITMENTS AND CONTINGENCIES
The Company leases various facilities under operating leases expiring
through 2003. Certain leases require the Company to pay increases in real estate
taxes, operating costs and repairs over certain base year amounts. Lease
payments for the years ended December 31, 1998, 1997 and 1996 and the six months
ended December 31, 1996 and the year ended June 30, 1996, were approximately
$1,699,000 and $1,473,000, $1,106,000, $553,000 and $1,160,000 respectively.
Minimum future rental commitments under non cancelable operating leases are
as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
- ----------------------------------------------------------------------
<S> <C>
1999................................................................ $ 1,525,457
2000................................................................ 1,163,413
2001................................................................ 960,332
2002................................................................ 323,524
2003 and thereafter................................................. 9,362
------------
$ 3,982,088
------------
------------
</TABLE>
The Company has received rent concessions during the first year of certain
leases, which are being deferred and amortized over the term of the lease.
The Company has been named in employee related lawsuits. The Company is
vigorously defending itself against such matters and does not expect the outcome
to have a material adverse impact on its financial position.
NOTE 11--COMMON AND PREFERRED STOCK
Common Stock. In November 1996, the Company increased the number of shares
of common stock authorized for issuance from 10,000,000 to 20,000,000 and
changed the par value of its stock from $0.01 to $0.0001 per share.
Warrants and Options. Included in the public stock offering in June 1995,
was the sale of 575,000 warrants to the public. All warrants were exercisable at
$5.00 per share for a period of two years commencing one year after the
effective date of the registration statement. All unexercised warrants expired
on June 15, 1998.
Upon consummation of the public offering, the Company issued the
underwriter 120,000 warrants to purchase common stock of the Company at an
exercise price of $6.75 or 135% of the public offering price per share. Such
warrants may be exercised at any time during the period of five years commencing
June 15, 1995. In addition, the Company issued the underwriters 50,000 warrants
at an exercise price of $6.918 per warrant or 135 % of the public offering
price. Each warrant is exercisable into one share of common stock at a price of
$6.75 per share for a three- year period commencing on June 15, 1995, such
warrants expired on June 15, 1998.
At December 31, 1998, the Company had outstanding an aggregate of 55,000
options primarily to consultants and advisors to the Company. The options were
issued at a market price of $7.00 per share.
F-32
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--COMMON AND PREFERRED STOCK--(CONTINUED)
In connection with the Company's credit agreement, the Company issued
common stock warrants for the purchase of 80,000 shares of the Company's common
stock. During 1998, the exercise price of the warrants was reduced to $4.50 per
share. The warrants are exercisable until November 21, 2004.
Private Offerings. In the first quarter of 1997, the Company completed a
private placement with Telcom Holding, LLC, a Massachusetts limited liability
company ("Telcom") formed by The O'Brien Group, Inc., a Massachusetts
corporation. Telcom purchased (i) 650,000 shares of Common Stock and
(ii) Common Stock Purchase Warrants exercisable at $6.50 per share of the
Company to purchase up to 325,000 shares of Common Stock, at a price of $4.40
per unit. The Company issued additional Common Stock Purchase Warrants to
certain managing members of Telcom for the purchase of 162,500 shares of Common
Stock at a purchase price per share of $6.50.
On August 18, 1998, the Company received a notice (the "Initial Notice")
from Nasdaq that it did not meet the applicable listing requirements as of June
30, 1998 because it did not have $4,000,000 in net tangible assets and therefore
its Common Stock was subject to delisting. The Company sought immediate action
to rectify this situation through the private placement of 826,668 shares of the
Company's Common Stock to accredited investors. The offering was completed on
November 10, 1998 and raised $1.2 million.
Preferred Stock. As of December 31, 1998, the Company had 5,000,000 shares
of authorized Preferred Stock. In November 1996, the Company changed the par
value of the preferred stock from $0.01 to $0.0001 per share. The Preferred
Stock may be issued in one or more series with such rights and preferences as
may be determined by the Board of Directors. No shares of preferred stock have
been issued.
Employee Stock Purchase Plan. The Company has an Employee Stock Purchase
Plan (the "Purchase Plan") under which a maximum of 500,000 shares of Common
Stock, (pursuant to the Amendment of the Purchase Plan approved by the Board of
Directors of June 3, 1998), may be purchased by eligible employees.
Substantially all full-time employees of the Company are eligible to participate
in the Purchase Plan. Shares are purchased through accumulation of payroll
deductions (of not less than 1% nor more than 10% of the employees compensation,
as defined not to exceed 2,000 shares per purchase period) for the number of
whole shares, determined by dividing the balance in the employee's account by
the purchase price per share which is equal to 85% of the fair market value of
the Common Stock, as defined. During 1998, 159,204 shares were purchased under
the Purchase Plan.
Stock Option Plan. In July 1994, the Company began granting stock options
to key employees, consultants and certain non-employee directors. The options
are intended to provide incentive for such persons' service and future services
to the Company thereby promoting the interest of the Company and its
stockholders.
The Company currently maintains five stock option plans which generally
require the exercise price of options to be not less than the estimated fair
market value of the stock at the date of grant. Options vest over a maximum
period of four years and may be exercised in varying amounts over their
respective terms. In accordance with the provisions of such plans, all
outstanding options become immediately exercisable upon a change in control, as
defined, of the Company. The Company has authorized an aggregate of 1,922,000
shares of common stock to be available under the option plans. On October 20,
1998, the Company's Board of Directors authorized the repricing of certain
options previously issued to employees.
F-33
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--COMMON AND PREFERRED STOCK--(CONTINUED)
Activity in the plans on a consolidated basis is summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF WTD. AVG. EXERCISE
SHARES PRICE PER SHARE PRICE
--------- ------------------------------- --------
<S> <C> <C> <C> <C> <C>
Options Outstanding
June 30, 1995........................................................ 383,347 $ .250 -- $ 8.970 $ 1.88
Granted.............................................................. 682,503 .290 -- 7.750 4.94
Exercised............................................................ (34,300) .250 -- .375 0.34
Canceled............................................................. (25,445) .250 -- 8.970 5.70
--------- ------------------------------- --------
Options Outstanding
June 30, 1996........................................................ 1,006,105 .250 -- 7.750 3.96
Granted.............................................................. 46,000 6.250 -- 7.000 6.78
Exercised............................................................ (2,500) .250 -- 5.000 2.15
Canceled............................................................. (8,000) .250 -- 6.375 4.13
--------- ------------------------------- --------
Options Outstanding
December 31, 1996.................................................... 1,041,605 .250 -- 7.250 4.09
Granted.............................................................. 617,500 3.000 -- 5.812 3.21
Exercised............................................................ (113,535) .250 -- 6.250 0.50
Canceled............................................................. (154,500) 5.812 -- 7.625 6.80
--------- ------------------------------- --------
Options Outstanding
December 31, 1997.................................................... 1,391,070 .250 -- 7.625 3.69
Granted.............................................................. 669,960 2.250 -- 4.940 2.91
Exercised............................................................ (146,584) .250 -- 5.000 0.35
Canceled............................................................. (481,130) 3.000 -- 7.630 4.83
--------- ------------------------------- --------
Options Outstanding
December 31, 1998.................................................... 1,433,316 $ .250 -- $ 7.630 $ 3.21
--------- ------------------------------- --------
--------- ------------------------------- --------
</TABLE>
At December 31, 1998, 826,470 options were exercisable at a weighted
average exercise price of $3.62 per share. The options outstanding at December
31, 1998 have a weighted average remaining contractual life of 8.34 years.
F-34
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--COMMON AND PREFERRED STOCK--(CONTINUED)
The range of exercise prices for options outstanding and options
exercisable at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------------------------------
WEIGHTED
AVERAGE OPTIONS EXERCISABLE
REMAINING -----------------------------
OPTIONS CONTRACTUAL AVERAGE EXERCISE OPTIONS AVERAGE
RANGE OF EXERCISE PRICE OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE EXERCISE PRICE
- ----------------------------------------- ----------- ------------ ---------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.2500 -- $2.2500....................... 262,186 6.62 $ 1.2318 137,186 $ 0.30
$2.3750 -- $2.3750....................... 200,000 10.00 2.3750 50,000 2.38
$2.5000 -- $2.5000....................... 226,260 9.96 2.5000 186,210 2.50
$2.6880 -- $2.8750....................... 33,000 9.80 2.7333 -- 0.00
$3.0000 -- $3.0000....................... 354,470 8.57 3.0000 123,174 3.00
$3.0620 -- $6.2500....................... 111,400 7.80 4.2817 83,900 4.68
$6.3750 -- $6.3750....................... 140,000 7.46 6.3750 140,000 6.38
$6.6250 -- $6.6250....................... 100,000 6.54 6.6250 100,000 6.63
$7.5000 -- $7.5000....................... 4,000 6.87 7.5000 4,000 7.50
$7.6250 -- $7.6250....................... 2,000 6.86 7.6250 2,000 7.63
--------- ------ ---------- ------- ------
$0.2500 -- $7.6250....................... 1,433,316 8.34 $ 3.2055 826,470 $ 3.62
--------- ------ ---------- ------- ------
--------- ------ ---------- ------- ------
</TABLE>
The Company applies APB Opinion 25 in accounting for its stock option plan.
Accordingly, no compensation cost has been recognized. Had compensation cost for
the Company's stock option plan been determined based on the fair value at the
grant dates for awards under those plans consistent with the method of FASB
Statement 123, the Company's net income and earnings (loss) per share would have
been reduced to the pro forma amounts indicated below.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER SIX MONTHS ENDED YEAR ENDED
31, DECEMBER 31, JUNE 30,
----------------------- ---------------- ----------
1998 1997 1996 1996
----------- -------- ---------------- ----------
<S> <C> <C> <C> <C>
Net income (loss):
As reported......................................... $(2,814,397) $138,627 $ (3,017,218) $ 424,056
Pro forma........................................... (3,164,942) (8,531) (3,093,281) (608,563)
Earnings (loss) per share (basic and diluted):
As reported......................................... $ (0.41) $ 0.02 $ (0.56) $ 0.07
Pro forma........................................... (0.46) (0.00) (0.57) (0.11)
</TABLE>
The weighted average fair value at the date of grant for options granted
during the years ended December 31, 1998, 1997 and 1996, was $2.91, $4.83 and
$2.16, respectively. The fair value of options at the grant date was estimated
using the Black-Scholes option pricing model with following weighted average
assumptions: expected life--2.2 years; volatility--26.36%; dividend yield--0%;
interest rate--5.25%.
NOTE 12--EARNINGS (LOSS) PER SHARE
In March 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 128, Earnings Per Share. This statement established standards for computing
and presenting earnings per share and applies to entities with publicly traded
common stock or potential common stock. Prior years earnings per share have been
restated to reflect the adoption of SFAS No. 128.
Basic earnings (loss) per share is computed by dividing net income by the
weighted average number of common shares outstanding during the period. Diluted
earnings (loss) per share is computed by dividing net income by the diluted
weighted average number of common and potentially dilutive shares outstanding
during
F-35
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--EARNINGS (LOSS) PER SHARE--(CONTINUED)
the period. The weighted average number of potentially dilutive shares has been
determined in accordance with the treasury stock method.
The reconciliation of basic and diluted shares outstanding is as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
YEARS ENDED DECEMBER 31, DECEMBER 31, JUNE 30,
------------------------------------- ------------ ----------
1998 1997 1996 1996 1996
--------- --------- ----------- ------------ ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Weighted average shares outstanding............ 6,888,104 6,371,651 5,262,238 5,400,785 5,040,731
Dilutive effect of options and warrants........ -- 421,870 635,573
--------- --------- --------- ---------- ----------
Weighted average shares outstanding
including dilutive effect of securities...... 6,888,104 6,793,521 5,262,238 5,400,785 5,676,304
--------- --------- --------- ---------- ----------
--------- --------- --------- ---------- ----------
</TABLE>
Options and warrants to purchase 2,334,316, 2,222,056, 939,860, 1,094,818
and 690,105 shares of common stock were outstanding during the years ended
December 31, 1998, 1997 and 1996, six months ended December 31, 1996 and the
year ended June 30, 1996, respectively, but were not included in the computation
of diluted EPS because the options' exercise price was either greater than the
average market price of the common stock or the Company reported a net operating
loss and their effect would have been antidilutive.
NOTE 13--PENSION PLAN
The Company participates in 401(k) retirement plans for its employees.
Employer contributions to the 401(k) plans for the years ended December 31,
1998, 1997 and 1996, and the six months ended December 31, 1996, and for the
year ended June 30, 1996 were approximately $114,000, $114,000, $74,000,
$37,000, and $67,000, respectively.
NOTE 14--BENEFIT (PROVISION) FOR INCOME TAXES
Total income tax expense differs from the expected tax expense (computed by
multiplying the federal statutory income tax rate of approximately 35 percent
for the periods ended December 31, 1998, 1997 and the six months ended
December 31, 1996, and the year ended June 30, 1996 to income before income
taxes) as a result of the following:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
YEARS ENDED DECEMBER 31, DECEMBER 31, JUNE 30,
------------------------------------ ---------------- ----------
1998 1997 1996 1996 1996
--------- -------- ----------- ---------------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Computed "expected" tax (expense)
benefit................................. $ 983,557 $(50,099) $ 1,045,573 $ 1,069,957 $ (57,484)
State tax expense, net of federal
benefit................................. 164,395 (8,588) 174,760 184,797 (9,608)
S corporation tax differential............ -- -- 156,820 117,580 424,346
Valuation allowance....................... (995,778) 2,911 (1,370,163) (1,370,163) --
Utilization, net operating losses......... -- 51,264 -- -- --
Other, net................................ (156,407) -- 165,444 37,633 (97,438)
--------- -------- ----------- ------------ ----------
$ (4,233) $ (4,512) $ 172,434 $ 39,804 $ 259,816
--------- -------- ----------- ------------ ----------
--------- -------- ----------- ------------ ----------
</TABLE>
F-36
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 14--BENEFIT (PROVISION) FOR INCOME TAXES--(CONTINUED)
The company has recorded a valuation allowance against a portion of its
deferred tax asset. The valuation allowance relates primarily to certain
deferred tax assets for which realization is uncertain.
The primary components of temporary differences which give rise to deferred
taxes are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1998 1997
----------- ---------
<S> <C> <C>
Deferred tax asset:
Reserves and allowances........................................... $ 472,348 $ 79,309
Net operating loss carryforward................................. 677,551 589,476
Goodwill........................................................ 587,959 --
Deferred tax valuation allowance................................ (1,361,382) (365,604)
----------- ---------
$ 376,476 $ 303,181
----------- ---------
----------- ---------
</TABLE>
Goodwill represents the benefit attributed to the difference between the
company's book and tax basis of the goodwill impairment charge discussed in
Note 4.
At December 31, 1998 and 1997, the Company has operating loss (NOL)
carryforwards of approximately $1,650,000 and $1,250,000 for federal and state
income tax purposes, respectively. The federal NOL has a carryover period of
20 years and is available to offset future taxable income, if any, through 2011,
and may be subject to an annual statutory limitation.
NOTE 15--SEGMENT INFORMATION
In July 1997, the FASB issued SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information. SFAS No. 131, requires certain financial
and supplementary information to be disclosed on an annual and interim basis for
each reportable segment of an enterprise. SFAS No. 131 is effective for fiscal
years beginning after December 15, 1997.
The Company manages its business units utilizing net margin before
allocation of corporate overhead.
The Company's operations are classified into three principal reportable
industry segments: (a) video product sales and service which involves the
marketing and installation of video communications systems providing continuing
services related to installed systems, (b) telesales which involves
telemarketing telecommunications services on behalf of certain RBOCs and
exchange carriers for an agency commission, and (c) outside network sales which
involves face to face marketing of more expensive and technologically advanced
telecommunications services for an agency commission and marketing
telecommunications equipment and installation to a larger customer than that of
the telesales segment. Substantially all of the Company's revenues and all
identifiable assets are generated in the United States.
<TABLE>
<CAPTION>
VIDEO PRODUCT OUTSIDE
DECEMBER 31, 1998 SALES & SERVICE TELESALES NETWORK COMBINED
- ----------------------------------------------------- --------------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Total Revenue........................................ $37,232,150 $9,530,444 $11,209,544 $57,972,138
-----------
Operating profit..................................... 4,948,940 3,390,035 1,323,034 9,662,009
General corporate expenses........................... (11,944,580)
Interest expense..................................... (527,593)
-----------
Income (loss) from continuing operations
before income taxes................................ $(2,810,164)
-----------
-----------
Identifiable assets at December 31, 1998............. 15,414,841 2,114,790 2,107,401 19,637,032
Corporate assets..................................... 6,608,486
-----------
</TABLE>
F-37
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15--SEGMENT INFORMATION--(CONTINUED)
<TABLE>
<CAPTION>
VIDEO PRODUCT OUTSIDE
DECEMBER 31, 1998 SALES & SERVICE TELESALES NETWORK COMBINED
- ----------------------------------------------------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Total assets at December 31, 1998.................... $26,245,518
-----------
-----------
<CAPTION>
DECEMBER 31, 1997
- -----------------------------------------------------
<S> <C> <C> <C> <C>
Total Revenue........................................ $31,012,848 $8,571,789 $10,358,517 $49,943,154
-----------
-----------
Operating profit..................................... 3,707,275 2,918,385 1,463,377 8,089,037
<CAPTION>
JUNE 30, 1996 (YEAR ENDED)
- -----------------------------------------------------
<S> <C> <C> <C> <C>
General corporate expenses........................... (7,578,895)
Interest expense..................................... (367,003)
Income (loss) from continuing operations before
income taxes....................................... $ 143,139
-----------
-----------
Identifiable assets at December 31, 1997............. 11,631,218 2,326,108 2,926,630 16,883,956
Corporate assets..................................... 8,928,212
Total Assets at December 31, 1997.................... $25,812,168
-----------
-----------
December 31, 1996 (Six months ended)
Total Revenue...................................... $10,606,591 $3,922,591 5,349,300 $19,878,482
-----------
-----------
Operating profit..................................... 1,648,411 1,573,000 200,377 3,421,788
General corporate expenses........................... (6,325,928)
Interest expense..................................... (152,882)
-----------
Income (loss) from continuing operations before
income taxes....................................... $(3,057,022)
-----------
-----------
Identifiable assets at December 31, 1996............. 8,384,886 2,161,607 3,334,032 13,880,525
Corporate assets..................................... 4,640,083
-----------
Total assets at December 31, 1996.................... $18,520,608
-----------
-----------
Total Revenue........................................ $13,346,103 $5,451,733 $12,195,900 $30,993,736
-----------
-----------
Operating profit..................................... 2,596,555 1,633,952 1,823,200 6,053,707
General corporate expenses........................... (5,465,984)
Interest expense..................................... (423,483)
-----------
Income (loss) from continuing operations before
income taxes....................................... $ 164,240
-----------
-----------
Identifiable assets at June 30, 1996................. 6,016,333 1,462,067 2,521,315 9,999,715
Corporate assets..................................... 4,841,374
-----------
Total assets at June 30, 1996........................ $14,841,089
-----------
-----------
</TABLE>
F-38
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 16--SUPPLEMENTAL DISCLOSURES--CASH FLOW INFORMATION
<TABLE>
<CAPTION>
SIX
YEARS ENDED MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, JUNE 30,
--------------------------------------- ------------ ----------
1998 1997 1996 1996 1996
---------- ---------- ----------- ------------ ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Schedule of non-cash transactions:
Non-cash investing and financing
transactions --
Cost of fixed assets purchased............. $1,350,913 $1,493,564 $ 811,464 $ 508,421 $1,260,935
Less lease financing....................... (117,742) (343,463) (15,737) (15,737) (395,439)
Less transfers from inventory.............. (237,364) -- -- -- --
---------- ---------- ----------- ------------ ----------
Cash paid for fixed assets................. $ 995,807 $1,150,101 $ 795,727 $ 492,684 $ 865,496
---------- ---------- ----------- ------------ ----------
---------- ---------- ----------- ------------ ----------
Cost of acquisitions....................... $ -- $2,721,177 1,575,163 $ 1,575,163 $ --
Less common stock and notes
issued................................... -- (650,000) (1,420,000) (1,420,000) --
---------- ---------- ----------- ------------ ----------
Cash paid for acquisitions................. $ -- $2,071,177 $ 155,163 $ 155,163 $ --
---------- ---------- ----------- ------------ ----------
---------- ---------- ----------- ------------ ----------
</TABLE>
During the year ended June 30, 1996, the Company converted approximately
$700,000 of accounts payable to a vendor into a term note.
NOTE 17--RELATED PARTY TRANSACTIONS
In October, 1997, the Company purchased five (5) videoconferencing systems
from the former CEO and Director of the Company, for a purchase price of
$162,500. The price the Company paid for these units was less than the wholesale
price that the Company would otherwise pay for the same units. The units were
subsequently sold by the Company at a profit.
NOTE 18--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
ADDITIONS
CHARGED TO
BALANCE AT REVENUES DEDUCTIONS
BEGINNING OF AND ACCOUNTS BALANCE AT END
PERIOD EXPENSES CHARGED OFF OF PERIOD
------------ ---------- ----------- --------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended
June 30, 1996......................................... $728,000 $2,300,440 $2,808,258 $220,182
Six months ended
December 31, 1996..................................... 220,182 2,277,423 2,017,831 479,774
Years ended
December 31, 1997..................................... 479,774 3,542,801 3,363,919 658,656
December 31, 1998..................................... 658,656 4,854,435 4,643,787 869,304
</TABLE>
NOTE 19--EVENTS SUBSEQUENT TO THE DATE OF AUDITORS REPORT
In November 1999, as a result of the violation of certain of the financial
covenants related to its credit facility (Note 8), the Company entered into a
forbearance agreement with its lender. At that time, the Company received a $2
million infusion of subordinated debt. The Company believes that its available
funds are not sufficient to meet the funding and working capital requirements
for its continuing operations unless new funding alternatives are in place when
the credit facilities are actually terminated. There can be no assurance that
additional financing or capital will be available, or on acceptable terms. The
impact of this matter raises substantial doubt about the Company's ability to
continue as a going concern.
F-39
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 20--NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
View Tech, Inc., a Delaware corporation ("View Tech"), commenced operations
in July 1992 as a California corporation. Since its initial public offering of
Common Stock in June 1995, View Tech has grown through internal expansion and
acquisitions. In November 1996, View Tech merged with USTeleCenters, Inc., a
Massachusetts corporation ("UST" and together with View Tech, the "Company") and
the Company incorporated in Delaware. In November 1997, the Company, through its
wholly-owned subsidiary, acquired the net assets of Vermont Telecommunications
Network Services, Inc., a Vermont corporation headquartered in Burlington,
Vermont, ("NSI") which sells, manages and supports telecommunication network
solutions as an agent for Bell Atlantic. The Company currently has 33 offices
nationwide.
The Company is a leading, single source provider of voice, video and data
equipment, network services and bundled telecommunications solutions for
business customers nationwide. The Company has equipment distribution
partnerships with PictureTel Corporation, VTEL Corporation, PolyCom, Inc.,
Intel(r), Madge Networks, Fujitsu Business Communications Systems, Lucent
Technologies, Ezenia (VideoServer, Inc.), and Northern Telecom and markets
network services through agency agreements with Bell Atlantic, BellSouth, GTE,
Sprint and UUNET Technologies.
The Company is currently actively involved in discussions related to the
completion of a sale of the assets, or other disposal, of UST and NSI, and
accordingly, these operations are classified as discontinued in the accompanying
financial statements.
The information for the nine months ended September 30, 1999 and 1998 has
not been audited by independent accountants, but includes all adjustments
(consisting of normal recurring accruals) which are, in the opinion of
management, necessary for a fair presentation of the results for such periods.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to the rules of the Securities and Exchange
Commission. The financial statements presented herein should be read in
conjunction with the audited financial statements and notes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1998.
Discontinued Operations
On May 7, 1999, the Company executed a Letter of Intent to sell the assets
of UST and NSI. However, by the end of September, 1999, the negotiations with
the original purchaser relative to said sale were terminated without completing
the sale. The Company, in September, 1999, initiated discussions with
alternative parties which continue as of this date. The Company believes that
the transaction, if completed, may result in a loss; however, the terms of a
deal have not been finalized and, as such, the amount of the loss is not
estimable. The Company anticipates a transaction will occur by January 31, 2000.
If the transaction does not occur, the Company will seek other methods of
disposing of the assets of both UST and NSI.
The balance sheets, statements of operations, and statements of cash flows
have been restated to show the net effect of the discontinuance of the network
business. The assets of UST and NSI consist primarily of accounts receivable,
property, plant and equipment and goodwill. Operating results of UST and NSI are
shown separately in the accompanying statements of operations. Net sales of UST
and NSI were $2,956,278 and $4,561,160 for the quarters ended September 30, 1999
and 1998. These amounts are not included in net
F-40
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
sales in the accompanying statements of operations. Assets and liabilities to be
disposed of consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
Accounts receivable....................................................... $ 2,090,899 $3,497,000
Other current assets...................................................... 325,069 571,000
Property and equipment.................................................... 1,213,171 1,600,000
Goodwill.................................................................. 2,165,064 2,300,000
Other Assets.............................................................. 95,837 100,351
Current liabilities....................................................... (1,739,750) (3,380,000)
Long-term liabilities..................................................... (97,797) (233,000)
----------- ----------
Total................................................................... $ 4,052,493 $4,455,351
----------- ----------
----------- ----------
</TABLE>
Results of operations of UST and NSI are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1999 1998
---------- -----------
<S> <C> <C>
Sales...................................................................... $9,542,962 $15,931,996
Cost and expenses.......................................................... 9,774,238 15,134,972
---------- -----------
Operating income (loss).................................................... (231,276) 797,024
Interest expense........................................................... 171,582 230,677
---------- -----------
Net income (loss).......................................................... $ (402,858) $ 566,347
---------- -----------
---------- -----------
</TABLE>
Earnings (Loss) per Share
Basic earnings (loss) per share is computed by dividing net income (loss)
by the weighted average number of common shares outstanding during the period.
Diluted earnings (loss) per share is computed by dividing net income (loss) by
the diluted weighted average number of common and potentially dilutive shares
outstanding during the period. The weighted average number of potentially
dilutive shares has been determined in accordance with the treasury stock
method.
The reconciliation of basic and diluted shares outstanding is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1999 1998
---------- ----------
<S> <C> <C>
Weighted average shares outstanding......................................... 7,827,311 6,746,100
Effect of dilutive options and warrants..................................... -- 256,925
---------- ----------
Weighted average shares outstanding including
dilutive effect of securities............................................. 7,827,311 7,003,024
---------- ----------
---------- ----------
</TABLE>
Options and warrants to purchase 2,113,314 and 2,294,153 shares of Common
Stock were outstanding during the nine-month periods ended September 30, 1999
and 1998, respectively, but were not included in the computation of diluted EPS
because the options' exercise price was either greater than the average market
price of the Common Stock or the Company reported a net operating loss and their
effect would have been anti-dilutive.
Lines of Credit
View Tech, Inc. and its wholly-owned subsidiary, UST, entered into a $15
million Credit Agreement (the "Agreement") with Imperial Bank and BankBoston
(now Fleet Bank) effective November 21, 1997. The
F-41
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Agreement provides for three separate loan commitments consisting of (i) a
Facility A Commitment of up to $7 million for working capital purposes; (ii) a
Facility B Commitment of up to $5 million, which expired on December 1, 1998;
and (iii) a Facility C Commitment of up to $3 million for merger/acquisition
activities. Amounts under the Agreement are collateralized by the assets of the
Company. Funds available under the Agreement vary from time to time depending on
many variables including, without limitation, the amount of Eligible Trade
Accounts Receivable and Eligible Inventory of the Company, as such terms are
defined in the Agreement. At September 30, 1999, the funds available under the
Agreement were approximately $4,750,000. The interest charged on outstanding
amounts vary between the Prime Rate, plus the Prime Margin, or between the
Eurodollar Rate, plus the Eurodollar Rate Margin, depending on the Company's
Leverage Ratio as defined in the Agreement. At September 30, 1999, the interest
rate on this Facility was 8.75%. At September 30, 1999, amounts utilized under
the Facility were $4,263,593.
On August 5, 1999, the Company received a Notice of Event of Default and
Notice of Reservations of Rights from the lenders. The Facility C Commitment was
terminated. On November 12, 1999, the Company received a commitment letter from
the Banks outlining the terms of a six-month forbearance agreement to be
implemented in conjunction with an infusion of $2.0 million in subordinated
debt. During the term of the forbearance period, the maximum aggregate amount of
the Facility A facility will be equal to $4.75 million subject to certain
collateral base adjustments. Subject to certain default provisions, which
include the failure to pay certain obligations, the departure of the current,
interim chief executive officer and president, or a particular material event
concerning the Company, the forbearance would continue until May 31, 2000.
Interest on the sum owed on Facility A is set at the Prime Rate plus 2 1/2
percent. Interest on any over-advances is the Prime Rate plus 4 percent.
In return, the Bank received the following consideration: The Bank's
current warrants, which amount to 80,000, and are not exercisable until November
21, 2004, are repriced at $1.63 as of the date of the commitment letter,
November 12, 1999. The Bank, under the commitment letter, also stands to receive
a Supplemental Fee of $150,000.
The Company, as noted above, secured interim loans totaling $2.0 million,
of which $1.5 million came from individual investors, and up to $500,000 in
credit from one of the Company's suppliers. The individual investors are to be
re-paid in seven months with interest at the Prime Rate plus 2 1/2 percent for
the $1.5 million loan. In return, the Company pledged all of its assets, in a
junior position to the Banks, to the subordinated lenders. Further, the Company
will issue up to 925,000 in 5-year exercisable warrants to the subordinated
lenders, on a proportional basis of each investor's investment, priced at $1.625
a share.
Restructuring and Other Costs
During 1998, the Company recorded a restructuring and asset impairment
charge of $4.2 million. The significant components of the restructuring charge
are as follows:
<TABLE>
<S> <C>
Impairment write-down of goodwill related to previous acquisitions.............. $1,465,000
Employee termination costs...................................................... 1,793,000
Facility exit costs............................................................. 157,000
Write-down of Plant, Property and Equipment..................................... 27,000
Travel related expenses......................................................... 140,000
Consulting expenses............................................................. 322,000
Other costs..................................................................... 297,013
-----------
$4,201,013
-----------
-----------
</TABLE>
The impairment write-down of goodwill relates to the Company's
determination that there was no future expected cash flows from two acquisitions
that represented $1,465,000 of goodwill. The employee termination costs relate
to approximately 33 employees and officers of the Company. The Company closed
one of its outside network sales offices. The Company also terminated its
internet service provider reseller
F-42
<PAGE>
VIEW TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
agreement. In connection with these decisions, the Company recorded employee
termination and facility exit related expenses, and a write-down of the
leasehold improvements. In addition, the Company's decision to eliminate
duplicative corporate overhead functions resulted in employee termination and
travel related expenses. The Company utilized the services of consultants in
connection with the plan of restructuring.
The total expected cash impact of the restructuring amounts to $2,709,621
of which $179,106 is reflected in the accompanying financial statements at
September 30, 1999. The Company anticipates the balance of the restructuring
costs will be expended by February 29, 2000.
The following table summarizes the activity against the restructuring
charge:
<TABLE>
<S> <C>
Restructuring Charge............................................................ $4,201,013
Cash Paid..................................................................... (2,527,722)
Non-Cash Expenses............................................................. (1,494,185)
----------
Balance, September 30, 1999..................................................... $ 179,106
----------
----------
</TABLE>
Investments
During the quarter ended March 31, 1999, the Company made an investment in
Concept Five Technologies, Inc., an information technology services company. The
investment is carried at cost and is included in Other Assets on the
accompanying balance sheet.
Commitments
During the quarter ended September 30, 1999, the Company did not enter into
any material new operating lease agreements.
Subsequent Events
On or about October 9, 1999, the Company entered into a contract with
Nightingale & Associates ("N&A") to engage S. Douglas Hopkins, a principal of
N&A, as president and chief executive officer on an interim basis. In addition
to time and expense reimbursement, based upon N&A's standard fee schedules,
Mr. Hopkins and N&A will receive, pursuant to an addendum to the October 9, 1999
contract, a performance fee based upon value generated for the shareholders.
Upon termination of the assignment, Mr. Hopkins and N&A will receive a fee equal
in value to 156,000 shares of View Tech's common stock.
In conjunction with execution of their engagement letter, Mr. Hopkins has
been granted 195,000 non-qualified and non-statutory stock options, pursuant to
one of the Company's existing stock option plans. The stock options are priced
at $1.75.
In response to various personnel departures, the Board of Directors, on or
about October 8, 1999, authorized management to provide financial or monetary
incentives to certain Company employees to remain with the Company for a
specified period of time, or until the occurrence of a particular material
event. The incentives covering employees were composed of $500,000 in contingent
stay bonuses and 497,500 stock options priced at $1.75 per share. The incentives
are not redeemable by each particular employee until after such particular
employee has fulfilled the requirements under the terms of the agreement. Each
particular agreement may also be subject to certain other conditions precedent
or other contingencies.
F-43
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 14a:3-5 of the New Jersey Business Corporation Act and paragraph 6
of our Certificate of Incorporation (filed as Exhibit 3.1 to this registration
statement) provide for indemnification of our directors and officers under
certain circumstances.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Not applicable.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Set forth below is information concerning the issuance by the Registrant of
its securities within the past three years without registering the securities
under the securities Act of 1933.
On February 16, 1998, we issued options to purchase 50,000 shares of our
common stock to Dean Hiltzik under a consulting contract at an exercise price of
$0.50.
On April 6, 1998, we issued options to purchase 75,000 shares of our common
stock to Buttonwood Advisory Group, Inc. under a consulting contract at an
exercise price of $1.25 for the first 25,000 shares, $2.50 for the next 25,000
shares and $4.00 for the remaining 25,000 shares.
On February 22, 1999, we issued options to purchase 200,000 shares of our
common stock to Eisenberg Communications under a consulting contract at an
exercise price of $1.43 per share, and on September 15, 1999 we issued
additional options to purchase 50,000 shares of our common stock to Eisenberg
Communications under the same contract at an exercise price of $3.5625 per
share.
The issuances described above were exempt from the registration
requirements of the Act pursuant to Section 4(2) or Rule 701 thereunder.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
The exhibits are as set forth in the Exhibit Index.
(b) Financial Statement Schedules
None.
ITEM 28. UNDERTAKINGS
(1) The undersigned Registrant hereby undertakes: To file, during any
period in which offers or sales are being made, a post-effective amendment to
this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii)To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the maximum aggregate offering price may be reflected in the
form of prospectus filed with the SEC pursuant to Rule 424(b) under the
Securities Act, if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
II-1
<PAGE>
(2) For determining liability under the Securities Act, to treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions hereof, or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(4) For determining any liability under the Securities Act, to treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the issuer under Rule 424(b)(1), or (4) or 497(h) under the
Securities Act as part of this registration statement as of the time the
Commission declared it effective.
(5) For determining any liability under the Securities Act, to treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE IT MEETS ALL THE
REQUIREMENTS OF FILING ON FORM SB-2 AND AUTHORIZED THE POST-EFFECTIVE AMENDMENT
NO. 1 TO REGISTRATION STATEMENT ON FORM SB-2 TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HILLSIDE, STATE OF NEW
JERSEY, ON THIS 28TH DAY OF JANUARY, 2000.
ALL COMMUNICATIONS CORPORATION
By: _________/s/ RICHARD REISS________
Richard Reiss
Chairman, Chief Executive Officer
and President
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Richard Reiss as his true
and lawful attorneys-in-fact and agents, jointly and severally, with full power
of substitution and resubstitution, for and in his stead, in any and all
capacities, to sign on his behalf this Post-Effective Amendment No. 1 to
Registration Statement on Form SB-2 in connection with the offering of common
stock by the registrant and to execute any amendments thereto (including
post-effective amendments), including a registration statement filed pursuant to
Rule 462(b), or certificates that may be required in connection with this
Post-Effective Amendment No. 1 to Registration Statement, and to file the same,
with all exhibits thereto, and all other documents in connection therewith, with
the Securities and Exchange Commission and granting unto said attorneys-in-fact
and agents, and each of them, jointly and severally, the full power and
authority to do and perform each and every act and thing necessary or advisable
to all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or any of them,
jointly or severally, or their or his substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
POST-EFFECTIVE AMENDMENT NO. 1 TO REGISTRATION STATEMENT ON FORM SB-2 HAS BEEN
SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED ON JANUARY 28, 2000:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------------- --------------------------------------------------------------
<C> <S>
/s/ RICHARD REISS Chairman of the Board of Directors, Chief Executive Officer
- -------------------------------- and President (Principal Executive Officer)
Richard Reiss
/s/ SCOTT TANSEY Chief Financial Officer, Vice President--Finance (Principal
- -------------------------------- Financial and Accounting Officer)
Scott Tansey
/s/ LEO FLOTRON Vice President, Sales and Marketing of Videoconferencing
- -------------------------------- Products
Leo Flotron
/s/ JOSEPH SCOTTI Vice President, Sales and Marketing of Voice Products
- --------------------------------
Joseph Scotti
/s/ ROBERT B. KRONER Vice President and Director
- --------------------------------
Robert B. Kroner
/s/ ANDREA GRASSO Secretary and Director
- --------------------------------
Andrea Grasso
/s/ LOUIS CAPOLINO Director
- --------------------------------
Louis Capolino
/s/ ERIC FRIEDMAN Director
- --------------------------------
Eric Friedman
/s/ DEAN HILTZIK Director
- --------------------------------
Dean Hiltzik
/s/ PETER MALUSO Director
- --------------------------------
Peter Maluso
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
- ------ --------------------------------------------------------------------------------------------------------
<C> <S>
3.1 Certificate of Incorporation of All Communications Corporation.(1)
3.2 Bylaws of All Communications Corporation.(1)
4.1 Form of Amended Warrant Agreement among the Registrant and American Stock Transfer & Trust Company.(1)
4.2 Specimen Common Stock Certificate of All Communications Corporation.(1)
4.3 Specimen Class A Warrant Certificate of All Communications Corporation.(1)
10.1 Dealer Agreement dated May 20, 1992, between All Communications Corporation and Panasonic Communications
& Systems Company.(1)
10.2 Employment Agreement, effective January 1, 1997, between All Communications Corporation and Richard
Reiss.(1)
10.3 Amendment to the Employment Agreement between All Communications Corporation and Richard Reiss,
effective March 21, 1997.(1)
10.4 Employment Agreement, effective January 1, 1997, between All Communications Corporation and Joseph
Scotti.(1)
10.5 Amendment No. 1 to the Employment Agreement between All Communications Corporation and Joseph Scotti,
effective January 11, 1999.(2)
10.6 Employment Agreement, effective January 1, 1997, between All Communications Corporation and Leo
Flotron.(1)
10.7 Amendment No. 1 to the Employment Agreement between All Communications Corporation and Leo Flotron,
effective January 11, 1999.(2)
10.8 Sublease Agreement for premises located at 1130 Connecticut Avenue, NW, Washington D.C., dated July 1,
1996, between All Communications Corporation and Charles L. Fishman, P.C.(1)
10.9 All Communications Corporation's Stock Option Plan.(1)
10.10 Amendment No. 1 to All Communications Corporation's Stock Option Plan.(2)
10.11 Lease Agreement for premises located at 225 Long Avenue, Hillside, New Jersey, dated March 20, 1997,
between All Communications Corporation and Vitamin Realty Associates, L.L.C.(1)
10.12 Agreement, dated September 10, 1997, between the Company and Maxbase, Inc.(3)
10.13 Reseller Agreement dated November 21, 1997, between Polycom, Inc. and All Communications Corporation.(4)
10.14 Dealer Agreement, dated November 26, 1997, between Lucent Technologies, Inc. and All Communications
Corporation.(4)
10.15 First Amendment of Lease dated as of December, 1997 by and between Vitamin Realty Associates, L.L.C. and
All Communications Corporation.(5)
10.16 Second Amendment of Lease dated as of December 20, 1999 by and between Vitamin Realty Associates, L.L.C.
and All Communications Corporation.(5)
10.17 Agreement and Plan of Merger, dated as of December 27, 1999, by and between View Tech, Inc. and All
Communications Corporation.(5)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
- ------ --------------------------------------------------------------------------------------------------------
23.1 Consent of BDO Seidman LLP.
<C> <S>
23.2 Consent of Schneider, Ehrlich & Associates LLP.
23.3 Consent of Arthur Andersen LLP.
23.4 Consent of Carpenter, Kuhen & Sprayberry
24.1 Power of Attorney (included on the signature page to this registration statement).
</TABLE>
- ------------------
(1) Previously filed.
(2) Filed as an exhibit to All Communications Corporation's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1998, and incorporated
herein by reference.
(3) Filed as an exhibit to All Communications Corporation's Report on Form 8-K
dated September 18, 1997, and incorporated herein by reference.
(4) Filed as an exhibit to All Communications Corporation's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1997, and incorporated
herein by reference.
(5) Filed as an exhibit to View Tech, Inc.'s Registration Statement on Form S-4
(Registration No. 333-95145) and incorporated herein by reference.
<PAGE>
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
All Communications Corporation
Hillside, New Jersey
We hereby consent to the inclusion in the prospectus constituting a part of this
registration statement of our report dated February 16, 1999 (except for Note 6
which is as of March 17, 1999), relating to the consolidated financial
statements of All Communications Corporation which are contained in this
prospectus
We also consent to the reference to us under the caption "Experts" in the
prospectus.
/s/ BDO Seidman LLP
BDO SEIDMAN, LLP
Woodbridge, New Jersey
January 31, 2000
<PAGE>
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
All Communications Corporation
Hillside, New Jersey
We hereby consent to the inclusion in the prospectus constituting a part of this
registration statement of our report dated January 21, 1997, relating to the
consolidated financial statements of All Communications Corporation for the year
ended December 31, 1996. We also consent to the reference to us under the
caption "Experts" in the prospectus.
/s/ Schneider Ehrlich & Associates LLP
SCHNEIDER EHRLICH & ASSOCIATES LLP
Jericho, New York
January 28, 2000
<PAGE>
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
Boston, Massachusetts
January 28, 2000
<PAGE>
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the inclusion in the prospectus constituting a part of this
registration statement of our report dated March 13, 1997, relating to the
consolidated financial statements of View Tech, Inc. for the year ended June 30,
1996 and the six months ended December 31, 1996. We also consent to the
reference to us under the caption "Experts" in the prospectus.
/s/ Carpenter, Kuhen & Sprayberry
CARPENTER, KUHEN & SPRAYBERRY
Oxnard, California
January 31, 2000
